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Learn about credit card processing fees and pricing models

Credit card processing fees can be confusing, and it’s beneficial to fully understand credit card payment fees. This will help you negotiate the best transaction rates for this type of service.

These are the three common types of credit card processing fees: transaction, service and incidental fees.

Transaction fees (or rates): These are the fees you pay for every transaction. They’re usually expressed as a percentage of the sale plus a flat fee for each exchange. For clarity, we refer to these fees as rates. Processors have different methods of calculating and charging these rates – also known as pricing models – which can make it tricky to figure out what you’ll actually pay and whether or not you’re getting a good deal.
Tip: Read our review of National Processing to learn about the credit card processor with the lowest transaction fees.

Service fees: These are monthly and annual account maintenance fees, such as statement fees and PCI compliance fees. They can also be standard fees, but the best credit card processors don’t charge service fees.

Incidental fees: These are fees that you’re charged on a per-occurrence basis; they’re triggered by certain actions on your account, such as chargebacks. These are also standard, but some credit card processing services may not include them.
The three most common pricing models are flat-rate, interchange-plus and tiered pricing. Here’s how each option works, along with information on which pricing model is best for your business type and size.

Flat-rate pricing
Flat-rate pricing is usually charged by payment facilitators like Square and PayPal. There are different rates based on how you accept your customers’ credit and debit cards. This is the simplest pricing model.

Here’s an example of flat-rate pricing using PayPal’s transaction fees:

Card present: For cards that you accept in person using a chip card reader or a magstripe card reader – either in-store or on mobile – you pay 2.7% of the transaction. This is the lowest rate because this payment method has the lowest risk of fraud.

Card keyed in: If your customer’s card doesn’t work and you have to key it in, or if you accept a payment over the phone and key in the card info, you pay 3.5% plus 15 cents for the transaction. This method is more expensive because you don’t use the physical card to process the transaction, so there’s an increased risk of fraud.

Card online: When you accept an online payment – through your website, a payment page linked to your website, or an electronic invoice – you pay 2.9% plus 30 cents. This method costs more than the card-present method because it’s a remote transaction. However, this method is cheaper than the keyed-in rate because it requires your customer to supply additional verification information – such as the CSV number and their address.

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