Credit card processing fees: how do they work?

Credit card processing fees

If you are looking for information on credit card processing fees, you have come to the right place! At PayRetailers, we have produced this guide where we will explain in detail how they work, what transaction fees are, and how to compensate for them. So take note and don’t miss out!

Payments analytics for your business growth

What are credit card processing fees?

From a business point of view, credit card processing fees, also known as merchant discount rates, are fees that businesses pay for each online credit card sale. This rate is predetermined by the service provider for merchants, which we will explain below.

Types of fees

When you want your business to accept credit card payments, you should always keep in mind that, through this procedure, a fee is being paid to the payment provider (customer’s bank account) and, as such, you can make use of their digital payment solutions. There are three types of fees or credit card transaction fees, which we will describe below:

Interchange fee

This type of fee covers the cost of accepting, processing, and authorizing transactions, since each time a bank card payment is processed, the acquiring bank pays the issuing bank. As such, the card network will charge your business an interchange fee to cover the expenses incurred during processing.

Payment processor fees

Payment processors must collect contributions and fees from card networks. These merchant account fees are paid directly to the networks for the use of the card brand and also to process the transaction in the payment networks.

They are different from interchange fees in that they are charged on the basis of the total monthly sales and not for each transaction, which is cheaper than credit card processing.

Assessment fees

Also known as an interest rate, which is defined as the price that the client pays the bank for borrowing money. These fees are typically annual and if the user pays the total balance each month until the due date, they will be able to avoid paying interest on the purchases they make.

E-commerce credit card processing: basics that you should know

How do credit card processing fees work?

An awareness about credit card fees for merchants is essential to understand the internal processes of your business, as this way you will be able to charge on time and ensure your business can operate well financially. Each processing fee is subject to its own particular features, which we will explain below:

Flat-rate, or blended, pricing

A flat rate is a rate that exists by contract with the bank and it is a fixed amount, irrespective of the transactions carried out. The rate is genuinely affordable, making it very attractive to merchants, as it entails significant savings.

One drawback of this particular rate is that a minimum number of transactions must be made each month, as it lasts for a specific period, normally one year. It is a good strategy for retaining and attracting new customers.

Tiered pricing

Each card network has a different rate as a result of the service contract. Some may have different discount rates because of the value of the transactions in each process.

It is a good idea to check monthly transactions to see if there are changes in what you pay for using the product, since the processing fees will always be higher than for face-to-face transactions.

Interchange-plus pricing

Interchange and card brand fees are sent to the merchant or business, i.e., it is the fee you pay for the processing. This is the transaction fee plus the percentage of the sale.

This is a very transparent way of processing payments, since you can watch what they are charging you for each transaction and there will be no hidden charge surprises at the end of the month.

Membership-based pricing

Many factors determine the final amount, one of which is the price based on membership, which is dependent upon the negotiation and the contract obtained with the card network services.

The fee amount will be charged to the business according to the volume of invoices obtained and, as such, you need to keep the full balance of the credit card fees.

API credit and debit card payments: What is the best for you?

How to offset your credit card processing fees

We know that it is impossible to avoid processing fees, but it may be possible to achieve a reduction in these. Although not an easy task, you can do this by negotiating with the processing entities. 

These entities tend to be more interested in applying discounts to businesses with high transaction volumes.

However, there are many companies that have decided to choose other innovative solutions to reduce payment processing costs. There are alternatives that offer more competitive rates without neglecting customers, and some can even improve the customer experience.

These include Open Banking, which offers a direct payment, without the need for a card, which is made from the customer’s own bank account to the merchant’s account.

So long as there is dissatisfaction with high fees, this type of banking will gain popularity within ecommerce payment options. Payments are also settled instantly, unlike cards, which can take up to three days, and the process is less manual.

With all the information above, we hope we have helped you answer your questions about credit card processing fees. We also want to remind you that at PayRetailers we can help you connect your business to payment solutions, and you can also get advice from one of our experts.

PayRetailers, we are your payment
processor in Latin America