According to the Q2 2022 Quarterly Credit Industry Insights Report (CIIR), approximately 161.6 million consumers have access to a credit card. So, it’s no wonder many opt to use a credit card when paying for certain purchases. In 2021, about 28% of transactions were paid for using a credit card. This rate increases if we focus on higher-income households: an estimated 34% for those earning between $100k to $150k, and 44% for those earning more than $150k.
Businesses must pivot with customers’ changing purchasing preferences to continue growing and retaining their client base. But accepting and processing credit cards doesn’t just happen in a snap. This service comes with an additional cost that must be carefully studied and understood, just like all other facets of your business.
In this blog, learn about credit card processing fees, which fees get paid to whom, and what they are for.
What are Credit Card Processing Fees?
Credit card processing fees are charges that are paid by a business to the card issuer every time it accepts and processes a transaction paid for via a credit card. The cost of credit card processing can differ between businesses, depending on your merchant services provider.
Who Pays the Credit Card Processing Fees?
The merchant or business pays credit card processing fees to the merchant services provider. In this exchange, three parties are involved: the card issuer, the card network, and the payment processor. Let’s break these down to understand where your fees are going:
Card Issuers
Card issuers — like Amex, Bank of America, and Citi — charge businesses a percentage of every customer transaction, as well as a flat rate. These issuers sign off on whether a credit card transaction is approved or denied.
Card Networks
The four primary credit card networks in the U.S. are Visa, Mastercard, Discover, and American Express. These card networks facilitate the card transactions between the business where the credit card payment was made and the card issuer that signs off these payments. They determine where certain cards are accepted (which is why some establishments advertise that they accept certain types of cards), and may also provide card users with rewards, points, or perks.
Payment Processor
The payment processor is a financial organization, like True POS, that enables customers and businesses to complete credit card transactions. Physical stores are typically outfitted with point-of-sale systems, which may include a card terminal. On the other hand, hybrid stores and online businesses leverage payment software to process virtual payments.
What are the Different Types of Credit Card Processing Fees?
Let’s dive into the different types of credit card processing fees to better understand the purpose behind these charges.
Interchange Fees
This fee is paid to the card issuer (i.e., Amex, Citi, Bank of America) once the credit card transaction is approved. Interchange fees are typically the sum of a percentage of the purchase, plus a flat rate. The fee is influenced by factors like:
- The average percentage charged by the card network (i.e., Visa, Mastercard, Discover, and American Express).
- The type of credit card used by the customer.
- The amount of the transaction, or cost paid by the customer.
- The method of payment (online or offline).
- The industry that the business is in.
The differences can be seen in the list of interchange fees of Visa and Mastercard.
Assessment Fees
This type of credit card processing fee is paid by the merchant to the credit card network, to enable them to accept and process certain types of credit cards. It’s a significantly smaller fee than the interchange fee as it’s based on the business’s monthly sales instead of every credit card transaction. The assessment fee plus the interchange fee are cumulatively referred to as the “swipe fee.”
The assessment fee is determined by factors that may vary between networks. Some credit card networks may charge additional fees for transactions made outside of the United States, transactions paid for with a Visa card issued outside of the United States, and card-not-present transactions.
For example, Visa charges a 0.8% International Service Assessment Fee for purchases made with a Visa card issued outside of the country, while Mastercard charges 0.6% (the latter calls this type of fee “Domestic Cross Border Assessment Fee”).
Payment Processor Fees
Also called merchant services processor, this type of credit card processing fee is paid by the merchant to the payment processor for facilitating the credit card transaction. This rate differs between payment processors depending on a variety of factors, like:
- Monthly fees.
- Transaction Fees.
- Equipment leasing fees (for businesses that use physical card processing terminals).
Scale your business with a point-of-sale partner that empowers you to anticipate and serve your customers’ evolving needs. With the right POS solution, you can quickly and securely process credit card transactions, plus leverage other power tools like inventory management, employee management, and business insights.
No matter what industry you’re in — whether you’re a convenience store, retail store, restaurant, or eCommerce brand — True POS has a business solution for you. Learn more about how True POS can help with your payment processing needs or contact us for a free quote!
