Accepting card payments can be a great way to serve a broader customer base and add convenience for those who prefer cashless transactions. To start accepting card payments, you’ll need to be approved for what the credit card industry calls merchant processing. You’ll be a “merchant,” and each payment you receive via card will have fees reduced based on a number of factors.
These fees, collectively called the “Discount Rate,” vary by transaction and range from .05% (super low risk, debit card) to 4.0% (very high risk, credit card).
Each transaction run on a card passes through a digital system provided to you as the merchant by a processor. This company is who you’ll obtain any hardware needed such as a point of sale device or online capabilities such as a virtual terminal or connectivity to your online store.
The processor fees are somewhat negotiable and range from .1% to 1% per transaction and the fee structure is determined when you sign with a processor. This is the only part of the transaction that can be negotiated with some providers.
Assessment Fee: Visa, Mastercard, Discover
This fee is often quoted as part of “Interchange Fees” below because it is out of the control of the processor.
Visa, Mastercard & Discover charge an assessment of .15%. This is commonly abbreviated as V/MC/DISC.
American Express does not charge a similar fee because it is the issuing bank and makes its revenue on the interchange fees (see below).
Transaction Risk: Interchange Fees
Interchange fees are collected by the issuing bank(s) and vary depending on how risky each transaction is. Debit card interchange fees can be as low as .05% + $.21with riskier credit card interchange fees as high as 3.5% per transaction.
Interestingly, American Express is both the card brand and the issuing bank.
A. Type of Card: Debit or Credit
Debit card transactions are generally cheaper for you as the merchant because they are coming from available cash in your client’s bank account. The use of a numerical PIN is also an added security feature. For this reason, you’ll see only debit cards accepted at certain retail establishments such as gas stations and Costco, and other discount clubs.
Credit card transactions mean your client is taking “credit” or a short-term loan to pay you, so the risk is generally higher.
B. Payment Method
As a merchant, your ability to use common sense and security features to avoid fraud and chargebacks plays a large part in how much you’ll give up on Interchange Fees.
Fraud is often perpetrated with stolen card numbers. Thus, if you accept credit cards in person and can utilize built-in security features such as the chips that are now present in all cards, your card activity will be considered less risky and you’ll give up less in interchange fees.
Alternatively, if you only accept cards online and have no ability to verify whether or not the person making the payment is actually the owner of the card being used, you’ll typically pay higher interchange fees.
C. Services or Products Offered
Some products or services are more likely to be charged back and thus result in higher interchange fees.
An even riskier category known as “High Risk” is reserved for industries that present significant challenges. If your business falls into this category, you may have to seek a “High-Risk Processor,” a specialist in working with industries that more common processors will not accept.
Sum the 3 fees above together and that’s what you will give up for each transaction you process by charge card. Some processors will take their fees out of each transaction, depositing the net to your bank account. Others will sum all of their fees at the end of the period.
Now that you understand the relationship between fees and risk, you can start to shop for the right processor. Beyond pricing, you’ll want to be sure you find the right technology capabilities that will make your life easier as a payments administrator and create the best payment experience for your clients.
FINSYNC offers card payment capabilities integrated with other back-office functions. Clients can pay emailed invoices by charge card and you can process a card over the phone via FINSYNC’s virtual terminal.