When is a $500 payment from a client not $500 in your bank account? When your client pays by credit card. Merchants face a dizzying array of credit card fees, many of which can be confusing to pinpoint in the first place.
Read on to find out more about the fees you will face… and then keep reading until we get to the “good news”—that is, why it’s smart business to accept this form of payment despite the credit card fees and how you might consider offsetting them.
Types Of Credit Card Fees
The interchange fee makes up the bulk of your credit card fees. It’s the fee collected so that the banks can be reimbursed for carrying out the transaction.
For example, if your bank (the “acquiring” bank) is Greatest Bank Ever and your customer’s bank (the “issuing” bank) is Greatest Credit Union Ever, the interchange fee covers the convenience of these two institutions working together.
Interchange fees are decided upon by the credit card network and can vary depending on several factors.
- What type of card you are accepting, as in, whether the card is partnered with an airline or charity
- What type of industry you’re in; for example a restaurant will have a different surcharge than a supermarket
- Whether the card is used as a credit or debit transaction
Typically the interchange fee incorporates a percentage of the total plus a flat per-transaction fee. The only good news is that you never have to wonder if you are paying the best price because these are non-negotiable and the same for all processors.
2. Assessment fees
These are the fees that the credit card companies themselves, such as Visa, MasterCard, Discover, and American Express, collect for the ability to offer your customers a credit card option as a convenient form of payment. After all, with a credit card, your company is paid right away, while the credit card company waits for its customer to pay the bill. But, that doesn’t come free.
These fees are paid directly to the card network and are variable depending on a variety of factors, including:
- Your personal volume of monthly transactions
- Whether it’s a debit or credit card transaction
- Whether it’s an online or in-person transaction
Be aware that Amex is going to charge more than the others because of its business model. While other credit card companies rely on interest income from customers who don’t pay their bill in full each month, most of Amex’ cards only have a “pay-in-full” option. For that reason, they make their money almost exclusively off swipe fees (and annual fees charged to their customers of course) so they charge merchants a bit more.
However, change may be coming: In March 2018, Amex said it planned to slice its merchant fees to the lowest they have been in 20 years, although no timeline was offered.
3. Merchant service provider (MSP) markup fees
The company that processes your credit card fee, including QuickBooks, as well as Square, Stripe, WePay, and others takes a small nibble, too, since they are collecting for the credit card companies.
These fees are charged every time you do a transaction. Here at QuickBooks, ACH bank transfers are free, but we charge 2.9% for invoiced cards, plus $0.25 per transaction.
The other three services mentioned charge a flat 2.9% and a $.30 per-transaction fee for an online transaction.
If you have a physical card reader, QuickBooks will charge 2.4% per physical swipe, dip, and tap, plus .25 per transaction; compared to Square’s 2.75%. The fee falls when a card is present based on the assumption that there is less possibility for fraud when you are seeing the person and the card.
For the same reason, a transaction with a keyed-in card rises to 3.4%, plus .25 per transaction at QuickBooks, with a 3.5% and a $.15 per-transaction fee for Square.
Other processors might charge both a flat fee plus a percentage so see what works best for your particular business. You’ll also want to check to see what other fees the MSP charges, such as a flat monthly fee or a monthly minimum.
4. PCI compliance
Although this is technically another MSP markup, we broke it out separately since it’s important to understand this fee. PCI compliance means that you are complying with Payment Card Industry Data Security Standards (PCI DSS), which were developed to keep credit card data secure to help minimize the risk of fraud or a data breach. The credit card companies mandate compliance, but enforcement is generally left to the individual processors.
You’ll want to check with your MPS to see if they offer PCI compliance; most provide services for which they charge a fee, but some provide services without the specific fee, and some don’t provide services at all, in which case you will need to independently ensure you are compliant. The fee runs around $20 to $30 a month and will be billed monthly or annually. It covers services that might include security scans, customer education, and/or data breach insurance.
QuickBooks makes sure you are PCI compliant to ensure all of your security needs are up to date.
5. Credit card readers
Finally there’s one more fee you’ll probably need to pay, and that’s for a card reader. If you choose to use the Intuit GoPayment product, we’ll send you the Bluetooth card reader absolutely free. Square offers a reader that accepts chip cards and Apple Pay for $49.
You also might choose to purchase a more complex mobile Point of Sale system (mPOS) that not only serves as a card reader, but can do everything from track inventory to schedule employees. Decide which bells and whistles—if any—you need. The hardware can cost up to $3,000 with software usually running around $30 to $50 a month.
Want to know more about GoPayments? We’d love to walk you through our service and get you started with a free card reader.
Should You Accept Credit Cards In Light Of All The Credit Card Fees?
After looking over all those credit card fees, you might be thinking, “Forget it! I’m going all cash or check.” But that might be short-sighted, considering that half of all Americans say they carry cash less than half the time and of those, more than three-quarters have less than $50. In another survey, only 11 percent said they preferred using cash, compared to credit or debit cards.
As today’s norms veer toward the “cashless society,” not accepting credit cards can do more harm than good for your business.
Tips For Offsetting Credit Card Fees
Sure, it costs you, the business, to accept credit card payments. However, the convenience factor that your customers appreciate may make it worth it to you to absorb those fees as a cost of doing business. However, if you want to recoup some of those costs, there are ways to do so.
1. Charge a convenience fee.
If you prefer customers pay with another method, it’s certainly possible to require them to pay a “convenience fee” for the right to use a credit card.
Pro: It’s a transparent way to assure customers you are not hiding costs in your price and becomes more of a “user fee,” like a checked bag fee that’s only paid by passengers using that specific service, for example.
Con: Your customer might feel as though you are “nickel and diming” them and some credit card companies have their own rules about whether they are allowed. MasterCard, for example, only allows convenience fees for educational instructions and government agencies.
2. Raise your prices slightly.
Rather than only imposing the fee on certain customers, you can raise your prices by a small percentage to cover the cost of credit card users, particularly if that’s the most common form of payment for your company.
Pro: One-size-fits-all pricing can be easier for your customer to comprehend.
Con: Even if your customer is paying via another method rather than incurring credit card fees, they are being charged more for the product or service.
3. Set a minimum purchase requirement.
Many people might be tempted to charge that $3 cup of coffee, even though they have a few crumpled singles in their wallet. Knowing they can’t use a credit card without reaching a minimum can spur them to dig for the change—or inspire them to buy their friend’s coffee, too, and add a pastry. Voila! They’ve now hit your $10 minimum.
Pro: This won’t eliminate the fees per se, but at least you’re upping your sales.
Con: Yep, you guessed it…the dreaded “nickel and dime” issue.
4. Give a cash discount.
Pro: Instead of “punishing” your customers who are using a credit card, you’re providing a new perk to those who have cash; they feel like they are getting a bonus.
Con: It might annoy those using a credit card.
5. Just ask.
Sometimes all it takes is a simple sign at the cash register to let customers know you prefer cash, since you have to pay credit card fees for each transaction. Your customer might never have realized this and might be more than happy to comply once you suggest it.
Pro: Who could mind a simple ask?
Con: You might still end up paying the credit card fees.
As you can see, credit card fees are a fact of life, but by researching all your options, you can find the solution that’s best for your customer base and business.