What Are Per-Transaction Fees?
Let me explain what per-transaction fees are: they're the costs you as a business owner have to pay every time you process an electronic payment from a customer. These fees differ depending on your service provider, but they generally run from 0.5% to 5% of the transaction value, plus some fixed charges.
Key Takeaways
You need to know that per-transaction fees are expenses you pay to a service provider for each electronic customer payment you handle. These fees vary by provider but typically fall between 0.5% and 5%, with added fixed fees. As a merchant, you'll team up with merchant acquiring banks to manage the electronic payment setup and the account where funds get deposited. Remember, these fees usually break down into an acquirer fee and a processor fee.
How Per-Transaction Fees Work
Per-transaction fees come from multiple entities involved in the process, and you as a merchant will pay them. You'll partner with a merchant acquiring bank to handle all the communications in an electronic payment. You'll also set up a merchant account with that acquirer, which acts as your main deposit spot for transaction funds. If your business deals with a high volume of electronic payments, you'll depend a lot on this bank, so pay close attention to the terms in your merchant account agreement.
Components of Per-Transaction Fees
You pay various fees when accepting electronic payments—some vary, others are fixed. You have options among acquiring banks for these services, each with their own fee structures and capabilities, so choose what fits your needs. Acquirers usually charge per-transaction fees plus a monthly fee for managing your account. Another part is the fee to the network processing company; you decide which branded cards to accept based on your acquirer's network. Card companies like MasterCard, Visa, Discover, or American Express each impose their own per-transaction fees, often fixed per transaction. Some acquirers can negotiate lower rates through their processor connections. The core of these fees are the acquirer and processor components, but you might face extras like terminal fees if using providers like Square. This is why some merchants require a minimum spend for card payments, say $5 or $10, especially smaller ones that can't absorb the fees easily. Note that American Express, Visa, MasterCard, and Discover charge similar fees with minor differences, usually Visa being the lowest overall, though rewards cards often cost more.
Merchant Account Statements
Your acquirer will send you a monthly statement outlining your total costs and transaction details. These fees typically appear in categories like interchange, tiered, or subscription. In the interchange category, you'll see payment card company fees and provider fees listed separately. Tiered fees depend on transaction type, like in-person versus online. Subscription fees come monthly or annually.
How Can I Avoid Transaction Fees?
You can skip transaction fees by using cash for purchases. But if you're paying with a credit card, the merchant gets hit with the fee. Some merchants might raise prices to cover it, meaning you indirectly pay through higher costs.
Who Pays Credit Card Transaction Fees?
The merchant or vendor pays these fees, not you as the cardholder. Businesses cover them to the card issuer or payment processor.
Can Businesses Charge a Credit Card Surcharge?
Merchants pay the transaction fees, and some add a surcharge to recover the cost. But in certain states, it's against the law for them to do this.
The Bottom Line
These per-transaction fees hit merchants, not consumers directly, but you might feel the impact if merchants increase prices to offset them. Smaller businesses often set minimum purchase amounts for card use to avoid losing money on small transactions.
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