The Payment Processing Rates You Should Expect in 2019
If you own a business, or ever strive to do so, you should know that accepting credit cards is pivotal for the long-term success of your business. This means that knowing the cost of processing credit card payments is vital to operating efficiently. Otherwise you may find that unexpected costs are eating away at your margins.
by Samantha Shattuck, Director of Brand Marketing, NAB
So exactly how much will credit card processing fees cost in 2019? The standard fees vary from 1.5% to 2.9% for swiped credit cards, and keyed-in transactions can have a much higher standard processing fee; we’re talking 3.5% to compensate for the increased risk. For your learning benefit, we’re going to break down what business owners should look out for regarding credit card processing fees, and give you some tips on how to reduce them.
Behind the scenes: how credit card processing works.
Processing a transaction for your customer might sound simple; the customer swipes or inserts the credit card in your POS machine, you give them a receipt, and off they go, but there is a lot more going on behind the scenes than that. Much like shooting a film, there’s more to it than a director, a camera, and an actor. So what’s all involved behind the scenes?
Well first, there is the card issuer, and by that, we mean the bank, not Mastercard or Visa specifically, but actual banks such as Wells Fargo or US Bank. The bank that issued the credit card works with Mastercard or Visa to process payments between the banks of merchants and the card-issuing banks. The bank then charges the merchants a fee for accepting the credit cards, therefore, Mastercard and Visa are more like card networks.
In some cases, such as American Express, it acts as both the card issuer and the card network, that’s why you’ll find it that American Express, comes with higher fees. Which also helps you understand why a number of small businesses do not accept American Express.
Now to break down the entire process in simplest terms, you (the merchant or business) accepts the credit card, be it online or in person, and your bank collects the money for the transaction. The bank then relays the credit card information to the issuing bank through a payment processor to collect the funds.
Online shopping goes through one more step. When a customer enters in their credit card information on your business’ site, the data is encrypted and sent to the card issuer for request payment through the merchant account provider.
Now that you’re familiar with the way credit card processing works, let’s dig into how credit card fees work.
Fees associated with different transactions.
It is important to keep in mind that two of the primary drivers of payment processing fees are the type of card and the type of transaction. Debit cards often offer much lower fees than credit cards, and swiped transactions also have lower fees than transactions that are keyed in. Further, as you know, there are a variety of cards that a customer may use to make a payment. These cards can be classified in the following four groups; retail, rewards, corporate, and business, and every category has its own rate.
But why is there a variance? Simple, higher-risk transactions lead to higher-fees to help mitigate the risk. The reason debit and swiped transactions are lower cost is because they are lower risk to the processor. Risk in this case being the likelihood a charge is disputed or deemed fraudulent. On the other end of the spectrum, card not present transactions will always have some of the highest fees because they pose the greatest risk of fraud and disputed charges
Credit card processing fees.
Now we can get into all the types of credit card fees. You have your transaction fees, flat fees, and incidental fees.
Every time a purchase is made and processed on your credit card machine, a transaction fee will also be charged and make up the brunt of your payment costs.
Flat fees vary depending on the credit card processor, and you’re charged these for using the service. You might pay these either monthly or annually, and they cover customer support and PCI compliance. Some providers might require a minimum amount of charges and should you fail to reach that number, the provider charges you a fee. The number of charges is arbitrary and based on the plan provided by your merchant services provider.
Incidental fees are exactly as described; you’ll only get these when your customer might have insufficient funds in their debit or credit card, or when refunding money to a customer.
Other fees you might find yourself paying for include set up fees, account cancellation, and monthly cancellation fees. These three are all pretty self-explanatory; some merchants might charge you a one time fee to set up your credit card processing system. A monthly cancellation fee is a fee you’ll have to pay if you ever decide the credit card processing company you’re doing business with is no longer for you and want to change services. This can be done depending on whether or not you’re in a contract or any kind of lease.
The less known-about fees include statement fees, online services fee, and even an IRS reporting fee.
Statement fees are basically processing fees for you receiving paper or online statements in order to stay up to date on your business’ transactions. If you want to sell good online, you might have to pay an online service fee, but there are many processors that don’t charge at all.
The IRS reporting fee is charged in order for your transactions to be reported to the IRS along with the 1099-K form that is required.
Now that we’ve covered the different types of fees, let’s get into the pricing and how you might be able to find the best deal for your budget and maximize profits.
Getting the lowest credit card fees.
Ensuring you are getting the best rates from your payment processing solution will help increase your bottom line. What rates and fees you end up with will determine how much money your business will ultimately make on a monthly and annual basis. It’s important to know that merchants with the highest volume sales will always get the best deal.
A few rules of thumb to keep in mind:
● Larger transactions are more affected by a percentage add-on than a per-transaction fixed rate
● If you have a small number of transactions, you’re better off with a plan than offers a per transaction fee
● If you are processing a large number of transactions, you will save more with a percentage fee (assuming you get a reasonable rate from your provider!)
In order to run a successful business, accepting credit cards with a credit card processing system is a must for any business owner, but knowing how to choose the best credit card processing system might seem complicated. Never refrain from asking questions if you don’t know why they’ll be charging you certain fees. Shop around for different quotes and compare per-transaction fees and monthly fees. Make your decision based on what will save you the most money.
Finally, don’t get caught off guard with early termination fees or equipment rental fees. Take notes and ask of everything you might be paying for up front. In credit card processing, every penny counts.
Samantha Shattuck is the Director of Brand Marketing at North American Bancard Holdings (NAB). She is brand enthusiast that helps drive awareness for NAB and its family of companies through branding, advertising and numerous other communications methods. Shattuck is an accomplished marketing professional with approximately eight years in the payments industry. She attended Grand Valley State University where she double majored in Marketing, and Women and Gender Studies. Shattuck loves spending time with golden retriever fur baby, Sawyer, and traveling with her husband.