How to Understand and Optimize Your Order or Eliminate Processing & Set Up Fees

Understand Payment Processing

Today, merchants (online e-commerce businesses) like us have the opportunity to sell our products in a variety of locations and online marketplaces. To help increase visibility and drive sales, they also sell their products via multiple channels. But selling products across different channels can lead to a lot of complications when it comes to processing fees.

The cost of transactions is one of the biggest and most common challenges customers face today.

What do processing fees mean and how do they affect your transactions?

Payment processing fees are the costs associated with accepting payments from our customers. Online marketplaces have revolutionized the way we approach shopping, providing a convenient platform for consumers and businesses alike to engage in transactions. Whether we accept cash, check, credit card or another form of payment, you’ll probably have to pay some sort of fee for processing payments. This processing fee is usually different for every business and can change based on how customers pay us.

Such fees typically range in percentage of the transaction, but can be higher or lower depending on the company you work with and your specific needs. Payment processing fees cover things like renting POS software, maintenance, fraud prevention, and more.

process payments

Payment processor fees dissected

Payment processors or merchant service providers offer services to facilitate credit card processing. They charge their own fees for their services, which may include various components such as a percentage of the transaction value, a fee per transaction, monthly fees, setup fees, statement fees, and others. These fees can vary between providers.

Interchange fees

These are fees charged by the card networks (Visa, Mastercard, American Express, etc.) and are a percentage of the transaction amount plus a flat fee. Interchange fees are set by the card networks and vary based on factors like the type of card (rewards, corporate, debit, etc.) and the nature of the transaction (in-person, online, keyed-in, etc.). These fees usually make up a significant portion of the total processing cost.

Interchange fees are included into the processing fees and are a type of the per-transaction fee that we pay the acquiring bank whenever a cardholder purchases something on our website with a branded debit or credit card.

In response to increasing pressure from merchants, regulators, and the general public, more and more banks have begun offering customized interchange fee arrangements for their business customers who have a larger per cost transactions, when the transactions are made via credit card. The goal is to balance the need for healthy profits while keeping costs low enough so that we can continue to accept credit cards or digital credit cards as payment methods.

These fees vary depending on factors such as whether it’s a domestic or international transaction, if it’s directly tied with the issuing bank or another third party entity, how much money you have in your account, and whether it’s a debit or credit card transaction.

Even though the exact percentage and formula will vary, Interchange fees are usually calculated as a percentage of the sale, plus a fixed fee.

When it comes to processing payments, the costs can get a little tricky – some platforms have higher processing fees. Each payment processor has its own rates and fees. For example, some processors charge per transaction, while others require a monthly subscription fee with variable transaction fees based on the dollar volume of transactions.

Monthly fees for services

Not a highlight of our business life, but still, each platform costs a certain amount of money. Regardless whether it’s a sales channel or a payment gateway, the cost will be deducted from our account if we want to continue offering credit cards.

Assessment fees

Assessment fees are an additional component of credit card processing fees charged by the card networks, such as Visa, Mastercard, or American Express. These fees are distinct from interchange fees and are designed to cover the operational costs of the card networks themselves.

Assessment fees are typically calculated as a small percentage of the transaction value. While the specific percentage can vary depending on the card network and the type of transaction, it is generally a fixed rate applied to the transaction amount.

The purpose of assessment fees is to support the infrastructure, services, and maintenance provided by the card networks. These fees contribute to the ongoing operations of the network, including activities such as fraud prevention, technology development, customer support, and network security.