Credit Card Processing Fees Demystified

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Who gets the money you pay when a credit card transaction occurs? Understanding credit card processing fees can be confusing and overwhelming. Let’s make it easy!

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  • Visa & Mastercard–these fees are called assessments
  • The bank that issued the credit card being used (for example Chase or Citibank) these fees are called interchange
  • The credit card processor / merchant account provider–the processor mark up

Usually the merchant account provider will not explicitly tell you how much money is going to each party. It is important for you to know where your money is going and what parts are negotiable, since it will help you negotiate effectively.

Interchange

Set of fees, established by Visa & MasterCard, that is passed on to the banks that issue the credit cards to your customers.

Important facts about Interchange

  • Set by Visa/MasterCard and non-negotiable.
  • Composed of a flat rate for each transaction plus a percentage of the transaction amount example: $0.10/per transaction +1.75% of     transaction volume.
  • Interchange is the largest chunk of processing costs at an average of 1.77% (higher for ecommerce).
  • The pricing rules for Interchange are very complex. There is a 200+ page book published by Visa & MasterCard with all of the pricing   rules! For example:
    1. Each type of card (rewards, business, debit, etc) gets a different rate
    2. Many different types of businesses get special rates (gas stations, convenience stores, taxi cabs, movie theaters, etc)
    3. Different size businesses can get different rates (Companies like Wal-Mart get special rates because of their size)
    4. How the transaction is processed can determine the rate (if the card was swiped vs. keyed-in, or if it was charged via an online gateway)

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Important Facts about Assessments

  • A tiny portion of the cost—almost 20 times less than Interchange (Visa & Mastercard: 0.11%).
  • Mastercard has an additional assessment called Network and Brand Usage Fee (NABU) which is 0.0185% per transaction.
  • Visa has an additional assessment fee which is called Acquirer Processing Fee (APF) which is 0.0195% per transaction.
  • Set by Visa/MasterCard and non-negotiable.

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Important Facts about Processor Markup

  • It is based on a number of factors, including your business’ assessed risk, size, and negotiating power.
  • It is the only negotiable portion of your credit card processing fees.
  • Comprised of different fees depending on the processor:
    1. Base fees: Processors offer different types of pricing contracts, each with different rules for charging the merchant. These fees almost always involve a per-transaction & volume-based fee.
    2. AVS fee (address verification): Per-transaction fees charged for performing address-verification checks.
    3. Monthly fee / Statement fee: A flat monthly fee for maintaining the processing account.
    4. Cancellation Fees: You may be surprised to find a cancellation fee in your contract. Talk to your rep if this is the case.
    5. And more… ?! Many processors try to sneak in extra fees (and give them creative & complex-sounding names). The above list are the only typical fees you should agree to in a processing contract.

Learn more about other tools Breadcrumb offers to help build and grow your business at Breadcrumb.com.

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