Credit Card Processing Fees: 2 Critical Factors (part 1)

Credit card processing fees (or merchant account fees) are typically the most misunderstood aspect of accepting credit cards at your business. It’s perfectly understandable.

And the reason is simple, because it’s more complicated than you might think.

Not to mention, it’s probably the one aspect of opening a merchant account that gets skipped over, glossed over, or plain lied about by a number of sales reps out there all trying to win your business.

How do I know this?

Well, in working with business owners for the past few years, the single most asked question I get is…

“What’s your rate?”

And when I hear this question, there’s one thing I’m real sure about.  Okay, maybe two.

First, that the business owner doesn’t really know what he or she is paying.  Second, that more often than not I’ll be able to save them a significant amount on their monthly processing fees.

Credit Card Processing Fees Explained

The true cost to accept credit cards for your business is based on two, and only two, factors.  Remember, we’re only talking about Visa and MasterCard here.  American Express and Discover are different, even though merchant account providers can set you up with them as well.

Okay, those two factors affecting your rates for accepting Visa and MasterCard are…

  1. How a card is processed
  2. The type of card processed

That’s it.  Before we discuss these in detail, can you spot one item noticeably absent from the list?  I’ll give you a little hint… think about monthly revenues.

To set the record straight once and for all, monthly volume does NOT affect your rate.  I don’t care where you may have heard this, it absolutely has nothing to do with your credit card processing rate.

Ever.

The Truth About Processing Volume

Now, if you’re talking about AMEX, processing volume does matter.  As your volume increases, you may qualify for a reduced fee, but only IF you reach certain thresholds based on your industry type.  When accepting Visa and MasterCard, however, it’s a different story.

Or at least, it should be.

See, there’s only one little problem when I talk about your processing volume for Visa and MasterCard, and the rates for accepting credit cards at your business.  Just because Visa and MasterCard do not base their fees on processing volume does NOT mean that your merchant processor follows their lead.

Which means, just because your actual processing rates are on based on volume, does not mean that you will not pay more.

On a number of occasions I’ve heard from business owners who were told from their merchant services provider that their fees were going up.  And the reason given for the rate increase was because their “volume” wasn’t sufficient enough to maintain their current rate.

Now, a company may blame their rate increase on your volume.  But that’s just a convenient way to increase profit margins at your expense, and then turn around and blame you for it.

Real nice, right?

Needless to say, this is hardly good business practice.  In our next article we’ll cover in more detail the two factors affecting credit card processing fees.  So keep an eye out for it, okay?

Oh, and don’t forget to register for the site to get email notification whenever we add new content here.  And to suggest a topic for me to cover, or answer a question, kindly leave a comment for us.

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Posted in merchant account basics |

2 Responses

  1. Credit Cards Online - John Says:
    November 10th, 2008 at 8:25 am

    Michael - thanks for stopping by my blog and the email with advice. In fact, we do track and contact expiration date declines. They are a small percentage of our problem. The bigger percentage are credit cards that just get declined. Some suddenly require a voice authorization. Some just get declined and we don’t know why.

    For my business, managing down these problems is a top priority.
    john

  2. Michael Guerin Says:
    November 10th, 2008 at 11:33 pm

    Hi John, thanks for the comment. If you’re getting these up front when folks are trying to sign up for the first time, it could be caused because of a need for CVV match. Some recurring billing platforms needs this for the first transaction, then they’ll run fine for the 2nd and onward.

    I haven’t walked through your sign up process (though I checked it out), but that might be one reason.

    Now, if they’re getting declined later on, i.e. after they’ve been your customer for a while, I’ll have to put my thinking cap on again…

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