Can Merchant Processors Charge Fees on Failed Transactions

We'll prove you lot how fees work, which ones are mandatory, and which ones you can negotiate away or skip past finding a great processor!

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Perhaps y'all're a new business organization owner who's thinking about taking credit card payments for the first fourth dimension. Or possibly yous're an experienced merchant seeking to lower your current rates. Whatever your state of affairs, having a deeper understanding of the payments processing industry can help protect you from unscrupulous salespeople and, ultimately, save you money on your credit card processing costs.

The payments processing industry is notoriously complex and confusing, but you don't need to develop skilful-level noesis to understand how information technology works and what your costs should be. We say "should" because many players in the industry are trying to make as much profit as they can from their products and services. These providers will gladly charge you above-marketplace prices if you let them.

In this article, nosotros'll requite you some boilerplate credit card merchant rates that you should keep in listen as yous wait for a suitable credit card processor. We'll also explain why these boilerplate rates are only rough ballpark figures and why you'll need to determine which type of pricing program volition work best for your particular business.

Between this article and the many other, more in-depth articles we've linked to, you should come up away with a functional understanding of how processing works and what all those fees on your monthly processing statement are for. If you're in a hurry, you tin can also check out our visual guide to credit bill of fare processing fees and rates.

What Are Merchant Credit Card Fees?

Merchant fees, or merchant credit card fees, are simply the fees you have to pay to get the proceeds from a credit card transaction. While your merchant business relationship provider determines the total fee, multiple entities will receive a portion of the credit bill of fare processing fees y'all pay for each transaction.

You lot'll have to pay a merchant fee (also confusingly referred to as the "discount rate") on every credit or debit card transaction that y'all accept. Typically, this fee is a combination of three factors: interchange fees, assessment (or service) fees, and the payment processor'south markup. While your payment processor is the party that sets the merchant fees, the card issuer and the carte network each play a starring role in determining the fees that are ultimately taken from the transactions you process.

Merchant fees have always been rather expensive (from the merchant's point of view), only they've risen significantly in recent years and are poised to get even higher in 2022. While at that place are many reasons for this increase, the main cistron is the dramatic increase in eCommerce sales during the COVID-nineteen pandemic, which drove an equally steep rise in online credit card fraud. In theory, higher processing fees assistance protect issuing banks from losses due to fraudulent transactions.

What Are The Boilerplate Credit Bill of fare Processing Fees For A Pocket-sized Concern?

We all know that having an average number in heed is very useful when comparing merchant fees. Yet, there is no unmarried definitive set of universally accepted statistics showing the average credit bill of fare processing fees of the 4 major credit carte networks.

The table below shows estimates of the big-four bill of fare networks' (i.e., Visa, Mastercard, Discover, American Express) average costs, taken from three different sources:

	Visa	Mastercard	American Express	Detect
Fool.com	1.15% + $0.05 to 2.40% + $0.10	1.15% + $0.05 to 2.fifty% + $0.x	1.43% + $0.ten to three.thirty% + $0.ten	i.35% + $0.05 to 2.forty% + $0.10
Square	1.43%-2.4%	1.55%-2.half-dozen%	2.5%-3.v%	ane.56%-2.3%
Payment Depot	i.29%-2.54%	1.29%-2.64%	ane.58%-3.30%	1.53%-ii.53%

As you can encounter, the sources we've cited take come up upwardly with different numbers, and the ranges they've provided are broad enough that relying on a single "average" rate is non going to be very helpful in estimating anticipated costs.

Your bodily fees volition depend on many factors, including the blazon of transaction you process near often (in-person vs. online), your specific type of business (depression-risk vs. high-take chances), and your average transaction size. Once y'all understand how these factors tin affect your rates, you'll be much better positioned to judge the appropriateness of a quote than you will by merely comparing your quote to a simple "average."

What Determines Your Interchange Fees?

