Credit card processing is a vital aspect of running a business, particularly for those that accept credit card payments. However, credit card processing costs can be confusing, and it is essential to understand how they work. In this blog post, we’ll explore how credit card processing costs and fees are calculated and what factors influence them.

First, it’s important to understand the different parties involved in a credit card transaction. There’s the cardholder (the person who uses the credit card to make a purchase), the merchant (the business that accepts the credit card payment), the acquiring bank (the bank that processes the payment for the merchant), and the issuing bank (the bank that issued the credit card to the cardholder). Each of these parties has a role in the credit card processing chain and can influence the cost of processing a credit card transaction.

The main factors that influence credit card processing costs are interchange fees, assessments, and processing fees. Interchange fees are fees that the acquiring bank pays to the issuing bank for each credit card transaction. These fees are set by the card networks (such as Visa and Mastercard) and are non-negotiable. They typically range from 1.5% to 2.5% of the transaction amount and can vary depending on the type of card used (such as a rewards card or a corporate card) and the type of transaction (such as in-person or online).

Assessments are fees that the card networks charge for processing credit card transactions. These fees are also non-negotiable and are typically a fixed percentage of the transaction amount. Currently, Visa’s assessment fee is 0.11%, while Mastercard’s assessment fee is 0.13%.

Processing fees are fees that the acquiring bank charges the merchant for processing a credit card transaction. These fees are negotiable and can vary depending on the merchant’s business type, the volume of transactions, and the type of credit card used. Processing fees typically range from 1.5% to 3.5% of the transaction amount.

To calculate the total cost of processing a credit card transaction, all of these fees are added together. For example, if a customer makes a $100 purchase using a rewards credit card, the interchange fee might be 2.5% ($2.50), the assessment fee might be 0.11% ($0.11), and the processing fee might be 2.5% ($2.50), for a total cost of $5.11.

It’s also worth noting that there may be additional fees and charges associated with credit card processing, such as monthly fees, chargeback fees, and equipment rental fees. These fees can add up quickly and can significantly impact a merchant’s bottom line.

In conclusion, credit card processing costs can be complex and vary depending on several factors. Understanding the different fees and charges involved in credit card processing is essential for merchants to accurately budget for these costs and ensure that they are not paying more than necessary. By negotiating processing fees, implementing best practices to prevent chargebacks, and staying up-to-date on the latest credit card processing technology, merchants can reduce their credit card processing costs and improve their profitability.
You can also contact info@swivelusa.com to get know the ins and outs of the credit card processing from our industry experts.