Am I Paying Too Much in Credit Card Processing Fees?

Interchange Series Part 2


How much is too much conerning processing credit cards?  Once you have a basic understanding of the fee structures in the credit card processing industry, you will quickly identify if you are paying too much.  Let’s start by understanding the two types of costs involved with processing payments.

#1 – Interchange / Dues and Assessments

No matter which credit card processing company you use, there will be some fundamental costs from which you cannot escape.  Interchange fees are charged by the banks who issue the credit cards your consumers use.  In next week’s post, I am going to provide you with five tips to minimize interchange costs by simply changing the way you run transactions.  In addition to these bank fees, you also have dues and assessments from the major card brands such as Visa, Mastercard, and Discover.  These are also set in place.  While they may vary slightly from one processor to another, they exist no matter who you are using or on what cost structure you are.

#2 – Processing Fees

This broad category includes transaction fees, settlement fees, monthly fees, PCI Compliance Fees and many, many more.  These fees are negotiable and are not charged by the banks or major card brands.  Keep in mind that your credit card processing company does have real costs.  They must cover the cost of support, mailing out statements, processing transactions, moving money from the consumer’s bank into your business account, and much more.

My primary point in today’s post is not to help you lower your costs; I will address that in the next two posts.  My goal today is to help you understand the difference between these two types of costs.  Once you recognize that your processor is not responsible for your total cost of processing but only a small fraction of the fees, you will be in a better position to minimize your overall costs by adjusting your operations and / or negotiating the processing fees down.

So let me end this article with a simple example to help you understand how much is too much.  Let me assume you are a physical location business such as a retail store, restaurant, or hair salon.  I will also assume your average ticket size or average size of a transaction is approximately $35 to $65.  In this case, roughly 1.8% of your total credit card processing revenue should go to cover interchange related fees.  Another 1.2% of your total credit card processing revenue – or what we in the industry call your “volume” – would likely be going to credit card processing related fees.  If you are processing more than $20,000 per month in volume, you could cut this number roughly in half.

If you are paying more than a combined 3% of your credit card processing revenue in fees and you fit the description above, you are likely paying too much!  Simply respond to this email and ask for a free cost analysis.  Then we can break down your fees and show you what you should be paying.

Next week I will give you several tips on how you can identify specific areas of savings on interchange costs.  There are simple operational changes that you can implement to reduce the amount of money the banks and card brands charge your business.  I am looking forward to sharing that with you next week.

Have a great day!

James Shepherd

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