Understanding Credit Card Processing Fees

Good day Small Business Forum members,

In my years of working with business owners, I've found one thing to be consistent: very few business owners fully understand why their credit card processing fees are so high. So let me take a moment to explain what cannot be reduced and what can be reduced.

1) Visa and Mastercard partner with individual banks to approve credit to their customers. Visa and MC simply provide the electronic network for which credit is issued to your customers. Credit card companies (aka CCCs) make their profits by charging businesses a percentage of the total purchase. The bank makes their money by charging the consumer an APR on balances that carry over to the next month. Your merchant services provider then adds a percentage to the wholesale rates charged by the CCCs. That additional percentage varies widely among merchant services companies.

2) Not all credit cards are charged equally. Businesses will pay more for cards that have points earning on every purchase. Additionally, there are three basic categories that credit cards fall into that will also affect your percentage you have to give back to the CCCs.

There is a simple way to significantly reduce your credit card processing fees if you understand the processing system your merchant services provider has assigned to you. If you are not using the Interchange Plus system, you are almost certainly being overcharged in many areas.

Interchange Plus is far and away the most advantageous credit card processing system. This is the same system offered to the biggest national retailers in the US. It is also the easiest to understand since the rate encompasses all credit card types and is agreed upon before your merchant services contract is signed.

As a business owner, always INSIST on seeing a line item comparison of your statement before you sign on with a new company. Rates mean very little when fees can be increased to offset your savings. Insist on a line item audit before signing anything.

Hope this has been helpful!

smartpaysystems.com