Why Do I Have to Pay for Credit Card Processing?

While there is little doubt that accepting credit cards can boost sales, many small businesses still refuse to accept them. The most common reason most merchants give for refusing to take credit cards is the fees. 

How Credit Card Processing Works

In order to understand why processing credit card transactions cost money, it is important to understand how the actual process works. There are actually four parties involved in the entire process. The money involved in the transaction is loaned to the customer by the bank issuing the credit card. The customer will either pay off that loan within 30 days or will add the amount to a balance and then pay interest on the total balance. In addition, the merchant receives a loan from the acquiring bank. Both the acquiring and the issuing banks deduct fees. This means that the amount that finally makes its way into the merchant’s account is less than the amount paid by the customer. 

The fee charged by the issuing bank is referred to as the interchange fee, while the fee charged by the acquiring bank is known as the discount rate. Both fees are represented by a percentage of the total transaction in most instances. 

Numerous banks issue credit cards and thus act as an issuing bank, although the cards are issued under brands, such as MasterCard, Visa, and Discover. One element that sets American Express apart from other credit card brands is that it serves as an issuing and an acquiring bank. Interchange rates are always published, but it should be noted that the precise interchange rate charged is based on a number of factors, for instance, the type of card that is used and even whether the card is physically present at the time of the transaction. The type of merchant can also affect the rate. 

Your Business Affects Your Processing Fees

The type of business in which you are involved can affect your fees, because the issuing bank wants to ensure it is compensated for the risk of chargebacks. This occurs when a customer is successful in disputing a charge. Due to the fact that some businesses are considered more likely to instigate chargebacks, those businesses are usually charged higher rates. For instance, transactions that are conducted online and over the phone are typically considered the riskiest of transactions.

In the past, it could often be difficult for many merchants to offer credit card processing if their daily volume was not high enough or if they were not able to qualify for a merchant account. Fortunately, technology is making it much easier today for businesses of all sizes to accept credit cards without feeling as though doing so is taking too much of a bite from their profits. 

Point-of-sale systems have also eliminated the need for bulky machinery that takes up too much space and dedicated dialup lines. Whether you are just starting out or you are looking to expand your business operations, a point-of-sale system can give you the flexibility you need.