Understanding Credit Card Processing Fees and Charges
This article explains the various components of credit card processing fees, including interchange, assessment, and markup charges. Understanding these costs can help businesses and consumers make better decisions when selecting payment processors and managing expenses. It emphasizes the importance of negotiating lower markups to reduce overall transaction costs while highlighting the fixed nature of interchange and assessment fees. Gain insight into how credit card fees are structured for more cost-effective payment processing.
Using a credit card often provides a sense of convenience and purchasing power. However, it's important to realize that every transaction involves costs. These costs include the fundamental processing fees and additional merchant discounts or markups applied by service providers.
Typically, about 70-80% of your total transaction amount covers the actual cost of goods or services purchased with your card.
On top of this base cost, a markup usually adds between 20-25%.
It's crucial to note that the core processing rates are generally non-negotiable and remain consistent across providers.
The significant component called interchange is set by the issuing bank and is unaffected by your processor or card network (Visa or Mastercard). It covers transaction-related costs and is split between the bank and card associations.
Interchange fees comprise transaction charges and a portion of the commission.
Additionally, assessment fees are levied by card associations and tend to be fixed, though they may vary based on your bank's credit line.
Markups, added over interchange and assessment fees, can often be negotiated. Choosing processors that offer lower markups can help reduce overall costs, as interchange and assessment fees tend to be standardized across providers.
