A Small Business Owner’s Guide to Payment Processing Fees in 2021

This year, eCommerce saw an incredible leap forward as small businesses turned online. Many experts predict eCommerce is here to stay, and with it, online payment processing.

You may not have thought much about payment processing fees when you moved online. You needed a solution and you needed it fast, no matter the cost.

Now, as you plan for the year ahead, you have the time to review all your payment processing fees. You’re wondering if there’s a better solution out there.

This guide is here to help. With it, you can compare your current solution to others. In turn, you can make sure you’re getting exactly what you need for your small business.

Know the Types of Payment Processing Fees

There are a few different payment fees that go into each payment you accept. These are:

  • Transaction fees
  • Flat fees
  • Incidental fees

Transaction fees are charged per transaction, and they include several other fees. These are the interchange fee, the assessment fee, and the markup from your payment processor.

Flat fees are usually paid on a monthly basis. They’re charged by payment gateways and merchant services providers.

Incidental fees only show up on certain occurrences. Examples include if the client doesn’t have enough funds or there’s a chargeback on your account.

Different Payment Fee Structures

Usually, you buy payment processing through a provider. This vendor is the payment processor. They’ll bundle the flat fees, transaction fees, and incidental fees together.

Before comparing payment processing plans, you need to understand the different fee structures. That’s because the structure affects how much you’ll pay, although looks can be deceptive.

The three common structures are:

  • Flat-rate plans
  • Interchange-plus plans
  • Tiered plans

Each of these includes the usual payment processing fees. How they’re charged changes based on the plan.

Flat-rate plans are the simplest. The processor charges the same fee for every type of card. Sometimes, they charge the same fee for each type of transaction.

That means that you’ll pay the same rate for Visa and American Express. You’ll also pay the same rate whether the customer pays online or in-store.

Flat-rate plans can look more expensive upfront, but they aren’t always. They’re also much easier to budget for, since you always know exactly what the processor is going to charge.

Tiered plans charge based on transaction type. Rates are determined by the risk associated with the transaction. Online payments are riskier, so processors charge more for them.

Finally, interchange-plus plans have you pay the interchange fee, plus a set percentage or fixed transaction fee. They can save you money, but they may be more difficult to understand.

What Fees Are Negotiable

Most fees involved in a credit card transaction or electronic payment aren’t negotiable. That’s because they’re set by big entities like banks or credit card associations.

The interchange fee, for example, protects the bank if the customer happens not to have enough funds or never pays off their credit card. The interchange fee offsets the bank’s risk.

The same is true of credit card association fees. Since these are set, you won’t be able to get a better “deal” on them from any payment processor.

You might wonder if it’s even possible for a small business to save money on merchant fees, then. It is, and there are a few factors you do control.

First, you can decide which payment processor you work with. Processors’ fees are usually negotiable, since the processor sets the fee. Different processors will give you different rates, which means you can shop around for the best deal.

How many transactions you handle can also play a role in how much you pay per transaction. If you’re expecting an increase in volume, you’ll want to team up with a provider who offers a better per-transaction rate or a volume discount.

Finally, the perceived risk of your business can affect the rate you’ll get. Processors determine the rate on any given transaction. They may also assess you as a high- or low-risk merchant.

Businesses in certain industries are automatically considered high-risk. You may want to consider working with a processor that specializes in this area. They may offer you a better deal than other processors.

You may also be a high-risk merchant if you’ve defaulted on your account or often receive chargebacks. Many merchants deemed high-risk are in industries where chargebacks are common. If you can control chargebacks and keep your account in good standing, then you have a better chance of getting a good rate.

Know the Averages for Payment Processing Fees

As you begin to compare different processors’ fees, it helps to be aware of what the average going rates are in the industry. That way, you can tell if a processor is on the high side or the lower end of fees.

Visa is usually the least expensive card and American Express tends to be the most expensive. Mastercard and Discover fall in the middle. Average fees usually shake out around two percent, but they can get a lot higher for premium rewards cards.

You can get lower processing fees if you work with interchange-plus plans. Keep in mind those plans may end up costing more in the end. That’s thanks to the processor deciding the risk profile of a transaction, as well as the flat-fee charges tacked on.

Of course, you’ll need to assess your own business needs. You may be able to get a better rate with one provider, but they’re going to charge you more for online transactions.

A flat-rate plan may seem expensive. It might cost less if you handle many online transactions or expensive card payments.

With a better understanding of fee structures and factors that determine rates, you’ll be able to pick the best provider.

Grow Your Business With the Right Help

Payment processing fees can be tricky to understand. Choosing the right provider can be even tougher. With this guide, you’re in a better position to evaluate both what you need and which processor can provide it.

Payment processing is just one of many factors in building a successful business. Looking for more great advice? Check in with us often for all the latest tips and tricks.

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