Every time you process a credit card payment on your small business Web site or at your brick-and-mortar store, you are charged a transaction fee. Transaction fees vary according to your merchant account provider and the guidelines of the card issuer.
While the details vary, there are some rough guidelines to how these fees are assessed. By performing some calculations ahead of time, you will be able to estimate how big a bite these fees will take out of your bottom line. Armed with this knowledge, you can adjust your pricing to ensure that you are still making a profit.
When you accept a credit card payment, the processor deducts anywhere from 1 to 5 percent as a fee. The majority of this percentage goes to the card issuing company. Some merchant account providers may add their own percentage to this fee, which is why the base rate is not always consistent. If you have less-than perfect-credit, your merchant account percentage will be closer to the higher range.
Some third party merchant processors charge as much as 15 percent of each transaction. These third party accounts are geared towards small businesses that cannot qualify for a merchant account on their own. Since the third party is taking a risk by offering you this account, the percentage is much higher. Learn how to Find the Right Merchant Account Provider.
Each card issuer charges a different percentage rate. Visa and Mastercard usually charge the least, while Discover and American Express typically charge a higher percentage.
This is something to consider, not only when setting prices for your products, but also when deciding which cards you are going to accept. Visa and Mastercard are the most popular cards, so it behooves you to accept at least one of these two. It will be up to you to decide whether you need to add American Express and Discover.
In addition to the percentage rate, there are also transaction fees. This transaction fee is charged on each and every purchase processed through your merchant account provider, and is typically from $0.25 to $0.50 per transaction.
This amount goes directly to the merchant account provider. It may be figured in after the initial percentage is taken off or before this takes place. Read your merchant account agreement carefully to see at what stage this fee is deducted. Read up on the Nuts and Bolts of Credit Card Processing.
You may also have a minimum monthly transaction fee. This may require that you process a certain amount of cards or dollar amount each month. Minimum fees are usually around $15 each month.
Before you select your merchant account provider, make sure that you completely understand all of the different fees that you will be required to pay. There may be setup fees, gateway fees, penalties, and other fees that will be automatically deducted from your account each month.