Everything You Need to Know About Credit Card Processing Solutions

Credit cards are an important part of businesses in the modern economy. Without them, many customers wouldn't have a way to pay for their purchases. However, that being said, these transactions aren't free for the business owners. They must pay something called a processing fee. While these are typically small, they do add a substantial burden to a growing business. Businesses should be careful when comparing card processors. They may charge fees differently. By working with a good processor, you'll save money in the long run.

Fundamentals of Credit Card Processing

What does credit card processing entail? When someone swipes their card, money is transmitted from the bank to the merchant. During this time, the bank is exposed to risk. To compensate for that risk, they charge the merchants a fee. Depending on the processor, how they calculate this fee may vary.

What Is Credit Card Processing?

Ok, so if you have a customer who pays with a card, there's a lot that goes on behind the scenes. First, the bank must authorize the transaction. Then, they must transmit the funds to the merchant's account. While all this is going on, the customer hasn't moved any of their money. As a result, the bank would be on the line for all of it. This puts them at risk. So, they charge something to compensate for that.

What Are Merchant Fees?

Each time someone makes a purchase with their card at your business, you'll have to pay a merchant fee for that transition. There are multiple processing companies out there. Each of them charges fees in a slightly different way.

How Much Are Merchant Fees on Average?

Since every company calculates things a bit differently, the exact amount you will pay should vary. In general, it should not be more than a few percent of each transaction. You've got two separate things to pay for with these fees. On the one hand, you've got to pay the financial institution for the risk. Also, you've got to compensate them for any network usage.

How Do Merchant Fees Work?

When you sign up with a processing company, you'll be given a payment schedule. These sheets tell you how they determine what you owe. Typically, they are based on one of four different models.

Flat Fees:

Processing companies that charge a flat fee are the easiest to calculate. When someone makes a purchase, you'll pay a certain dollar amount to the processor. That amount covers their risk and the

network usage. Regardless of the size of the purchase, those fees won't change.

Markup Fees:

Often, companies charge something called a markup fee. In addition to their flat fee, you must pay them a little bit more. The specifics of these charges differ from one company to the next. Review any agreements thoroughly before signing them. You can avoid hidden markup fees that way.

Percentage Fees:

Percentage fees are among the most common in the industry. Suppose a customer purchases something at your store. With this fee structure, the financial institution calculates what you owe after transactions. During the sign-up process, review their fee schedule. Typically, you'll see something along the lines of 1-3% per transaction. So, anytime someone spends money using their card, 1-3% of that would go to the card processor.

Interchange Fees:

Money changes hands between multiple parties each time someone makes a card payment. Each of these transfers requires a little bit of money to grease the wheels. These are paid for by the interchange fees.

Saving Money on Card Processing Fees as a Small Business

Small business owners need every advantage they can get. Otherwise, those big players would out compete them. Saving money on processing fees is just one way that you can do that. If you'd like to reduce how much you spend on processing fees, the following tips should be useful.

Minimizing Processing Fees

  • Negotiate Your Fees: First and foremost, never start working with a company without speaking to them about the rates. If you are going to send them all your business, they should cut you a deal. Sometimes, fees can't be lowered. Still, in most instances, you can get a worthwhile deduction. That way, you'll spend less on overhead.
  • Review Your Agreements: Processing companies have a bottom line too. So, when you speak to them, be careful about what you sign. If not, you might end up in an agreement with outrageous fees. Then, you'd have to wait until it ended before changing. Keep an eye out for suspicious markup fees as these add up fast.
  • Pick Processors Wisely: Each company that offers card processing services creates its own pricing model. As such, you'll find that no two companies charge their customers in the same way. Unless you talk with multiple companies, it'll be impossible to know if there is a better deal out there. We'd suggest speaking to at least 3 different companies. When you talk to them, ask for one of their pricing sheets. Compare these from each of the companies, and then you can make a decision. Most of the time, you'll save a ton by doing things like that.
  • Consider a Flat Rate Pricing Model: Flat rate fees are the simplest to understand. Each transaction costs the same amount. So, it's easy to plan for those expenses. Plus, in a lot of instances, these are less expensive overall.

Summing It All Up

Credit card processing is an essential part of every credit card transaction. This process costs money for the merchants. Those charges are called processing fees. Processing fees may vary depending on the processing company. In general, they shouldn't take up more than 3% of any given transaction. However, since each company calculates its fees differently, you'll have to pay attention. Otherwise, you may end up paying more than you expected. Negotiating with processing companies is a great way to lower your expenses. Still, choosing a more affordable company in the first place would be the better option. While shopping for companies, ensure that you carefully review all their pricing schedules. Simply switching to a more affordable processor could save your business a ton by the end of the year. By speaking with multiple, you can use the quotes as ammo while at the negotiating table. If another company offers a better deal, mention that while interviewing potential processors. Chances are, they will match it.