Every bit you can see from the table above, fifty-fifty the "average" credit bill of fare processing fees are all over the map. That'southward because credit card brands intermission downward transactions into literally hundreds of separate categories based on the gamble factors that utilise to that particular type of transaction. Here'southward a brief overview of the major factors that affect interchange fees:

• Credit VS Debit Cards: Debit card transactions are inherently less risky because the funds are transferred directly out of the customers' depository financial institution account. Credit cards, on the other mitt, require the issuing bank to essentially loan the funds to the client, with repayment typically taking thirty days or longer. Naturally, interchange fees will exist much higher if the customer uses a credit carte du jour for a purchase.
• Card-Present VS Bill of fare-Not-Nowadays: Retail transactions where the merchant can verify the customer'southward identity and inspect the credit card present a relatively low take a chance of fraud. Online transactions, on the other hand, provide limited cardholder data and don't allow as many options for identity verification. For this reason, card-not-present transactions incur higher interchange fees due to the college chance of fraud.
• Credit Card Type: Rewards cards that offer greenbacks back or frequent flier points will cost more in interchange fees to start these perks. These types of cards are particularly problematic under a tiered pricing plan. They commonly result in the transaction being downgraded to the unqualified tier, which imposes the highest processing fees.
• Transaction Size: Equally you might have guessed, larger transactions are riskier than smaller ones, and then the issuing banks accuse a college fee to process them. Credit carte brands utilize a variety of additional factors to determine whether a transaction is "big" or "small," so there isn't a simple one-size-fits-all dominion to decide where a given transaction will fall.
• Merchant Category Code: The major credit card brands use a wide multifariousness of merchant category codes (MCCs) to classify businesses past the type of goods and services they offer. Your business may or may not autumn under more than 1 MCC, depending on your product lineup.

Wholesale Merchant Fees VS Markup Processing Fees

Your credit card processing fees are composed of two singled-out elements: wholesale fees and markup fees. Wholesale fees comprehend all the fees and charges that must be paid to the issuing bank and the credit card association. While your processor will collect the wholesale fees for each transaction, it merely passes them onto these other entities. Markup fees, on the other hand, are the fees that your processor keeps for itself in exchange for processing the transaction and maintaining your merchant business relationship. Hither's a summary of the main differences betwixt wholesale and markup fees:

• Wholesale fees are passed onto the issuing banking concern and credit card association, while markup fees are retained by your processor.
• Wholesale fees are the aforementioned for every processor, while markup fees will be dissimilar for every merchant services provider.
• Markup fees tin often exist negotiated with your processor, while wholesale fees are fixed and cannot be reduced through negotiation.

While wholesale fees are the same for anybody, at that place's still a lot of variability from one transaction to the next. All the factors nosotros've identified in a higher place (carte type, transaction size, Merchant Category Code, etc.) volition impact how much you'll pay in wholesale fees for whatever transaction.

Take a look at this table showing some sample pricing models and encounter whether or not you can easily pull out the wholesale fees and markups from the quoted rates:

Sample Quoted Payment Processing Rates

This brings us to the concept of interchange fees. Earlier, nosotros touched on and defined the term, only let'southward elaborate farther.

Mutual Merchant Account Fees For Pocket-sized Business

In addition to credit card transaction fees, merchant accounts normally also come with a number of fees to encompass services included as function of your business relationship. There are three types of fees (or charges):

• Credit Card Transaction Fees: These are charged by the banks, the bill of fare associations, and your processor for processing your transactions and disbursing the remaining funds to your account.
• Scheduled Merchant Business relationship Fees: These are fees charged by your merchant services provider for maintaining your account. They are typically charged on a monthly or annual footing.
• Miscellaneous & Incidental Credit Carte Processing Fees: These fees are only assessed if a defined triggering event occurs (chargebacks are the almost common). They are usually a 1-time additional charge, although PCI non-compliance fees volition exist charged every month until your account is brought back into compliance.

Credit Card Transaction Fees

These fees are assessed every time you run a transaction. Your processing fee, for case, is a transaction fee. Transaction fees normally incorporate the biggest cost of accepting payment cards. Credit card transaction fees come in two forms: 1) percentages (e.thousand., 2.19%, 0.25%), or 2) fixed per-detail fees (e.k., $0.xx, $0.0195). Often, both forms are charged on a given transaction.

