Where Your Money’s Going: A Breakdown of Processing Fees
You know accepting payments entails processing fees, but maybe you don’t know what exactly those fees are. Never fear—we’ll break it down for you.
There are three main fee types: transactional, flat and incidental. Let’s take a closer look at each of these types.
For every transaction—every time a consumer uses a card—there will be an interchange fee. This fee is decided by the card brands (Visa®, Mastercard®, American Express®, Discover®, etc.) and is based on details like the card type (debit, credit and reward cards all incur a different cost), if the card is a consumer card or a commercial card, whether the transaction is card-present or not and what data is entered during the transaction.
Long story short, there are thousands of different types of interchange qualification categories that affect a business or organization’s actual cost when accepting a payment.
The remainder of the transactional fee is added by the payment processor to cover the costs of managing transactions—essentially their cost of doing business.
Transactional fees can be charged as a variable rate based on transaction type or a flat rate, which is typically applied to all transactions regardless of type. Many businesses prefer flat rates so they can easily calculate what their payment fees will be. Other businesses might choose a variable rate (often referred to as “interchange plus”) to take advantage of the lower interchange rates that come with certain transactions.
By the way—nonprofits can enjoy lower rates if they’re registered correctly and working with the right payment processor.
Flat fees—not to be confused with the flat rate mentioned above—are fees that don’t vary in amount. These are charged in addition to transactional fees and include things like:
- Terminal fees, for those of you taking card-present payments.
- Payment gateway fee is a cost some providers charge for their gateway software. (But not PaymentSpring. Our gateway cost is $0.)
- PCI fees, which cover the management and support of merchants with PCI compliance.
There are other kinds of flat fees, such as annual fees, early termination fees and statement/online reporting fees that you may or may not be charged, depending on who your provider is.
The remaining fees are ‘incidental’ and are triggered by specific activities. Some examples include:
- Batch fees are charged every time a merchant submits their daily transactions to their acquiring bank.
- Retrieval request fees are set in motion when a customer disputes a charge from a merchant.
- Chargeback fees are the result of a customer disputing a charge; merchants incur this fee in addition to the money lost from the initial charge if the customer wins the dispute.
There are a lot of different activities that power transactions. And yes, fees are part of those activities, but working with the right partner can remove some of the confusion and help ensure you’re not paying more than you need to.
Helpful hint: When comparing processors, don’t assume the provider with the lowest rate is giving you the best deal. Use your newfound insight into the payment processing process to dig into the details and ask questions.