Complete Guide to Card Processing Fees & Rates

Credit card payment processing doesn’t come cheap. After all, the companies that supply the service (Visa, MasterCard, Discover, American Express, etc.) need to support their own operating costs. For every card swipe, tap or insert, there is a fee processed. Understanding these fees can be a crucial part of getting the lowest total transaction fee and controlling one of the expenses of doing business. There are many credit processing companies, so it is important to know which offer reasonable rates and how to find the best partner.

Start With Interchange Rates

Each credit card company sets a base rate for processing fees. Then, credit processing companies add an additional fee to support their own service offerings. The trick is to find the credit processing company that offers the most reasonable upcharge to the basic interchange rates. For example, the current MasterCard interchange rates depend on the type of transaction and the card being used. A debit card transaction is usually less expensive than a credit transaction. Supermarkets pay one rate, while service industries pay another. International cards and prepaid cards are all subject to individual interchange rates. Visa offers custom payment solutions that can net a lower rate when retailers follow certain guidelines. Credit processing companies add an additional fee on top of that interchange rate.

Card Processing Best Practices

When shopping for credit processing rates, three basic options are the norm: tiered pricing, interchange plus pricing and flat-rate processing. Each of these billing methods have pluses and minuses for the businesses that use them.

Tiered Pricing

In a tiered pricing situation, the credit processing company breaks down every transaction into one of several categories. The most common breakdown is qualified, mid-qualified and non-qualified. Qualified transactions cost the least, but vendors are not always clear about the differences in tiers. A transaction that appears to be qualified might be downgraded by the vendor, upping the cost.

Interchange Plus Pricing

In this pricing model, a business pays the interchange rate per transaction, plus a small markup for the credit processing company. This additional transparency helps keep credit processing costs down, but it has only recently become available to small vendors. The interchange plus pricing model was once only offered to high-volume retailers. Now, even small businesses can shop for these types of rates.

Flat-Rate Processing

With a flat rate, every transaction comes with the same fee structure. Costs are usually highest with this method, but it acts as a type of pay-as-you-go model. There are no contracts, little to no equipment is required, and these services usually operate via mobile devices, making them ideal for traveling businesses or those selling at industry events or conventions.

Selecting a Pricing Model

There is no right choice for every business when it comes to credit card processing. For businesses with low transaction volume, a flat rate might be the most flexible option. For a business with lots of low-value transactions, it might be easier to enjoy a high percentage of qualified transactions. For a business that handles a steady mix of differently qualified transactions, the transparent pricing of interchange plus rates could be an attractive solution. Ultimately, understanding the base rates and markup can offer insight into which fee structure will provide the most value for a business.