	Typical Cost Range (Per Transaction)	Wholesale Or Markup	Description
Interchange Fees	1.3%-iii.5%	Wholesale	Fees the issuing banks accuse for each transaction; they usually represent the largest single expense merchants pay per sale and per month
Assessment Fees	0.12%-0.15%	Wholesale	Fees the credit carte associations collect for each transaction
Markup Fees	0.10%-0.40% + $0.05-$0.49	Markup	Fees charged by your merchant services provider to cover costs and ensure a profit

Scheduled Merchant Account Fees

In addition to credit card transaction fees, you may be charged some predictable, flat fees. They vary by proper noun, value, and applicability, but at to the lowest degree some merchant account fees will show up on your monthly statements.

	Typical Price Range (Per Transaction)	Wholesale Or Markup	Description
Stock-still Acquirer Network Fee (FANF)	Varies, published by Visa	Wholesale	Card association fee charged by Visa; varies by concern blazon and monthly volume
Merchant Location Fee	$15/twelvemonth or $1.25/month	Wholesale	Bill of fare clan fee charged by Mastercard; waived for some businesses
PIN Debit Network Fee	$fifty-$62/year	Wholesale	Additional charge for apply of the PIN Debit networks, if your concern accepts debit cards
Monthly Account Fee	$0-$199/month	Markup	Monthly fee charged to maintain an business relationship; includes the cost of providing client support
Annual Fee	$0-$300/year	Markup	An annual fee to cover service and equipment upgrades; often a "junk" fee
Statement Fee	$7-$ten/month	Markup	Covers press and mailing costs for credit card statements; tin can sometimes exist avoided past using eastward-statements
Online Reporting Fee	$5-$xv/month	Markup	Culling fee for east-statements; most providers will not charge this fee and those that do usually lump it together with others
Monthly Minimum Fee	$5-$25/calendar month	Markup	Boosted fee charged if processing fees fail to achieve a minimum corporeality for the month; notation that you merely pay the difference between your actual processing costs and the required minimum
Terminal Fee	$5-$sixty/month	Markup	Fees charged to merchants who charter their credit menu terminals; leasing is never a good idea and tin be avoided past buying your equipment outright
POS Software Fee	$25-$100/month	Markup	Many signal of sale (POS) systems require a monthly software fee in improver to the cost of the hardware itself; non all POS systems crave a subscription
Payment Gateway Fee	$5-$25/month + $0.05/transaction	Markup	A monthly subscription fee for employ of a payment gateway, typically charged if you choose to use a third-party gateway instead of your provider's proprietary product; may also require an additional per-transaction processing charge
PCI Compliance Fee	$threescore-$120/year	Markup	Fees paid to your provider for security scans and other services to ensure compliance with Payment Menu Manufacture Data Security Standards
IRS 1099-Chiliad Reporting Fee	$25/twelvemonth	Markup	Fee charged by your provider for reporting transaction information to the IRS

How Much Should You Pay In Credit Carte Merchant Account Fees?

A common misconception amid new business concern owners is that the best merchant business relationship provider for their business will simply be the one offering the lowest credit bill of fare processing rates. While getting the everyman rates is very important, it'south non always the deciding gene. To minimize your overall processing costs, you'll want to evaluate your effective rate, which is simply the ratio of all processing costs to your overall sales volume, expressed as a percentage.

With this benchmark in mind, here are the things to look for in a fair merchant account pricing quote:

• Month-to-calendar month billing with no long-term contract
• No early termination fee (ETF) for closing your account early
• Low recurring fees that are clearly disclosed before you sign up
• Flat-rate, interchange-plus, or membership pricing, depending on your sales volume
• No equipment leasing fees

For a regular, low-take chances business organisation, your effective rate should be virtually iii-four% and no higher. High-risk merchants, unfortunately, tin expect to pay much more in rates and fees — often nigh ii times more than a comparable low-risk business concern. If you're already accepting credit cards, you can quickly determine your actual constructive rate past analyzing your well-nigh recent credit card processing statements.

