Credit Card Transaction Fees
Merchants of all sizes are gearing up for the busiest shopping time of the year.
Consumers are upbeat about shopping this holiday season. In fact, the average consumer in the United States is expected to spend $1,535, up from $1,225, according to a recent holiday spending survey by Deloitte Insights, a multinational professional services network.
As consumer spending ramps up, so will credit card transaction fees for merchants. Whether you own a brick-and-mortar shop or e-commerce business, it's more important than ever to check your credit card statements and understand what you're paying for fees during the fast-paced holiday shopping season.
A variety of fees come with credit card processing, including discount fees, interchange fees, and transaction or authorization fees. Here's a breakdown of the different rates to look out for on your statement.
Discount Rate
The percentage of a sale that goes toward paying credit card processing fees is known as the discount rate. The discount rate is a volume-dependent fee that is paid to a credit card processor by any merchant who accepts credit cards. The fee is set by your processor, is negotiable and typically runs between 1 percent and 3 percent, depending on the type of transaction.
Interchange Rate
Most of your credit card transaction fees will consist of an interchange fee. The interchange rate is what credit card issuers, including Visa, Mastercard, American Express and Discover, charge for processing credit cards. The rate, which is non-negotiable, varies depending on credit card type. The fees are often presented as a percentage plus an additional fixed amount. A rewards card, business debit, and a corporate credit card will each have different interchange rates. For example, Visa's CPS Retail card could have an interchange rate of 1.510 % + $0.10, while the Mastercard Consumer card's interchange rate is 1.580 % + $0.10. These rates typically change twice a year in April and October.
Card Type
Another factor to keep in mind is that the interchange fees you pay will depend on the type of card being used in the transaction. Whether the transaction is paid with a debit card or credit card will play a role in the fees you pay. Debit card interchange fees are less than credit card interchange fees. Also, business credit cards tend to be the most expensive to process, followed by rewards credit cards.
Transaction and Authorization Fees
Transaction and authorization fees are calculated every time you run a transaction. These fees usually run between 10 and 30 cents, and are variable and negotiable. In most cases, you are charged either a transaction fee or an authorization fee, but you should look at your statement carefully to make sure you're not getting charged for both. Contact your processor if you have questions.
Fees to Watch Out For
When reviewing your statement, here are some fees that should prompt further investigation.
- Interchange Clearing Fees
- Other Volume Fees
- Other Item Fees
- Regulatory Product Fees
- Maintenance Fee
- Sales Item
- Chargeback Service Fees
- POS Authorization Fees
- Gateway Authorization Fees Visa
- Inquiry Fee
If you notice any of the above fees on your statement, contact your processor. These fees are usually markups from your processor and can be negotiated or eliminated altogether.
Trying to understand your statement can be challenging, especially from credit card transactions that happen over the busy holiday season. Some processors only bill you for volume from two months ago. One in five merchants don't receive a full statement breakdown, which makes it nearly impossible to understand the charges. Your total effective rate will vary from month to month, depending on the credit cards you accept and how you process them.
