Credit Card Processing Fees – What It Is & How It Works?

Credit card processing fees are the charges that credit card issuers and payment processors levy for each transaction. The fee amount varies depending on the type of credit card, the merchant’s business, and the processing company used. Generally, though, credit card processing fees range from 2% to 4% of the total transaction value.

Credit card processing fees can be a significant expense for businesses, so it’s important to understand how they work. This article will explain the basics of credit card processing fees and how to keep them as low as possible.

Types of credit card processing fees

There are three main types of credit card processing fees:

1. Interchange fees: This is the fee that the credit card issuer charges the merchant for each transaction. The interchange fee is set by the card networks (Visa, Mastercard, etc.) and varies depending on the type of credit card and the merchant’s business.
2. Processor fees: This is the fee that the payment processor charges the merchant for each transaction. Processor fees vary depending on the type of processing company used, but they typically range from 0.5% to 2% of the total transaction value.
3. Gateway fees: This is the fee that the payment gateway charges the merchant for each transaction. Gateway fees typically range from $0.25 to $0.50 per transaction.

How credit card processing fees are calculated?

The total cost of a credit card transaction is made up of the interchange fee, the processor fee, and the gateway fee. Here’s how it’s calculated:

1. Start with the interchange fee, which is a percentage of the transaction amount.
2. Add the processor fee, which is a fixed amount per transaction.
3. Add the gateway fee, which is also a fixed amount per transaction.
4. Total up to three decimal places.
5. Round up to the nearest whole number.

The cost of a credit card transaction, then, is the sum of the interchange fee, the processor fee, and the gateway fee.

How to keep credit card processing fees low

There are a few ways to keep your credit card processing fees as low as possible:

1. Use a payment processor that has low processing fees.
2. Use a payment gateway that has low gateway fees.
3. Use a credit card that has a low interchange fee.
4. Understand how the interchange fee is calculated and make sure you’re not overpaying.
5. Negotiate lower processing fees with your payment processor.
6. Use a third-party processor to process transactions.
7. Offer customers the option to pay with debit cards or gift cards.
8. Process payments in bulk.
9. Use a merchant account.

Credit card processing fees can be a significant expense for businesses, so it’s important to understand how they work and take steps to keep them as low as possible. By using a payment processor with low processing fees, a payment gateway with low gateway fees, and a credit card with a low interchange fee, you can save a lot of money on your credit card transactions.