Many business owners don’t realize how much they’re wasting each month in unnecessary payment processing fees. Find out what these fees are to learn how you can save money each month.
Credit card use has never been more common. After all, cash purchases accounted for less than 25% of all transactions last year, according to the Federal Reserve. And with every single credit card transaction comes a list of fees associated with it—fees businesses like yours have to pay.
But that’s not to say everyone pays the same fees or the same amount for processing credit cards. We’ll show what fees every business has to pay and also what fees your business can avoid.
First, we’ll examine what credit card processing fees are.
What Are Credit Card Processing Fees?
It’s a simple fact: if a business accepts credit cards, they’re going to have to pay fees. These fees are basically the fees that the business owner is responsible for paying in order to accept credit cards from customers.
These fees can include flat fees, transaction fees, authorization fees, setup fees, and incidental fees. Some occur only once, while others happen once a month or even with every transaction.
So how do you know which ones you’re stuck with and which ones you can avoid? We broke down every fee into three categories:
- Avoidable fees
- Optional fees
- Necessary fees
Let’s start with the fees you should avoid from your payment processor.
What Fees You Should Avoid
Not all payment processors are created equal. Some overtly charge you too much. Others sneakily over-charge you without you knowing about it. But there are still others that are straightforward and trustworthy.
How can you tell which one to go with? It’s quite simple: the honest, trustworthy credit card processors won’t unnecessarily charge you or deceive you with hidden fees.
You might consider walking away from any payment processors that try to get you to pay the following fees:
- Annual Fees from the processors to provide support and services—these are typically a red flag and should be avoided, since it’s just a way to make extra money.
- Statement Fees for mailing out paper statements to merchants. This should be automatically included in the monthly fee and shouldn’t be extra.
- Next day funding fees are charged when you batch out before 10:00 pm and want to receive those funds deposited the next day in your account. This too should be included and not billed extra.
- IRS Reporting Fees for reporting transactions to the IRS. Again, this service should be included.
- Application and Setup Fees come when you open a merchant account, are provided equipment, or other similar services. Understandably, some companies charge to install POS systems because they have to run cabling. However, others automatically charge this fee when little or no work is done, and therefore is necessary.
- Early Termination Fees result from cancelling your contract with the credit card processor. This is a completely unnecessary fee.
- Account Closure Fees are unnecessary fees charged when you close your account, even if you’re not closing it early.
Avoid other fees by making sure your company’s information and systems are kept up to date.
These would include:
- PCI Non-Compliance Fees are avoidable fines that average $50 a month from Visa, Mastercard, Discover and AMEX. PCI (Payment Card Industry) compliance is a set of requirements from the card companies. They make sure all the card and payment information gets processed, stored, and transmitted securely. As you probably guessed, you can avoid this by making sure your equipment is compliant with their standards.
- TIN Mismatch fees are a per-occurrence fee from the bank. They occur when a business changes their name or TIN (Tax identification Number), but they don’t match existing records. You can avoid this by notifying your processor of any changes to your business name or company’s TIN.
- Terminal/Equipment Fees are from renting equipment from the payment processor. Your business will save a significant amount if you purchase the equipment outright instead of renting. This is due to being locked into a 3 year contract when renting and having to pay an early termination fee up to $2,000 or more.
- Non-Sufficient Funds Fees come from when you’re not able to pay for processing services. This fee is also known as an ACH reject and averages $30. Avoid this fee by remembering to tell your processor if your company’s bank account has changed or if there’s a block on accounts due to fraudulent activity.
What Fees May Be Optional
By evaluating your business needs, you may be able to avoid paying some service fees.
Take a look at how your own card processing takes place and from what sources payments are made. Then look at the following list to see if there’s any unnecessary services you don’t need. These include:
- PIN Debit Network Fees for accepting debit cards with Chip and PIN transactions. It’s noteworthy that if you choose to not accept PIN debit cards to avoid these fees, you can still process debit transactions.
- POS Software Fees are from using Point of Sale software provided by the payment processor to keep your system updated and maintained. Depending on what you decide for your business, you may not need this continued service of $10-20 a month.
- Payment Gateway Fee for online transactions. This is the virtual equivalent to the terminal or equipment fees for eCommerce sales. Look to save $5-20 by choosing not to process payments online, along with avoiding a ¢5-10 gateway per item fee.
- EBT fees for accepting payments on Electronic Benefits Transfer (EBT), averaging ¢10 per transaction as well as a month fee of $10-$20.
- Monthly Minimum Fees occur if you don’t process a certain volume or amount of transactions in a month. This fee is common for small clients with low volumes of transactions and is normally around $25. However, it can be avoidable if your business actively uses their account.
- Wireless fees include Wireless Per Item (an authorization fee of 10-20c), Wireless Access Fees (a monthly fee from the wireless company), and Wireless Activation (a one-time sim activation fee from the wireless company) if you need wireless payment terminals. If you don’t need a wireless terminal, you’ll save money by eliminating all three.
- Non-Sufficient Funds Fee if you’re not able to pay for processing services. Also known as an ACH reject, it typically costs $30. But you can avoid it if you remember to tell your processor when your bank has changed or that there’s a block on an account.
What Fees Are Unavoidable
Sometimes it is a comfort to know that everyone’s facing the same situation. That’s the case with some of the payment processing fees that everyone has to pay.
Here’s some of the main ones:
- Monthly Service Fee from the processors to provide support and services. This $10-15 cost is required for you to have a merchant account. But take note: if you’re not paying this upfront, you’re actually paying it somewhere else. That’s because there’s an inevitable cost for the processor. So if a processor says there isn’t a monthly service fee, that likely indicates they’re not being honest with you.
- Voice Authorization Fees come from when the customer’s issuing bank requests more information to authorize a flagged transaction. They are normally $1.
- PCI Compliance Fees are for satisfying regulatory and compliance needs for processing credit and debit cards. They range from $5-15 a month.
- Service and Acceptance fee. These fees depend on which processing price structure your business chooses, whether that’s Tiered, Interchange, or Flat. For more information on pricing structures, see the PPS article that helps you understand which one is best.
- Address Verification Service Fees are ¢5-10 per transaction fees for eCommerce businesses that need online transactions verified to help avoid fraud.
- Chargeback Fees are for credit card transactions that are challenged or disputed by the customer and are normally $15-30.
- Retrieval Request Fees of $10-30 occur after a chargeback has been filed, which happens if the customer’s bank requests a receipt for the transaction.
- Batch Fees of ¢10-20 are from transactions submitted for processing at the end of the day. If your business is able to do a lot of volume, these prices may be reduced.
As you can see, there are a lot of factors when it comes to payment processing. So examine what your needs are and review the processing company’s fine print. You’ll be happy you did, since you’ll end up saving a substantial amount each month.
Progressive Payments Solutions wants to help you learn how your business can save even more by choosing the right processor. That’s why we put together a free complimentary guide on the five most important steps to choosing a payment processor to help you keep moving forward.