The Hidden Costs of Payment Processing:
What Most Merchants Don’t Know
Other Transaction Fees
- Interchange: This mandatory fee is what your acquiring bank pays to the cardholder’s bank during each transaction. The percentage-based fee varies based on the card used, and to make matters even more confusing, Visa and Mastercard have hundreds of different rate categories based on card type, MCC, transaction size, and transaction method (card-present vs card-not-present)
- Assessment: These are easy to overlook because they’re paid directly to the card network, and are relatively small (usually a few cents) but will build up over time.
- Cross-Border: Only relevant if you’re processing transactions from foreign-based cards.
- Downgrade: Downgrade happens when a card type could have been charged a lower interchange rate had more information been sent to the bank at the time of transactions, specifically for business cards.
Batch Fees: Any time you close or settle a group of transactions, you’ll be expected to pay a fee.
The Three Processing Levels
Understanding the nuances of interchange fees is a time-consuming process, but it can be worth it, especially if you’re in the B2B sector where you may qualify for Level II or III processing.
Level I processing is what most companies use. The transaction data is basic and only includes the card number and expiration date, the amount owed, the transaction date, merchant name, and basic authorization data.
Level II data adds on with tax amounts, a customer reference number, and a merchant postal code.
Level III includes line item data, product codes, quantities, unit prices, and shipping information.
If you qualify for Level II or Level III processing, your interchange rates will be lower, resulting in significant savings over time, while also preventing downgrading.
Regulated & Unregulated Debt
Regulated and unregulated debit cards are treated differently by processing companies. Regulated debit cards, which are issued by banks with over $10 billion in assets, have a maximum interchange rate of 0.05% and $0.21 per transaction, while unregulated debit cards from smaller banks and credit unions have rates similar to credit cards.
It’s important to keep this in mind because if two buyers purchase the same product, but one uses a regulated card while the other uses an unregulated one, you will experience different interchange fees.
Dispute Fees
If a consumer requests a refund from their bank rather than going through your business’ standard refund process, your processor considers that a chargeback. As soon as the cardholder initiates the chargeback, a fee is charged to your account, even if you dispute it and win. When a chargeback occurs, the cardholder’s bank will request transaction documentation from your processor to dispute it, also resulting in a fee.
Service & Account Fees
As if transaction fees weren’t enough already, simply having a merchant account costs money. Be prepared to pay:
- Monthly or annual maintenance fees (based on processor)
- Compliance fees (or a non-compliance penalty if you aren’t certified).
- Per-transaction or monthly gateway fees
- A fee for receiving your monthly statement
Contract Fees
Always review your merchant account contract and review your statements. It’s not unusual for rates to increase (without notice) – but not with Impact Payments, we never increase your rates. In many cases, other processors will state that they have the right to change your rates in the fine print of your contract. You should also note if there’s an auto-renewal clause in your contract because, if you don’t like your current processor, you may be forced to lock in for another year or be forced to pay early termination fees for exiting the contract early.
Reserves
A processing company may impose a reserve account if you’re a newly established business, especially one operated in a high-risk area and/or industry, or if you’ve been formally labeled a high-risk merchant due to suspicious transactions.
The most common type of reserves account is rolling, where your processor holds back a certain percentage of your total funds.
Stay Vigilant By Auditing
Reviewing your monthly transactions isn’t the most exciting task, but it’s critical for your business. The biggest hidden cost most merchants have to contend with is the effective rate (your processing cost divided by the volume of transactions). This rate is often higher than what processors advertise. Compare your monthly statements against the total number of transactions to determine if fees are increasing.
Protect Your Merchant Account With Impact Payments
Credit card transactions are rarely ever simple, and to make matters worse, very few processing companies are transparent with business owners.
At Impact Payments, we put you first. Opening a merchant account should be a fantastic opportunity for your business, not a burden. We offer comprehensive eCommerce payment solutions to help businesses like yours succeed. When you partner with Impact Payments, you can expect a lifetime rate guarantee (never any rate increases!), month-to-month agreements without an auto-renewal catch, responsive, 24/7 support and fast onboarding, and fraud filters to reduce potential chargebacks.
Interested in learning more? Schedule a free discovery call with a representative today.
