At Electronic Merchant Systems (EMS), we’re all about helping business owners like you increase their financial well-being. This is why we’re committed to providing the knowledge and resources you might not find with other payment providers. The more you know, the better control you can have over your business’s success!
That brings us to today’s topic: fees. If you’ve reviewed your credit card (or merchant) statement recently, you may have taken note of the fees charged to your merchant account. It’s important to understand what these amounts represent, which is what we’re going to help you with today.
But first, do you need help deciphering your merchant statement? Check out our three-part video series on YouTube for a detailed tutorial.
Now that you know what to look for, it’s time to get started!
Types of Credit Card Processing Fees
Your credit card processing fees are the amounts collected by your payment processor for each card transaction your business runs. It is important to analyze these fees regularly because some do change, typically about twice per year. These changes are often small but can add up quickly if you aren’t keeping an eye on them. (We’ll dive deeper into these increases later.)
Here are a few examples of fees you may be responsible for when you choose to process credit card payments at your business:
- Account Fees
- Equipment Fees
- Product & Service Fees
- Transaction Fees
Depending on your payment processor, your statement may differ from this list. If you have any questions about the types of fees you are paying each month, we recommend contacting your processor and asking for details.
There is one type of fee that every business accepting certain credit card types is required to pay. It’s called an Interchange fee, and is a fixed, non-negotiable part of accepting credit card payments.
What is Interchange?
Interchange is the foundation of the entire payment industry’s cost structure. It is the wholesale price (also called "rate" or “fee”) controlled and charged by Visa and Mastercard for authorization and settlement of a credit card transaction. Interchange enables card issuers and processors to exchange bankcard transaction data and funds on a standardized basis. It is complex and constantly changing, which is why it is important to pay attention to this section of your merchant statement.
Most Interchange fees are calculated as a percentage of the sales price plus a flat fee. On average, these fees range between 1 and 3 percent of the total value of a transaction. Various factors affect Interchange, including:
- Card Brand
Each card brand (Visa, Mastercard) sets their own interchange fees. This means you’ll pay a different rate for a Visa transaction than Mastercard transaction.
Interchange fees vary by business type. Generally speaking, traditional retail businesses pay the lowest rates, while eCommerce merchants, direct marketers, and B2B merchants face higher fees.
- Card Type
Processing a debit card with a secure PIN tends to cost less because it is considered to have a lower fraud risk. Credit cards with cashback or points programs, airline miles, or other rewards often have higher fees to help card issuers pay for these perks. In theory, this balances itself out because when rewards or cashback are available, customers often spend more than they would have with their debit card.
The type of debit or credit card cardholder can also affect the rate you’ll pay. Individuals, businesses, corporations, and government agency cards all require different rates.
- Transaction Type
There are different fees required for in-person and online (commonly known as “card not present”) transactions. This is because in-person transactions are considered less risky, as they require a PIN, signature, or other forms of identification. Any business accepting credit cards online should expect to pay a higher rate for those transactions.
When do Interchange Rates Change and Why?
Interchange rates are adjusted semiannually. Typically, these adjustments occur around April and October each year. However, due to the devastating impact the pandemic has had on many businesses, Visa and Mastercard have postponed their increase dates until April 2022.
Why do these rates have to change?
Interchange rates need to be adjusted each year to accommodate changing interest rates and market conditions. Here’s what Mastercard has to say about how their Interchange rates are determined:
“Setting interchange rates is a challenging proposition that involves an extremely delicate balance.
If interchange rates are set too high, such that they lead to disproportionately high Merchant Discount Rates, merchants' desire and demand for Mastercard acceptance will drop. If interchange rates are set too low, card issuers' willingness to issue and promote Mastercard cards will drop, as will consumer demand for such cards.
In response to these competitive forces, we strive to maximize the value of the Mastercard system (including the dollars spent on Mastercard cards, the number and types of cards in circulation, and the number and types of merchants accepting Mastercard cards) by setting default interchange rates at levels that balance the benefits and costs to both cardholders and merchants.”
View Current Interchange Rates
You will find complete tables of current Interchange rates at the following links:
For now, we hope you can take advantage of the delay in rate increases. If you have any questions about your current rates, reach out to your payment processor.
Or, if you think you might be paying too much in fees, reach out to us!
Our team would be happy to complete a complimentary, no-obligation review of your current processing rates and help you find room to save.