What Are Credit Card Fees For Businesses – Keeping track of all the moving parts involved in credit card processing can be challenging. Each transaction involves different parties, and each needs to be paid.
For those who want to know more about receiving bank charges and where they come from, you’ve come to the right place. Below I will explain everything you need to know about this topic.
What Are Credit Card Fees For Businesses
Let’s start with the basics. Before going into the fees associated with an acquiring bank, it is important to define what an acquiring bank is.
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The purchasing bank is your bank. It is commonly referred to as the “buyer’s” or “merchant bank”. Banks process credit and debit card transactions on behalf of the merchant.
Acquiring banks are authorized members of credit card networks such as Visa and MasterCard. A buyer helps verify a sale every time a merchant makes a credit or debit card transaction based on cardholder data.
Cardholder data is provided by the card network and the issuing bank (the bank that issued the card to the user) at the point of sale.
It can be seen that the acquiring bank is one of the various players involved in credit card processing.
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Let’s say a customer pays for your goods or services using a MasterCard. The cardholder’s issuing bank makes the card data available to the buyer.
After the buyer’s bank confirms that everything is in order and the funds are sufficient, it will approve the purchase and credit the sale proceeds to your account.
In some cases, payment processors can charge twice as much as receiving banks. They may enter into direct agreements with businesses to provide merchant services for processing payments. However, not every payment processor is an acquiring bank.
To better understand where bank charges come from, you need to recognize the buyer’s role in making payments.
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Banks accept credit cards and debit cards. They join the issuing banks on behalf of the merchant. So whether you’re processing debit card transactions or credit card payments, you need a merchant acquirer.
In essence, the acquiring bank acts as an intermediary between the cardholder’s financial institution and the merchant. It is the buyer’s responsibility to ensure the transfer of funds.
The acquiring bank assumes a certain financial risk for its role in the process, where the purchase of bank receivables comes into play.
Let’s go through a simple five-step process to better understand what the acquiring bank does for each credit card transaction:
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Again, the terms “acquiring bank” and “payment processor” may not always be used interchangeably. While some buyers are also paid processors, this is not always the case.
Why do acquiring banks charge fees? As you saw in previous sections, the acquiring bank plays an important role in the transaction. Without an acquiring bank, merchants cannot make payments.
It is also important to understand that sensitive cardholder data must be handled by the acquiring bank. This means they must follow strict security standards and payment processing procedures.
Keeping all these in mind, the acquiring bank charges the traders to cover the risks and other investments incurred during the process.
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When the issuing bank transfers the funds to the receiving bank, the card network fee is already deducted. So finally the merchant pays the exchange fee and gets the bank’s application or markup.
The payment service provider must also be compensated for its role. So each transaction fee actually includes exchange fees, valuation fees etc.
But believe it or not, the fees and rates charged by the credit card processor and the acquiring bank are negotiable. Most merchants don’t understand this and overpay for credit card processing.
Each acquiring bank is different. Sometimes you will pay a fixed fee, but usually this fee depends on the type of transaction, the amount of the transaction and the card used.
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For example, you’ll pay a different fee for Visa cards than for Amex cards. PIN debit transactions do not incur the same assessment fee or network fee as an e-commerce credit transaction that goes through a payment gateway.
The best way to reduce your bank charges is to consult a professional who can negotiate the rate on your behalf. If you try to do this yourself, you may not get the results you expect.
Here at Merchant Cost Consulting, we can help you lower your credit card processing fees. We will contact your bank on your behalf to negotiate a lower rate.
Depending on the size of your processing, this can save you thousands of dollars each year. Contact us today for a risk-free audit and assessment.
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Also keep browsing our blog. We are constantly updating this resource with information about bank fees, credit card fees, card networks and many other useful insights related to credit card processing.
Prior to founding Merchant Cost Consultancy, Colin worked in the payments industry for 3 years. During that time Colin discovered how deceptive the industry could be and wanted to do something about it. Before joining the paid industry in 2014, Colin played professional baseball for the Los Angeles Angels of Anaheim. Colin is from Waterford, CT and earned a BA in Business from Virginia Tech, where he was a member of the varsity baseball team.
Merchant Cost Consultants is a cost reduction company that helps merchants reduce merchant credit card processing fees without disrupting their day-to-day operations. Two intersecting lines form an ‘X’. This represents a way to close a conversation or reject a message.
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Passing On Credit Card Processing Fees To Customers
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Visa and MasterCard will increase merchant fees for certain credit card transactions in April, according to the Wall Street Journal. Both networks have postponed planned rate changes for 2020 due to the Corona pandemic.
But now Visa and MasterCard are rumored to soon implement higher card fees, which will primarily affect online credit card transactions, which have become increasingly popular amid the pandemic. In addition, MasterCard is also reportedly considering increasing merchant fees for its rewards credit cards at some small grocers, while Visa is set to change the way it calculates fees for restaurants. And higher fees for online order takers.
Passing Credit Card Fees To Customers
It is worth noting that both networks plan to reduce card fees for certain card transactions, including some low-cost transactions.
But recently there has been tension over card fees, which could affect Visa and MasterCard. Some merchants have expressed dismay at MasterCard’s post-Brexit plan to increase card fees for online credit and debit card transactions between the UK and Europe.
There have also been some concerns from other parts of the business sector: Intuit says allegations of price-fixing card fees by Visa and MasterCard have hurt its retail business, costing it more than $17 billion. – One year period.
Growing concern about card fees could drive global payers to action: A European payments initiative backed by 31 banks and major acquirers is looking for technology partners to help build a payment infrastructure that rivals MasterCard and Visa. is Both chains will soon offer online merchant accounts at local banks designed for large corporations. The high cost of online business accounts is a strong incentive for small businesses to use the service.
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The usage fee structure refers to what merchants pay to use the service. The payment structure includes a discount rate, a transaction fee and a monthly fee. Three local banks’ usage fee structures are examined below.
This is the interest charged by the bank on credit card payments. This rate is assessed by the bank for each merchant. The higher the perceived risk, the higher the ratio.
This is a typical fee charged per month for each transaction activity. The commission is in US dollar amount.
This is an example of a merchant’s monthly sales and transaction volume. Based on this data, the average monthly payment is calculated and the annual cost is estimated.
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A discount rate of 3.9% was used. In other words, the assumption is that all banks rate the same trader at the same risk. However, this is not always the case.
Given the capitalization fee and transaction fee, there is no real cost difference between banks (based on the assumption that all banks value the same trader as the same risk).
However, monthly payments make a big difference. Depends on the bank
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