The modern world of commerce has already shifted to digital payments.
During the 12 months leading up to October 2021, over 25% of US consumers opened a new credit card—a significant rise from 15.7% one year prior and consistent with pre-pandemic figures as revealed by data from The New York Fed.
With this spike in credit card usage, it’s crucial to understand credit card processing fees as it impacts your business’ bottom line.
But ever wondered how these fees are calculated and what they cover?
Especially if you’re a business owner in high-risk verticals, credit card processing fees tend to be higher than those of low-risk businesses.
Credit card payment processing fees are unavoidable in business, but they don’t have to be a burden. Understanding these fees and how they can impact your bottom line can help you maximize profits as a merchant.
In this guide, we’ll help you get to grips with what credit card processing fees mean for your high-risk business. We’ll share valuable insights into how to lower your credit card processing fees using high-risk payment processors.
What Are Payment Processing Fees?
Credit card processing fees are the costs for accepting card payments or other electronic payments. These fees typically comprise two components: an interchange fee and a payment processor fee.
Merchants may also incur other types of fees, such as regular subscription fees, statement fees, service fees, chargeback fees, credit card surcharges, equipment rental charges, or setup/activation fees.
These fees can range from 2.87% to 4.35%, and this doesn’t include any merchant service provider fees. It’s important to note that these charges can add up quickly, reducing your profits and potentially impacting your business’s bottom line.
Those operating in higher-risk verticals or industries are likely to face even higher processing fees that may put a strain on their finances. Therefore, small business owners need to take the time to research potential processing fees and compare prices among different credit card processors.
How Do Credit Card Processing Fees Work?
Credit card processing fees are a necessary evil in running a business. But understanding how credit card processing companies work and additional fees can help you maximize profits.
Here are the different types of credit card processing fees and how they’re calculated.
Interchange Fees
Set by the card networks like Visa, Mastercard, Discover, and American Express, interchange fees are calculated as a percentage of each transaction plus a flat fee.
Interchange fees cover costs associated with verifying the transaction—such as authorizations and fraud protection—and serve to incentivize banks that issue the cards to keep offering them.
These fees range from 1.5%-3% of each transaction.
Payment Processor Fees
The payment processor fee is compensation for hosting and maintaining the technology used to secure transactions.
Payment processors charge fees to—well, process payments—and facilitate transactions at a flat rate or based on transaction volume. These fees include monthly, per-transaction, equipment lease, and statement fees.
Depending on the payment processor, these costs can range from a few cents to a few percent of each transaction.
Assessment Fees
Assessment fees in payment processing are small yet important charges applied to credit card transactions. Typically, these fees amount to a percentage of the total transaction value. The major credit card networks set and charge them.
Factors such as card type (credit card versus debit card), types of transactions, and transaction volume can affect the rate at which these assessment fees are charged.
Additionally, foreign transactions may incur extra costs due to currency conversion or other factors.
Payment Processing Pricing Structures
You can use several strategies to reduce your rates, such as shopping around different payment networks or negotiating rates with current providers. You can also consider various pricing structures and decide which will work best for your business.
Flat-Rate Pricing
Flat-rate pricing is a payment processing model that allows you to pay a fixed fee for each transaction. This fee includes interchange fees, card brand fees, and the processor charges or own margin fees.
This structure can benefit businesses that want the predictability of their monthly costs, making budgeting easier. But if other variables could lower your interchange rate, you may not benefit from those savings with a flat-rate pricing structure.
Additionally, processors may charge a flat monthly fee in addition to their per-transaction fees, which can increase your overall costs without adding additional processing services or benefits.
Tiered Pricing
Tiered pricing is a popular payment processing structure among merchants in high-risk verticals and industries.
This structure offers merchants a discount rate under the “qualified” tier. But they will need to pay higher fees for transactions outside that tier.
This pricing model allows businesses to enjoy low rates on only certain cards or transactions while paying higher fees for other types, such as rewards cards.
Additionally, the non-qualified tier may also include higher costs based on features such as transaction size and frequency.
With tiered pricing, even though the qualified rate may seem attractive initially, it usually only applies to a small fraction of transactions. For this reason, merchants should carefully weigh the cost implications before deciding if tiered pricing is right for them.
Interchange-Plus Pricing
Interchange-Plus pricing is a payment processing model that provides businesses with the most cost-effective way to process payments. It offers you lower interchange rates and the ability to predict your fixed fee.
Interchange-plus pricing lets you budget more accurately and get better value for money. It usually works best for businesses in high-risk verticals and industries like retail, e-commerce, hospitality, and travel. It reduces their risk of unexpected costs.
The processor’s fee will depend on monthly transaction volume, industry sector, and processing history.
Membership or Subscription Pricing
Membership or subscription pricing structures are handy for businesses in higher-risk verticals and industries. This type of payment processing offers a fixed monthly fee with an additional charge per transaction—meaning that overall costs may be lower than with other models.
However, when considering this type of pricing, consider the number of transactions and business volume, as it may not always result in savings. And while the processor won’t charge you a percentage-based markup, you will still have to pay the membership fee.
Lower Your Processing Fees With Von Payments
If you’re a business owner in a high-risk vertical or industry looking to reduce your processing fees, you’ll benefit from Von Payments and its Zero-Fee Processing Program.
These PCI-compliant and comprehensive solutions help you avoid the typical interchange and assessment fees charged by most processors and eliminate any additional processing costs that would otherwise be incurred.
Furthermore, Von Payments provide high-risk merchant accounts, so you won’t have to deal with higher processing fees from issuing banks and credit card issuers that perceive your business as having greater risk exposure.
With Von Payments, you’ll save up to 10x on credit card transactions and other digital payments, freeing up capital that can be used for other significant investments.
Plus, Von Payments uses advanced technologies such as tokenization and fraud protection tools to ensure your customers’ highest level of security.
Sign up today to take advantage of these savings!