Which Credit Card Processing Fee Setup Makes the Most Sense for Your Business?
Did you know that there are well over 360 million credit card accounts open in the United States today? The average American tends to have multiple cards open at one time for varying reasons. Credit cards make it easy to earn airline miles, receive cash back, and complete transactions easily.
While paying with a card might be preferable for customers, for business owners, processing credit card transactions can come with unforeseen costs.
If your business currently accepts credit card transactions, and you want to make sure you have the right setup, we can help you confirm that. In this article, we’ll look at how choosing the right credit card processing setup can help your business save.
A Look at Credit Card Processing
Before accepting credit card payments, it can be helpful to understand how the process works. From cardholders to issuing banks, there are many players involved in the process. There are three distinct steps to a transaction getting processed:
- Authorization
- Funding
- Settlement
When a cardholder either swipes or taps their card at an in-person merchant, the resulting request originates from a point of sale system. That request then gets sent along to the processor for authorization. From that point, the processor will submit the transaction in question to ultimately reach the issuing bank.
Authorization requests are made up of multiple parameters including items like card verification values, expiration dates, and address verification systems.
Approved Transactions
Once a transaction gets approved through the point-of-sale systems, the transaction then needs to go through settlement and funding. Merchant services will collect the approved funds, which then get charged to a customer’s account.
From there, funds get sent to the merchant’s bank sans a credit card processing fee. The merchant’s bank will then credit the amount to the merchant’s account. This processing comes at a cost in the form of various fees and fee setups.
Credit Card Fee
The variety of associated fees merchants can expect to pay include:
- Discount Rate
- Transaction Fee
- Monthly Related Fees
These fees are all part of larger pricing structures. There are three main structures businesses can consider when choosing credit card payment setups.
Processing Fee Setup Structures
Having a credit card processing setup is crucial for the success of your business, but not every setup will fit the demands of your business. The three main types that exist to meet specific demands are:
- Tiered pricing
- Interchange or cost-plus pricing
- Flat rate pricing
- Surcharging
- Cash Discount
A variety of factors such as transaction volume and average ticket price will determine which of these setups is better suited for your business overall. Let’s take a closer look at each.
Tiered Pricing
This pricing model works by combing processing fees into different categories depending on the type of card used during purchase. The categories used are known as tiers which are shaped by various rates. For example, a qualified tier is accompanied by a low percentage fee, but a non-qualified tier comes with a high percentage fee.
Processing works differently for each tier. If a customer pays with a card online, the keyed-in transaction will automatically bump the transaction into a higher-priced tier. It can be difficult to know which credit card and transaction will become grouped into which tier.
This setup makes merchants vulnerable to price gouging as final processing fees will vary widely depending on the card accepted during the transaction.
Cost-Plus Pricing
Of all the setup options, this is the least expensive. Costs do tend to fluctuate, but it works well as a model for small and large businesses alike. Generally, the fees associated with transactions tend to be lower and your monthly statements are transparent and easy to read.
This model works when wholesale costs get passed directly to the merchant, and other service fees will get tacked on by the processor at the end. If your business has a stable monthly income, this plan is a great option.
Flat Rate Pricing
This structure is straightforward and gets used by many well-known service providers. Utilizing this structure means paying a percentage of the total transaction combined with a flat fee. Two different rates come into play depending on if a physical credit card is present or if the transaction is completed online or manually keyed in.
Lower rates accompany transactions that use a physical card. The rate goes up when transactions are made online or are keyed in manually.
Flat rate pricing is great for businesses hoping for simple statements and consistent pricing. This fee setup structure is great for businesses that might experience lower sales volumes and lower-priced ticket items. This setup is on the opposite side of cost-plus plans.
If your business deals with occasional sales or has a poor credit history, flat rice pricing is the way to go.
Payment Cleared
As a business owner, you’re in the know with consumer behavior. To that end, you understand that the right products and services help your business run more smoothly. A proper credit card processing setup is a major part of making sure your business runs smoothly.
Each company deals with its own unique set of challenges. Maintaining good business means having the right tools in place to make a sale anywhere.
If your business needs upgraded software, you’re in luck. At Gateway Payments, we help a wide variety of industries revamp their payment systems through upgraded technology.
Let us help you find the perfect credit card processing structure for your company. We can’t wait to hear from you!
