Merchants Fees On Credit Card Transactions – There are many factors at play, including industry, type of business, credit card processing plan, sales volume, and more. Depending on the scenario, company size can also play a big role in your credit card processing plan. The size of your business can also affect your credit card processing fees.
But there’s a lot of confusion about what “business size” means and when it matters for credit card processing.
Merchants Fees On Credit Card Transactions
This guide will cover various scenarios and company size factors that may or may not affect your credit card processing.
What Are The Average Credit Card Processing Fees That Merchants Pay?
Regardless of the size of your business, your uptime can affect credit card processing. There are some processors on the market that are more startup friendly than others.
If you are starting a new business and accepting credit cards for the first time, you may be rejected by some credit card processing companies that only work with more established companies.
So you’ll want to find a credit card processor that can meet the needs of a small startup without compromising on the terms of your contract. You may eventually outgrow this processor as your business matures, but it’s better than the alternative.
Depending on the size of the company, credit card processing volume has the most significant impact on payment processing terms. There are several different reasons for this, but we will look at the most important ones.
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Credit card processing volume starts at the interchange level, which is imposed by credit card networks. For example, let’s take a look at some excerpts from Visa exchange payment rates:
This section of the table is for supermarket and retail credit cards only. As you can see in the freeware column on the left, these businesses are divided into different levels and limits (0, I, II, and III). Fees vary at each level.
Tier 0 supermarkets must have a minimum volume of $17.5 billion and at least 350 million transactions. Only large companies will qualify and meet the criteria within 12 months.
But as a result, this tier has access to lower credit card processing fees than Tier I, Tier II, and Tier III merchants. In this scenario, the size of the credit card processing company definitely matters.
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For example, let’s say you want to work with a credit card processing company like Payment Depot. This credit card processing company offers merchants “wholesale” rates for monthly membership fees. The higher the membership value, the lower the transaction fee. Here’s what the cost structure and plans look like:
As you can see from this breakdown, this is another case where volume plays a role in your credit card processing.
In many cases, annual income matters in credit card processing. We have covered some of these scenarios in the previous section.
The revenue generated by your credit card processing company is the most important. For example, if your business generates $20 million a year but $15 million comes from checks and cash, that portion of the revenue will not affect the payment process. Only the remaining $5 million (assuming it comes from credit cards, debit cards, or ACH transfers going through your processor) will affect your rates.
Credit Card And Payment Processing Industry Overview
The number of people working in an organization is often directly related to the size of the company: the more employees, the bigger the company.
But in the case of credit card processing, it doesn’t matter. Small companies with fewer employees tend to have higher processing volumes than a medium-sized organization with 400 people on staff.
Compliance with the payment card industry’s data security standards, known as PCI DSS or simply PCI, is something that should be a priority for all organizations accepting credit cards.
The number of locations for credit card processing is important. This is especially true for brick-and-mortar operations with a customer-facing storefront.
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Whether you’re a retailer, restaurant, service-based organization, or anything with a physical presence, size matters in this scenario.
The main reason for this has to do with your processing hardware. There is a big difference between a merchant needing one or two credit card processing terminals in one location versus a merchant needing dozens in multiple locations.
Depending on your industry, your POS stations and credit card terminals may need to serve as inventory management solutions and more. From an accounting and back office perspective, some processors are better than others for things like data integration automation.
If your business operates on the go, such as a food truck, farmers market, or field service technicians, the type of processing hardware you use will also vary.
How Much Does It Cost Your Business To Get Paid?
“Business size” is a broad term in the credit card processing space. But in many cases, your size will affect your processing terms, processing, fees and more.
Some things like employee size and gross revenue don’t matter. Credit card volume and transaction volume have the most significant impact.
Regardless of the size of your business, our merchant cost consulting team can help you keep your credit card processing fees low. Request a free consultation and we’ll help you save money without switching processors.
Matt has been working in the financial world for 7 years and after learning the world of payments fast, for the last 5 years Matt has been exposing the industry to what it is really about. Matt oversees MCC’s sales team, develops new hires and educates the business to reduce costs in the world of customer payments. Matt holds a BA in Business Administration from Bryant University and currently resides in South Boston, Massachusetts.
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Merchant Cost Consulting is a cost reduction company that helps businesses reduce credit card processing fees in merchant services without disrupting their day-to-day operations. Local banks offer online merchant accounts designed for large businesses. The high cost of online merchant accounts is a strong disincentive for small businesses to use the service.
The usage fee structure refers to what merchants pay to use the service. The fee structure consists of discount fee, transaction fee and monthly fee. The usage fee structures of the three local banks are reviewed below.
This is the interest rate charged by the bank on the credit card payment amount. This fee is estimated by the bank for each merchant. The higher the assessed risk, the higher the rate.
This is a common fee charged monthly regardless of transaction activity. The fee is in the amount of one USD dollar.
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This is an example of a merchant’s monthly sales and transaction volume. Based on these data, the average monthly fee paid is calculated and the annual cost is estimated.
A discount rate of 3.9% is used. In other words, all banks are assumed to rate the same merchant with the same risk. However, this is not always the case.
Given discount fees and transaction fees, there is no real cost difference between banks (based on the assumption that all banks evaluate the same merchant as the same risk).
However, the monthly fee makes a big difference to your payment. Depending on the bank and the total value of the transaction, the monthly fee may exceed 50% of the fee paid. Visa is now set to implement the April 2020 interchange fee increase a year later in April 2021. Lawmakers and other opponents have successfully stalled in large part because of the COVID-19 pandemic. According to the Wall Street Journal, MasterCard is also planning such increases.
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Earlier Bloomberg reports that Visa swipe fees will increase from $1.90 to $1.99 for regular Visa cards and from $2.50 to $2.60 for premium cards on a $100 transaction, the highest rates in a decade. There is a big change. Bloomberg reported that higher fees will be charged for e-commerce transactions, while merchants in some service categories, such as real estate and education, will see rates drop. MasterCard swipe fees are likely to increase in line with Visa charges.
Perhaps surprisingly, lawmakers have begun pushing back against another rate hike, calling for Visa to delay an interchange hike scheduled for April and MasterCard to do the same. On March 3, Senate Judiciary Committee Chairman Dick Durbin and U.S. Rep. Peter Welch (D-VT) sent a letter to Mastercard CEO Michael Maybach and Visa Chairman and CEO Alfred F. Kelly, requesting It was reported that neither Mastercard nor Visa would follow this plan.
This is Durban and Welch’s second attempt to prevent interchange fees from rising during the pandemic. When COVID-19 struck last March, they asked MasterCard and Visa to delay the increase for a year.
Durbin and Welch said in the letter that proceeding with higher swipe rates at this point would be a “mistake” and would disproportionately affect online transactions. “Just as increased vaccination efforts begin to give our Main Street businesses hope for a summer reopening, their companies are struggling retailers, and by extension, consumers, with rate hikes. Proposing to kill,” the lawmaker writes. “His rate hikes will undermine efforts to help the economy recover and further reduce Americans’ purchasing power.”
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We encourage you to cancel these planned rate increases.
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