In the Trenches: The Agony of Credit Card Fees

by Brett Snyder

2 min read

Once I decided to start looking beyond Paypal, I found myself in a world of pain. The credit card processing industry seems to be built on confusion, and that has made me want to rip my hair out every time I delve into this area.

First, I had to learn the terminology. You need a merchant account with a bank in order to be able to collect the money. But you also need a payment gateway to be able to accept payments online. Some places offer both merchant accounts and gateways. Others partner with multiple providers, and some leave you to your own devices. This may seem confusing, and it is, but it’s nothing compared to when you start looking at credit card rates.

In general, you’ll see a combination of a flat authorization fee (maybe 20 or 30 cents) plus a percentage taken out of every transaction you process. The “simple” plans have three absurd tiers available. These are called Qualified (aka Qual), Mid-Qualified (aka Mid-Qual), and Non-Qualified (aka Non-Qual).

When you’re looking for credit card processing, the big cheap rate they flash in front of you is the Qual rate. Unfortunately, a lot of transactions don’t fall under the Qual rate, and I quickly found I had to know exactly what I was taking in order to see what plan was best. For example, rewards cards or business credit cards often don’t fall into this category. They’re usually Mid-Qual. And then there are a variety of reasons why something could be Non-Qual, including not having collected enough info from the credit card holder when you made the sale.

But here’s the kicker: You can’t really know in advance what category something falls into, at least not that I’ve found. You just have to cross your fingers and hope for the best.

On top of that, the rate that you get charged at the time of the transaction might not even be the right one. At the end of the month, there can be settlement charges where they adjust the amount you pay depending on whether the rate was charged correctly for the type of card used.

There can also be monthly minimum fees, “batch” fees, annual fees, and fees for pretty much anything else you can think of. Oh, and don’t forget that this applies to Visa and MasterCard. If you take Amex, it’s a whole different story. It’s mind-numbing. And you can see why it becomes just about impossible to compare between providers.

In the end, I’m still using Paypal for online purchases because I simply had too much trouble justifying a switch without actually knowing how my costs would shake out.

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