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The Real Costs of Accepting Credit Cards

By: Jaimie Yun

 

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While accepting credit cards helps your business bring in more revenue, it does come with a cost. Don’t be shocked to find out after you start working with a merchant card processor that there are hidden fees.

 
Here are the costs you should know about to make an informed decision when looking at card payment processing services.
 
1. You Pay for the Equipment
 
If your brick-and-mortar location plans to use a traditional merchant processing machine, as well as card swiping devices for your customers, you will pay for them, anywhere from $200 on up. 
 
How to Lower Your Cost: If you must use the traditional style machines, look for used ones on eBay. But also consider a mobile card swiper like Square, which is free.
 
2. If You Run an Online Store, You May Pay a Higher Per-Transaction Fee
 
While credit card transaction fees vary greatly from provider to provider, it’s standard for online stores, or any business running a credit card without the physical card involved (also called “card not present”) to be charged a higher per transaction rate. The reason? There’s a greater risk of fraud when the retailer cannot verify the card physically, so that cost is passed on to you. Consider it the price you pay to accept cards on your website or via phone.
 
How to Lower Your Cost: Not all merchant services companies will charge more, so seek out the one that doesn’t charge more for “card not present” transactions.
 
3. You’ll Pay for the Privilege of Receiving a Monthly Statement
 
Seems silly, but your merchant processor may charge you a monthly statement fee of approximately $10 a month on average. This is more of an administrative fee, and one you usually can’t avoid.
 
How to Lower Your Cost: Ask if your provider will waive or reduce that fee if you opt for paperless statements. You can try negotiating the fee down as well.
 
4. If You Don’t Meet Your Minimum Threshold, You’ll Be Charged
 
Most providers charge a monthly minimum fee that you’ll pay if you have fewer transactions or sales than you agreed to in your initial contract. This fee may be around $25.
 
How to Lower Your Cost: The best way to reduce this fee is to research up front what the minimum number of transactions a merchant card processing service requires. You may have fewer transactions initially, so try to bargain for a lower threshold and agree to revisit that number later on. While you may qualify for a lower per-transaction fee with a higher minimum number of transactions, you’ll end up paying more if you consistently fail to hit your mark.
 
5. Getting Dinged with Chargeback Fees Costs You More Than Money
 
Because laws are in place to protect consumers, it’s definitely possible for your customers to go to their credit card company and request a refund on your product without even contacting you. Credit card companies research the complaint a bit, but that doesn’t protect you fully from chargebacks. You can be charged as much as $75 in fees for a chargeback, as well as lose that revenue from the sale along with shipping costs. Having too many chargebacks can put your reputation on the line and even bump up your transaction rate.
 
How to Lower Your Cost: Offer stellar customer service and easy returns to minimize chargebacks. If a credit card company reaches out about a complaint, be communicative and try to resolve it without a chargeback.
 
The best advice is: scrutinize your monthly statement. Ask your service provider to explain fees you don’t understand, and minimize unnecessary credit card processing expenses. Remember, every fee you pay takes away from your profit.
 
Published: May 29, 2014
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Jaimie Yun

Jaimie Yun has more than 15 years experience across financial sectors of public accounting, corporate finance and more. She is on the advisory board of PayDemand.com, a credit card processing marketplace that allows businesses to compare multiple credit card processing rates and get the best offer while remaining anonymous to processors. Connect with Jaimie on Google+ and follow PayDemand on Twitter.

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