Card Payments Explained
Do you know what you are really paying to process credit card transactions?
Understanding your true credit card rates can be confusing. Your bank may highlight one low rate, but you may get that rate on only a very small percentage of transactions. All Merchant Processors have their own way of presenting fees and transaction charges, so it is often difficult to make apples to apples comparisons amongst companies competing for your business. The following sections break-down the components of the charge to process credit/debit card transactions. Sometimes these fees are hidden, but they are always there in one form or another.
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The Two Components of a Credit/Debit Card Transaction
Each time you process a credit or debit card transaction through your merchant account, you are charged an inquiry fee and a percentage of the total transaction. The inquiry fee is a flat amount, typically between 20 cents and 35 cents. The percentage charged, is typically called your “credit card rate” and it is variable based on the type of transaction and the type of card used.
Credit Card Rate Categories
Credit Card Rates are typically broken into two categories:
Credit Card Rate Types
The rate for each credit card transaction type is determined by both the kind of card used, the way it is processed, and the time it takes the merchant to batch the transactions for processing. It is important to know whether you do mostly card present or card not present transaction when selecting a plan type, because card not present charges are significantly higher in a Type 1 plan than in a Type 4 plan.
Type 1 (or Retail) - This type of account is designed for card-present transactions.
Type 4 (or MO/TO) - This type of account is designed for card-not-present transactions.
Money Saving Tip
If you have an account that gives you good rates for card-present transactions it will typically penalize you heavily for card-not present transactions. However, you can get a Merchant Account that is designed for these Card Not Present transactions that will provide you with substantially lower rates. Thus, before selecting an account you need to understand the type of transactions you use most. Also note that it is very important to immediately destroy credit card information provided in writing or over the phone and to store electronically submitted information (such as that submitted over the Internet) on a secure server.