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Certainly, credit card processing is a major part of any modern business. Unfortunately, it can also be one of the most confusing parts. With so many rules, regulations and options, it can be difficult to tell if you’re doing the right thing when it comes to your choice of payment processors.

One of the most basic, but often misunderstood, pieces of the puzzle is simply how much you should be paying for the payment processing service. Different choices can cost – or save – you hundreds, or even thousands of dollars every month. So, with all the options of fixed rates, variable rates, percentages and adjustments for volume, how do you know if you’re paying more than you should for your ability to accept credit card payments?

What Are the Fees For?

To understand what, exactly, you are paying for with your processing fees, we first need to look at how credit card processing works and what makes up the fees. To make it as simple as possible, you basically pay two types of fees on each transaction that is processed:

• Interchange Fee – This fee is set by the credit card networks. It is charged on each transaction and gets split between the networks and the card issuing banks. The fee is made up of a percentage of the total transaction, plus a per-transaction fee. The exact percentage of each transaction varies based on what is being purchased, who issued the card and many other factors.
• Merchant Service Fees – These fees are charged by your merchant service provider, which could be the bank that provides you with your merchant account or an authorized independent sales organization, or ISO, of the bank. This fee is usually a percentage of the transaction and may also include a per-transaction cost.

In many cases, smaller merchants are never told about the interchange fee. They are simply given a single rate at which they will be charged for each transaction, which includes the interchange fee plus whatever fees the merchant service provider tacks on. Many merchants have no idea how much of the fees are going to the card networks and how much are going to the merchant service provider. In general, when there is a difference in price for otherwise identical transactions, it is because of the fees being charged by the service provider.

How To Make Sure You’re Getting A Good Rate

• Avoid flat-fee payment processors like Paypal or Square – These types of processors charge a set rate for all transactions. The advantage is that processing is extremely simple, but the merchant ends up paying a per-transaction rate that is much higher than the interchange rate on almost all transactions. Just about any traditional payment processor will give you a better rate.
• Avoid tiered pricing – Transactions are put into preset categories, usually qualified, mid-qualified and non-qualified. This system averages out the rates of the more than 125 interchange categories and then applies the service provider’s margin. The result is that the merchant usually ends up paying a much higher rate than the actual interchange rate on each transaction. The difference goes to the service provider as profit on top of the fee they already charge.
• Ask about interchange pass-through (also known as cost plus) pricing – With interchange pass-through pricing, the exact interchange rate is charged to the merchant and marked clearly on each statement. The merchant service provider’s margin, or fee, is then added on as a separate charge. In this case, you know exactly how much you are really paying for each transaction to both the card networks and your payment service provider.

Do you think you might be paying too much for your credit card payment processing? Get in touch with us today and we’ll be happy to show you how we can provide you with excellent service and save you money every month at the same time. You can always reach us easily at 1-866-944-3244.