Credit Card Payment Fees – Where Does Your Money Go
Credit card payments come with certain fees, charged by payment processors, banks, and payment gateways. Find out everything you should know about credit card fees in this guide brought to you by CheckoutGate.
Every payment made to a merchant account via a credit card brings a special little gift to the merchant in question – a set of payment fees paid to the card issuing bank, merchant’s bank, payment processor, credit card company, etc.
This guide breaks down credit card payment fees into easily digestible chunks. Once you read it, you’ll know more about these charges, as well as how to make your business more financially efficient.
Credit Card Payment Fees Explained
When a consumer makes a payment using a credit card, the merchant is charged certain fees before the money arrives at their merchant account.
Several factors affect the amount of these fees – credit card type used for the transaction, the transaction itself (e.g., card-not-present or card present), and the payment processing provider that handles the payment.
How to Calculate Credit Card Fees?
Calculating credit card fees depends on numerous factors. Let’s go through them now and understand what exactly you’re charged for when a payment has been made:
Interchange Fees
Interchange fees are charged by card issuers for every single debit and credit card payment – the merchant’s bank (acquiring bank) pays it to the consumer’s bank (issuing bank).
Such fees are the same neither for every transaction or the credit card type. Each credit card company has its own interchange fees and changes them on a regular basis.
Additionally, credit card fees can be higher in the case of card-not-present transactions (online payments) as the card isn’t present and the risks are higher (think chargebacks, for starters).
This is a short overview of credit card transaction fees imposed by the major credit card companies:
| Credit Card Company | Interchange Fees | Assessment Fees |
| MasterCard | 1.5%-2.6% | 0.1375% |
| Visa | 1.4%-2.5% | 0.14% |
| Discover | 1.55%-2.5% | 0.14% |
| American Express | 2.3%-3.5% | 0.165% |
Dues and Assessments
Credit card companies charge additional fees called dues and assessments. These are like pay tolls that companies collect for processing payments through their infrastructure.
Dues and assessments are charged on a per-payment basis, depending on the total amount of payments accepted by a merchant within one month. The payment volume, the card payment (credit vs. debit), and the type of transaction (international vs. domestic transactions) affect dues and assessments.
Finally, these chargebacks are collected by payment processors and forwarded to credit card companies.
Payment Gateway’s and Processor’s Fees
A payment gateway is software used for online transactions, ensuring all the payment information is encrypted and safely processed. Payment gateway providers also collect certain fees for their services, which merchants need to take into account.
Payment processors deal with everything payment-related on behalf of the merchant, as explained above. Merchants pay certain fees for processors’ services, plus, the latter also collect dues and assessments and forward them to credit card companies.
CheckoutGate Intel: All banks and payment facilitators use payment gateways. The main difference here is the type of collaboration. Namely, some payment providers offer integrated payment gateways, while others don’t provide such a one-stop-shop service. But why, one might ask because it sounds logical to offer as many options as possible. It depends on the context. For instance, if a payment facilitator has specialized only for specific merchant accounts that are hard to place, they might not want to meddle with gateways. Learn more about payment gateways in our article The ABCs of Payment Gateway Security.
Payment Type
A rule of thumb is that POS transactions (point of sale) incur lower fees than CNP (card-not-present payments).
The reason for such a discrepancy is the risk level. In POS payments, credit cards are swiped or tapped at a POS terminal. As every bank card has a chip, a digital token is created during the payment initiation as an additional security feature.
When a card isn’t present, the number of potential ways of scamming the merchant, banks, and credit card companies is higher.
Truth be told, both payment types are similarly prone to friendly fraud.
PCI Compliance Fees
As you may know, every merchant operating in this (business) world must be PCI-compliant. As explained in one of our previous articles, PCI DSS compliance refers to a number of security and technical prerequisites to protect consumers’ personal and payment data.
Merchants ensure they’re compliant in collaboration with payment processors or compliance counselors. In each of these cases, they need to pay certain compliance fees.
Payment Volume-Related Fees
Some payment middlemen define the minimum monthly number of payments a merchant must accept, or they charge additional fees if that number is not reached.
Others require paying some extra charges for batch payments – when they collect and forward the payments from their merchant account to the business account.
How Can Merchants Reduce Credit Card Fees
Just like in every business, in every walk of life, merchants need to work on reducing the number and amount of credit card payment fees they pay. Here are some common ways to save some assets along the way:
- Work with the right payment facilitator. Not every payment processor or mediator is the same. Some are here to make your life easier and help you dodge some potentially avoidable fees; others might not go the extra mile.
- Cut on refunds and chargebacks. Every chargeback request a merchant receives is recorded by the bank and payment service provider. As each such procedure consumes more time and assets, merchants with excessive chargeback requests are in a way blacklisted. You can make clear payment, refund, and chargeback policies, as well as terms and conditions.
- Plan your revenue and adjust the payment plan. Follow your monthly and annual revenue to monitor the cash flow. Adjust the pricing tiers if necessary and contact your payment facilitator on time to change the set of services you’re using to reduce the extra charges whenever possible.
Conclusion
Merchants should have a general understanding of the fees they pay for transactions made to their accounts. It helps them adjust their business policies and financial plans to run a healthy, prosperous business.
The guide above explains where your money goes and proposes some ways of reducing those charges.
For more information about credit card payment fees and our services, contact us and have your merchant account opened in the shortest time possible: https://acceptpaymentsnow.typeform.com/to/NbSkFD7R.
Monthly Recurring Revenue vs. Annual Recurring Revenue
Monthly recurring revenue and annual recurring revenue are both vital for every company’s progress and cash flow. Find out more about each revenue type and learn how to generate MRR and ARR.
Monetizing Digital Content – How Paywalls Work
A paywall is an imaginary digital wall that separates paid content from its free counterpart. Only people who pay the arranged fee or subscription can access such content. CheckoutGate breaks down how to monetize and introduce a paywall in this guide.
Subscription-Based Business – Benefits and Risks
Subscription-based businesses provide services or products to their subscribed users, who pay a certain monthly or annual fee. This guide explains everything you need to know about subscriptions, how they enhance cash flow, and what to do to reduce chargebacks and refunds.
QR Code Payments – What’s in It for Merchants?
Quick response codes (QR codes) are digital barcodes that store certain data – payment information, address details, website links, etc. – in the form of pixels. This guide explains how QR codes have changed the payment world.
A Complete Guide to Recurring Payments
Recurring payments are payments that happen on a regular basis, through subscriptions, memberships, and other forms. Businesses are fond of such transactions because they ensure steady cash flow. Still, chargebacks and refunds are the negative aspect of recurring payments.
What Is FATF and How Does It Curb Money Laundering?
Financial Action Task Force (FATF) is an international organization that fights money laundering and terrorist financing on a global level. Find out how FATF works and why no country wants to get blacklisted by this institution.
Online Payments and Multi-Factor Authentication – The New Frontier
Multi-factor authentication (MFA) is a high-level security procedure of confirming one’s identity to complete an online operation, from digital transactions to accessing their online accounts in general. Read a full-scale guide to MFA.
An Overview of Payment Methods Across the Globe
Learn more about the popularity and usage of different payment methods across the globe. From bank cards and digital wallets to mobile wallets, prepaid cards, and super apps with integrated payments, we’ve explored the most relevant options.
PSD2 – The EU’s Response to Online Payment Requests
The Payment Services Directive 2 is a set of rules defined by the European Commission that specifies access rights to customers’ bank accounts. Learn how customers can now allow third parties to use their bank account data.