One final point: Having reliable admission to loftier-quality customer support is critically important when working with a merchant services provider. Providers that try to win your business organization by offering the cheapest rates often cutting corners in this surface area, leading to frustration and headaches on your part when a problem inevitably arises. Information technology's usually worth paying a little extra to sign upwardly with a provider that has a solid reputation for offering peak-notch customer support.

How To Lower Or Showtime Your Credit Bill of fare Processing Fees

If the idea of sending iii-4% of your gross credit card sales off to your merchant services provider doesn't sit down well with you, you're not alone. Interchange rates accept risen dramatically in recent years and are poised to go fifty-fifty higher in 2022. Providers have no choice but to pass these cost increases onto their account holders, only virtually aren't to a higher place raising their own markup in the process.

The ever-increasing cost of accepting credit and debit cards has led many businesses to wait for ways to offset their credit menu processing fees (or eliminate them) every bit much as possible. As well signing up with the cheapest credit bill of fare processor you can find, here are several culling methods that business owners are using to lower their credit carte du jour processing fees:

Surcharging & Cash Discounting

For some merchants, the best manner to salvage money on credit card processing is to shift the burden of those costs onto their customers who choose to pay by credit card. With interchange rates steadily rising and legal restrictions against surcharging being overturned, the processing industry is experiencing a wave of programs designed to make consumers pay for processing instead of merchants.

In that location are actually two ways to practise this. I style is through credit card surcharging, which adds the cost of processing onto the client'south bill at checkout if a credit card is used. The other option is cash discounting, where prices are fix to include processing costs, and consumers who utilize an alternate payment method receive a disbelieve at checkout.

While these two methods might sound great to a business paying hundreds of dollars in credit card fees every month, they aren't always effective. You'll have to comply with a host of disruptive legal requirements and credit card make policies, and surcharging, in detail, is likely to atomic number 82 to lower sales overall if your customers have their business organisation to a competitor that doesn't surcharge.

Surcharging and greenbacks discounting can be very effective in some industries; however, we recommend you proceed with caution and exercise some extensive research before implementing one of these programs.

Switching To Other Payment Methods

It'southward always a good idea to give your customers as many different ways to pay you as possible. Alternating payment methods offer flexibility and lower processing costs. Methods to consider include the post-obit:

• ACH Processing: With an ACH payment, funds for the transaction are transferred directly out of the client's bank account. ACH payments are fast, convenient, and cost very little to take. Nonetheless, the underwriting process to get approved for ACH processing is more involved than it is for credit cards.
• Online Invoicing & Payment Links: Freelancers and other independent contractors can too use online invoice payments to simplify the procedure of getting paid for their piece of work. Invoices can be sent via electronic mail or text bulletin and include payment links where the customer can submit an online payment. Online invoicing eliminates dull, inefficient paper-based processes and helps you lot get paid faster.
• QR Code Payments: Another convenient and contactless payment option is the utilise of QR code payments. With QR codes, the customer tin can scan the code with their smartphone then submit an online payment, eliminating the need for processing hardware. QR codes tin can be used in eCommerce or a retail setting by printing them out and displaying them in your store.

Other Methods To Lower Costs

While the above suggestions are all potentially useful in lowering your credit card processing costs, there are other things that you can practise to accomplish this goal without special programs or using alternative payment methods. Hither are a few suggestions:

• Ensure that y'all're using credit card tokenization for all card payments. Tokenization replaces the customer's card number with a "token" number that your payment processing network can decode. Tokenized payments are much more secure and incur a lower interchange fee to process. Most modern payment gateways and credit card terminals support tokenization.
• If you lot accept a lot of B2B payments, brand sure that you're set up to have Level two and Level 3 processing data. This boosted information increases the security of the transaction, and y'all'll pay a lower interchange rate if y'all include information technology. Unfortunately, many merchant service providers charge an additional monthly fee for Level 2 and Level 3 processing, somewhat offsetting these savings.
• For retail merchants, avoid manually keying in a transaction unless you but can't get the customer'southward card to go through by swiping or dipping. Most processors accuse a pregnant premium to process a manually-keyed transaction.
• If y'all use a payment gateway, information technology'due south ordinarily less expensive to use one provided by your processor than to add together a third-party gateway to your processing setup.

