The entire credit card processing system is intentionally opaque. While there are a lot of components, let me simplify how we are charged for the “privilege” of accepting cards.
There are 4 primary fees that you pay when accepting credit cards.
– Interchange – This is typically the largest fee you will pay (~1.2% to 2.7% of the transaction). The interchange fee is tied to the type of credit card, with premium rewards cards running on the high end of the range. In most cases, this is non-negotiable.
– Transaction – Most processors charge a nominal fee for each transaction (say 10 cents)
– Markup – This is the fee you pay to your processor for handling your account. In most cases, this is the line item you need to focus on and it can be negotiated. This is the processor’s “profit”
– Assessment – This is a fee that sits on top of the interchange fee and varies based on a multitude of signals. The lowest assessment is on chipped cards and increases for things like typing in the number or using older processing devices. Calling in for approval can add to this.
Next week I’ll discuss how to keep your processor honest.
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