Image of Gulf Management Systems Logo
Book Demo

Free Statement Review

Start Saving Money today with GMS.

Get a free statement review today! Our team will show you where you are over-paying for any payment or software fees!  

Free Payment Consultation
Moneycircleenlarged

Understanding Credit Card Processing Fees

Confused about your merchant statement? Don’t know how much money you’re paying for your credit card processing rates? GMS can help! Over the course of 30 years, we have seen the good, the bad, and the ugly side of payment processing. More often the bad!

But no need to worry! At Gulf Management Systems, we teach our merchants all the payment processing secrets that you need to stay alert and ahead of the game. This way you don’t get burned by high processing rates, hidden transaction fees, or PCI penalties.

From our 30 years of payment experience, we have found that over 90% of small businesses are paying too much on their credit card processing fees. And not just over-paying by a small amount! Many were paying as high as 4-5% on their credit card processing fees with their previous processor.

Unfortunately, many business owners don’t know where to start when it comes to calculating credit card processing fees. Therefore, many merchant processors take advantage of this and will purposely tack on hidden fees without you knowing. Don’t let that happen to you!

We believe that knowledge is power. Our goal is to educate our merchants on how credit card processing works so you can decide which payment system is most beneficial for your business. This way you can keep more of your hard-earned money!

Reading a merchant statement can be challenging for both new business start-ups and savvy business owners!  Before you analyze your merchant statement, you will need to understand some of the basic payment terminology.

  • Interchange Rate: The interchange rate is the cost of doing business with Visa, Mastercard, Discover, and Amex. All the card issuers set a unique rate for each type of transaction processed. (See Visa Interchange Rates as an example)
  • Discount/Interchange Plus Fee: This credit card fee is a mark-up from your payment processor. On most merchant statements it’s labeled as a discount rate, processing fee, or Interchange Plus Fee.
  • Authorization/Transaction Fees: The cost set by the merchant service provider or card issuer to process each unique transaction.
  • CP Transaction – A CP (card present) transaction is accepted in person via a credit card terminal or mobile device.
  • CNP Transaction –A CNP (card not present) transaction is processed online through a virtual terminal, payment gateway, or software platform.
  • PCI fees – PCI (Payment Card Industry) compliance fees can be billed monthly or yearly. There are also penalty fees that could be billed if you don’t stay compliant and meet the required industry standards for protecting your consumer’s credit card data.

There are multiple factors that go into determining your credit card rates; including how you accept credit cards at your business, the card type used, and your merchant pricing model.

There are three basic ways to accept credit card transactions at your business. A business can accept credit cards online, in-person, or by phone. Each transaction type has a direct impact on your credit card processing rates and security requirements. 

  • In-Person or Card Present Transactions:

    Typically, we find that accepting payments at your business (in-person) substantially lowers the risk of having fraudulent transactions. These credit card transactions include swiped, chip & pin, and contactless payments.  With those transactions, your business will receive lower interchange rates.

  • Online or Card Not Present Transactions:

    Since keyed-in or online transactions are more difficult to verify, the interchange rates are much higher. This is because online retailers and services providers have a higher risk of chargeback fraud. 

    Credit Card Processing for small businesses.

    Other transaction variables may affect the credit card rate or interchange cost of a transaction. The types of products and services sold are also factors since some industries are deemed higher risk. Businesses that offer online gaming, CBD products, or nutraceuticals will be given higher processing rates compared to other retail or service providers.

    Additionally, who you sell your products or services to can also play a role. A transaction can occur between a business and a consumer or from one business to another. Businesses that sell their services to other businesses could be eligible to receive lower rates and interchange discounts because the risk of chargebacks is much lower.

    There are 3 common pricing models offered by most credit card providers. These pricing models include a flat rate structure, tiered pricing, or an interchange plus system.

    Flat Rate: A flat rate pricing model is the easiest to understand. This pricing structure is common with payment processors such as Stripe or Square. With this type of pricing, your credit card fees remain the same across the board and normally come with no contracts. This may be good for start-up businesses, but it has its drawbacks as well. So be careful! Businesses that process over $2500 in volume should look at other alternative pricing models because a flat rate of 2.6-3.5% per transaction may be costing your business hundreds or thousands of dollars in additional credit card fees.  

    • Example of this pricing model: 9 % +0.30 a transaction

    Tiered Pricing: With a tiered pricing system, credit card processors can automatically set different pricing tiers based upon the type of transaction accepted. The pricing tiers are largely determined by the interchange rates associated with the card issuer. Normally, your credit card processor will set credit cards fees for two or three different pricing tiers including qualified, mid-qualified, and non-qualified transactions.

    An example of this would be:

    • Qualified rates: 2.3% +0.25 a transaction
    • Mid-Qualified rates: 2.9% + 0.25 a transaction
    • Non-Qualified rates: 3.5% +0.30 a transaction

    Since qualified transactions have a minimal risk of fraud, those transaction types are the most cost-effective to process for your business and come with lower credit card processing rates. Debit cards and most card-present transactions would fall into either the qualified or mid-qualified rates.  

    On the other hand, non-qualified transactions are the most expensive to process because of the higher risk of potential fraud. Therefore, a payment accepted online (card not present transaction) has a higher processing fee than a transaction accepted in person (card present transaction). Additionally, credit cards such as business reward cards fall into this category because of the higher interchange rates associated with the card issuers. The interchange rate is higher because the card issuer needs to pay for the rewards or perks offered to the consumer.

    Be careful of this pricing model because many merchant service providers will add large mark-ups into each tier which can be easily hidden!

    Interchange Plus: This pricing model is beneficial for merchants that are processing over $2500 in monthly volume. It includes the interchange cost plus a mark-up from the credit processor. With card brands such as MasterCard, Visa, and Discover, interchange fees cover the cost of debt, risk, or fraud. Depending on the transaction type and industry, each interchange fee is different. We find that most interchange rates average around 1.6-2% a transaction plus the mark up fee from the processor. 

    • Example of this pricing model: Int+0.50% + 0.25 a transaction

    What should I look for?  Be aware that some payment processors will add another 1%-2% markup to your interchange rate. This could send your net effective rate to over 5%!

    An Image respresenting Payment Processing
    Gulf Management Systems Logo - Accept ACH Payments

    Why GMS?

    Schedule a Payment Consultation

    Book Now

    Experience

    GMS has over 30 Years of Payment Experience. It's safe to say we are your payment experts!

    Powerful Tools

    We offer powerful software and payments tools customized to fit your unique business model.

    Save Money

    Stop over-paying for software and payments! Lower your operational costs with GMS.

    Get a Free Statement Review!

    ;