The Concluding Discussion On Merchant Account & Credit Card Processing Fees

Every credit carte processor has its own schedule of fees and processing charges, although they usually vary quite a fleck from i client to another. While many fees are unavoidable, others can be reduced or eliminated through negotiation. Because costs vary so widely from one merchant to some other, "average" figures don't tell you much about what your costs will be.

With that in listen, hither are some recommendations to help y'all get the best service at the most affordable price:

• If you're running a very small or seasonal business, look for a highly-rated provider with flat-rate pricing, no monthly fees, and no long-term contracts.
• If you have a medium-sized business with a stable month-to-month processing volume, interchange-plus pricing will unremarkably exist your most cost-effective choice.
• Large, established businesses can save fifty-fifty more money overall with a membership pricing program. Be sure to compare quotes against what you're currently paying to ostend your estimated savings earlier switching to this type of plan.
• Regardless of the size of your business organization, avoid providers that will lock you into a long-term contract with an early termination fee (ETF).
• Avoid leasing your processing equipment under all circumstances.
• Read your proposed contract thoroughly before you sign up to proceeds a complete understanding of your fee structure.
• In many cases, it will be worth information technology to cull a slightly more expensive provider that offers superior client service and support.

We promise this commodity has given you a place to outset to find the best payment carte du jour processor for your business. Remember that there's no overall "best" or "cheapest" payment processor, merely the all-time/cheapest processor for your item business. Making that final determination takes some sales information from your business organization and doing some math, only we promise that the time you spend analyzing the numbers volition more than than pay for itself.

If you lot're already in business organization but think you could find a improve deal, analyze your recent processing statements using the guidelines we've described above. An excellent tool for comparing multiple quotes is our toll analysis workbook. It walks you through a complete apples-to-apples credit card merchant fees comparing between providers using your specific numbers. While yous'll have to practice some math to make a valid comparison, y'all could terminate upwards saving a significant amount of money on your credit card processing costs.

Credit Card Processing Fees FAQs

Tin you negotiate credit card processing fees?

Yous tin negotiate certain credit card processing fees, just not others. Interchange fees and assessments are non-negotiable, while other fees, such as the fees that constitute the payment processor's markup, are often negotiable. Equally a general rule, the larger your business, the less yous'll pay in per-transaction markup to your processor.

What is the cheapest way to process credit cards?

Things y'all tin can do to minimize what you pay for credit bill of fare processing include choosing a processor that offers interchange-plus or apartment-rate pricing (depending on the size of your business), avoiding tiered pricing, fugitive long-term contracts, reducing extraneous nickel-and-dime fees, and choosing an integrated payments organization. Also, keep keyed-in transactions to a minimum and select a processor with fees that fit your business's size and type.

Can you charge a fee to use a credit card?

Aye and no. Shifting processing fees onto your customers is called surcharging. There are strict rules governing surcharges, and these rules differ by state. Read our article on surcharging, where nosotros weigh the pros and cons of this strategy. A convenience fee is another mode to recoup your costs under certain conditions — we recommend reading that article, too.

How can I reduce my credit carte merchant fees?

One of the biggest keys is to discover the processor that offers an advisable pricing scheme for your concern. For case, the simple flat-rate pricing provided past Foursquare and PayPal works well for smaller merchants simply may be quite expensive for college-volume merchants.

If you're shopping for a new merchant account provider, retrieve to negotiate down the markup fees as best you tin can.

What is a adept effective rate for credit card processing?

To summate your effective rate, divide all the fees you pay in a given month past your full sales book. This is the most important percent you lot demand to know since every processor's rates and fees piece of work differently.

Speaking generally, a good effective rate for credit card processing is around three-4%, though over again, the particulars of your business may mean that your ideal constructive charge per unit is unlike. And while a low effective rate is practiced, consider the overall value of the services the provider offers too.

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Source: https://www.merchantmaverick.com/the-complete-guide-to-credit-card-processing-rates-and-fees/

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