Credit Card Processing Fees

Obtaining a merchant account can be a daunting task for any business owner, especially when you take credit card processing fees into account. For the uninitiated, a “merchant account” is basically a type of financial account that banks and/or major credit card companies offer to businesses in order to enable them to accept credit card payments (think Visa, MasterCard, American Express, Discover, etc.), and facilitate the settlement of those transactions. This gives the average business a very significant boost in their ability to capture sales, because in the “plastic” society we live in today, it is actually a rarity to meet someone who pays for items with cash only versus someone who pays for items using some type of debit card, check card, or credit card. As a matter of fact, most prevalent statistics show that anywhere between 60% to 100% of most businesses’ sales are facilitated via credit cards. In plain English, that means that almost every payment received by a business for any type of product or service is a credit card or bank card payment of some kind.

It almost seems arcane in today’s times to think of anyone paying for an item advertised on television, the Web, or even mail order by way of a personal check. Paying with credit cards simply speeds up the transaction process, thereby literally allowing most businesses to make money faster. Even on eBay, most sellers refuse to accept personal checks anymore due to the high rate of fraud, as well as the intolerance for accepting a payment via “snail mail”. So the ability to receive payments via bank or credit card is a very viable and flexible option for the majority of businesses out there, and most businesses actually couldn’t survive without having a merchant account in place to accept these (much quicker) credit card payments.

In addition to the initial costs that businesses must absorb for the installation of equipment (for actual brick-and-mortar stores) or e-commerce “shopping cart” software (for Web-based businesses), there are also recurring monthly fees that businesses must pay to the merchant services companies that provide them with credit card processing capability. These credit card processing fees literally occur every time a customer “swipes” their card for any type of purchase; a fee known as the “Interchange fee” is added to the cost of the transaction. The Interchange fee is assessed on a per-transaction basis, and it is usually levied based on a percentage of the transaction, but it also includes a flat per-transaction fee as well. So right off the bat, you’re already hit with two charges just from the Interchange fee. Then come the fees from the merchant services provider, which is your connection to the merchant bank account that enables all of your credit card processing to take place. These fees from the merchant services provider can also be based on a percentage of the transaction, as well as a flat per-transaction fee.

The fees vary greatly based on a variety of different factors too numerous to mention here, but it mainly has to do with reconciling the different policies of the individual credit card companies that ultimately absorb the initial cost of extending credit for purchases. This is why many convenience store owners have now put a minimum purchase requirement on customers who pay with credit or debit cards. For example, if you were to go into the store to just buy a cheap piece of candy for only 50 cents, but wanted to pay with a debit or credit card, the merchant would actually lose money on that purchase because of the net cost to their business after all of the credit card processing fees are taken into account. Even at a local store near me, I tried to buy a 79 cent bottled water with my debit card, and the cashier told me that I had to spend at least 3 dollars to use my card. “Oh, well," I said, and I bought some snacks for my friend along with my water. I did my charitable deed for the day, and I also helped to subsidize the store owner's exorbitant credit card processing fees through my additional purchases.