How to Tell If You’re Paying Too Much in Credit Card Processing Fees
For most businesses in the modern economy, accepting credit card payments is routine. The majority of consumers rarely use cash or checks. The Wall Street Journal reported that more than 62% of consumer payments in 2017 were made by debit or credit cards, with the number expected to reach 70% by 2022. Merchants must cater to customer preference, but it does come at a cost. One important statistic to follow is the average credit card processing fees for merchants. This will help you answer the question: “Am I paying too much?”
Merchants pay several types of fees for processing cards, including:
- Interchange rates from the issuing banks
- Assessments and dues from the card networks
- Payment processor markup fees
Variables in fees make it difficult to determine the cost of a merchant account in advance. With a little due diligence, you can evaluate your current plan with OmniFund to determine whether a new payment processor would better suit your needs and your bottom line.
Here are five red flags that could indicate you’re paying too much in average credit card processing fees:
1. Your merchant account pricing model does not match your business.
Processing fees are influenced by the issuing bank, the card type, and the card network. Here is a recent breakdown of average rates for the four major card networks:
- Amex: 2.5%-3.5%
- Discover: 1.56%-2.6%
- Mastercard: 1.55%-2.6%
- Visa: 1.43%-2.4%
While these interchange rates will be the same regardless of which processor you use, the processor markup and pricing model can make a big difference:
- A flat-rate model charges one rate for all transaction types. This sounds appealing because it’s simple to understand. However, your flat rate may be higher than the rate offered by the network you most often use for processing. In this scenario, you are overpaying. Unless you’re a low-ticket, low-volume business, a flat rate will not be cost-effective for you.
- A tiered or bundled model combines the interchange rate, assessment (wholesale) fees, and processor markup into one total fee. This makes it more difficult to decipher exactly what the markup costs are. It also categorizes transactions into three “buckets”:
- Qualified: Charges the lowest rates
- Mid-Qualified: Charges average rates
- Non-Qualified: Charges the highest rates
The downside of this model is that it can be unpredictable and cannot be managed by your business. The processor determines which transactions are qualified, and they can change the rules at any time.
- An interchange-plus model separates the actual costs of the wholesale fees and the processor’s markup. This model provides the greatest transparency. It is ideal for merchants that run volumes of $5,000 per month or more.
2. You’re not identifying card types for each transaction.
Since different networks and card types carry different fees, you may want to limit which types you accept. BIN filtering and management is a great cost-saving tool that OmniFund offers. With BIN filters, you can enable or disable payments from particular networks, card categories, and even specific BIN numbers. Checking the BIN on each transaction can help you reduce your merchant fees and avoid unexpected charges.
3. Your provider does not support Level 2 and Level 3 credit card processing.
Most consumer cards are processed as Level 1 transactions. Commercial cards are processed as Level 2 or Level 3 transactions. This means that commercial cards qualify for lower credit card interchange rates if the merchant provides additional transaction information/data fields.
Common fields include:
- Item commodity codes
- Product codes
- Tax amounts
- Shipping amounts and destinations
If you take a lot of B2B commercial cards, you will want to partner with a payment gateway that supports Level 2 and Level 3 processing to streamline acceptance and reduce processing costs. Additionally, using a virtual terminal to auto-fill the required data fields can simplify these transactions for your business.
4. Your rates are affected by card-present vs. card-not-present transactions.
Another factor influencing credit card interchange rates is the card input method. The average rates for swiped cards are 1.5%-2.9%, but they go up to 3.5% for keyed-in transactions. As a result, card swipe remains viable and is readily used. For the higher-cost keyed-in transactions, Google Pay and Apple Pay are typically used on payment pages and customer-initiated transactions (MOTO/eCommerce).
5. You’re not leveraging compliant convenience fees.
You can recoup the expenses for credit card transactions by charging convenience fees or implementing surcharges. Make sure to follow the card brands’ and your state’s rules and regulations. This is a compliant way to lower your merchant costs.
Reducing Average Credit Card Processing Fees for Merchants
Credit card processing fees are complicated and can be challenging to manage for cost efficiency. Recognizing the pitfalls to avoid and understanding the tools that can be helpful is worth the effort. OmniFund’s Payments as a Platform® solution offers the tools and support you need to reduce your merchant services costs and protect your profits.
Contact OmniFund to request a free rate analysis to determine whether you are overpaying for your credit card processing fees.