With margins often slim, even in good times, it pays merchants to explore ways to minimize their expenses. While some business fees and expenses are beyond the control of merchants, there are some expenses where available options make it possible to trim costs. That’s true, to a certain extent, with credit card processing fees, so it makes sense to look at all of the fees currently assessed to determine which ones could be reduced or eliminated.
Do Credit Card Processors All Charge the Same Fees?
The short answer is no. However, the true answer is far more complex. While the wholesale, or base, rates paid by merchants for accepting a specific type of credit card may be similar, there are numerous other fees processors can, and do, add that alter the final fee totals. That’s why merchant groups typically recommend members explore all their options carefully prior to contracting with a specific credit card processor. While advertised rates are a good guide to determining which processors offer the best deals, the fine print of contracts may include markup fees that quickly change the picture. Before signing any contracts, it always pays to understand the total credit card processing fees an organization may be subject to. Since the contracts tend to be rather long, even slight differences will add up over time.
Does It Make a Difference What Type of Card is Accepted?
Visa, Mastercard, Discover, and American Express cards are routinely accepted by merchants around the country. However, industry data suggests a merchant’s bottom line can be impacted significantly when different cards are accepted. Rates for processing Visa charges, for example, tend to vary between about 1.4 percent to 2.5 percent. That’s a significant difference, especially if the business routinely operates on a low profit margin to begin with. One percent, over a year, can easily make the difference between being marginally profitable and losing money.
American Express is an example worth exploring on its own. The fees for processing American Express transactions are typically quite a bit higher than the other options. As a result, merchants accepting American Express see significantly higher costs for processing those transactions. American Express transactions cost merchants up to 3.5 percent – a full percentage point higher than the highest fees generally charged for processing the typical Visa transaction. While not accepting American Express cards is an option, that may cost merchants sales, especially in venues catering to business travelers.
Card Card Processing : What About the Cost of Card Readers?
Newer EMV, or chip, cards has added a new wrinkle to the cost of processing credit cards. Upgrading older equipment is expensive, and organizations using a large number of terminals are facing significant costs for replacing older readers not capable of reading chip cards. Because merchants failing to update are facing new risks, the option of continuing to use older readers really isn’t viable, meaning all merchants accepting credit cards are being forced to absorb the costs of updating their terminals. Again, smaller organizations with minimal profit margins may suffer even when only one terminal must be replaced.
What Types of Incidental Fees Can Merchants Expect to See?
The fees assessed for e-commerce users, for example, vary from those charged for merchants in brick-and-mortar locations. Merchants not scanning cards face higher fees than those who do so. Since every situation is different, it pays to review the options with different processors to ensure the lowest possible credit card processing fees are encountered. Product pricing, and competitiveness, are directly impacted when higher processing fees require higher costs to consumers.
Small merchants also face another issue. When merchants don’t maintain a specific level of business, their costs of processing go up, as processors generally charge a minimum fee regardless of the merchant’s volume. That means a low advertised per-transaction fee might be meaningless to small vendors.
Should Merchants Buy or Lease Their Terminals?
As a rule, industry experts recommend buying rather than leasing terminals. Lease fees are costly and impact bottom line figures far into the future. While there is always an element of risk involved in buying terminals outright, the long-term costs associated with buying tend to be significantly lower than those experienced when the same terminal is leased.
The Playing Field is Evolving
As the very nature of marketing changes, so do card processing options. Today’s merchants have a variety of alternatives to choose from when deciding what types of credit or debit cards to accept and which processor will work best to meet their unique needs. That’s why it’s becoming increasingly important to examine all available options before selecting a credit card processor. Merchants who take the time to analyze the offerings of different processors can, indeed, save money on their net fees. Even a relatively small difference per month adds up to a significant amount over a few years. If you’ve got questions, contact an industry professional today for advice.