Ah, credit card processing fees. They can be the bane of a small business owner’s existence. Unclear pricing models and long lists of ill-defined line items have left many a merchant feeling frustrated, confused, and downright disillusioned. It doesn’t help that myriads of unethical merchant service providers have used these tactics to their advantage. Exhausted business owners begin to think that no one is trustworthy, and they simply give up and give-in to dubious pricing schemes.
We’re hoping that the information we provide here will change that! Over the next couple of months, we will be shining a light on credit card processing fees to provide clarity to Alaska small business owners through our blog articles. We hope to provide you with peace of mind as we “cut to the chase” and discuss what really goes into the bill you receive from your merchant service provider.
Wholesale vs. Markup Fees
Credit card processing fees fall into two categories, wholesale and markup. In a former blog, How Does Credit Card Processing Work? we detailed the various parties involved in taking a transaction from swipe to payment. Many of these parties–the cardholder bank (issuing bank), the card association, and the merchant service provider–must be paid a portion of the transaction in order to fill their individual roles. The category into which a fee is placed depends on which party it is paid to.
Wholesale fees are paid to the issuing bank and the card association. They are fixed, determined by the card association, and non-negotiable. Think of them as the fundamental costs of providing merchant services. Wholesale fees are the largest portion of what you pay. According to one merchant services advisor, your wholesale fees should comprise 75-80% of your bill.
Interchange Fees – The “Big Kahuna”
Interchange fees are the wholesale fees that are paid to the issuing bank, and they are the biggest part of the wholesale fees that you pay. Interchange fees are charged on a per-transaction basis and depend on the type of card that was used, how it was processed, the type of business you are, and the amount charged. Visa and MasterCard both publish the interchange fees for their cards publically online.
Assessments are the wholesale fees that are paid to the card association. Assessments are based on transaction volume and also depend on whether the card used was credit or debit or an international transaction.
Markup fees are determined by and paid to your merchant service provider. They are what your merchant service provider charges on top of your wholesale fees to pay for their services as well as the services of any third-party providers they have contracted. For more information on the services provided by a merchant service provider, read What Does a Merchant Service Provider Do? These fees are negotiable. Good providers keep these fees low by structuring their service to be as efficient as possible. Your markup fees should be between 20-25% of your bill. When you are comparing merchant service providers, the markup fees are what you want to compare.
This article is only an introduction to the broad topic of credit card processing fees. Over the following months, we will discuss pricing models, specific line items, how to reduce credit card processing fees, and the legality of charging customers to help you cover them. Stay tuned! If you do not currently have a merchant service provider or you are unhappy with the level of transparency they provide in regard to their fees, we would be happy to talk with you! At Cornerstone Credit Services, we take a personalized approach to merchant services that includes transparency, communication, and a quick response time to merchant issues.