If your business ever processes credit card purchases from customers, then it is vital that you have a decent understanding of where these charges incur, how they are structured and how much the charges are. To an outsider, online payment processing and the processing of credit card payments can look very complicated and overwhelming. This is why you need to ensure you understand it properly.
There are a number of parties involved in the process of the customer making a credit card purchase. All of the parties that help facilitate this process smoothly will want their share of profit, which, in a basic sense, is where the fees come from.
What Parties Are Involved In Processing A Credit Card Payment?
So who helps make this process happen promptly and successfully, then?
- The issuing bank
- The credit card associations (e.g. MasterCard, Visa)
- The payment processor
- The merchant bank
Every single one of these contributors has a hand in processing the credit card payment, and consequently are entitled to being paid for their efforts.
What Fees Are Required In A Credit Card Payment?
If the above parties expect to benefit from their contribution, then how is this broken down into the various fees that credit card processing entails?
The issuing bank is awarded a percentage of the transaction amount. This amount is referred to as ‘the interchange’. There are a range of factors affecting the exact amount of the interchange, including (but not limited to): the amount of the sale, the industry involved and what type of credit card was used. PayPal performed a check and found almost 300 different interchange fees.
The merchant bank also claims a portion of the transaction amount, by charging the merchant with a markup fee. Again, this varies depending on the amount of the sale, the industry involved and the merchant bank’s monthly processing volume.
The credit card association charges a fee for their contribution. This is known as an assessment fee.
Finally, the payment processor charges a fee for processing the transaction. Sometimes, the payment processor and merchant bank are the same organisation. No matter what type of transaction has been performed – a sale, a return or a decline – there is a transaction fee incurred. In addition to transaction fees, payment processors may present additional charges for setup, account usage and even account termination. These fees are generally a dollar amount for every processed transaction, as opposed to a percentage of the transaction itself (like the other fees).
A General Look At Credit Card Processing Fees And Structures
As you can probably imagine, depending on the payment processor, issuing bank, etc. involved in the transaction, fees can vary significantly. Here, they are broken down into the most common payment structures. Make sure the payment processor you choose is transparent about their fees, which will save you digging through the fine print trying to identify them, or encountering any surprise charges further down the line.