The lifeblood of an eCommerce business is being able to accept payments online. Online payments can be processed directly from an account, credit or debit card or through an all-in-one payment process such as Radar Payments. All of these methods provide customers with a secure, simple and fast way to make a payment online.
To close a sale, you must offer the right product or service at the right time and the right price, tailored to your audience. The key to crossing the finish line is accepting a wide range of payment methods.
However, whether you are accepting payments solely through an eCommerce site, or you also rely on your POS at a brick and mortar store, it is important to understand the fees involved in payment processing. Several players facilitate the payment process and want to be compensated for their roles.
What Are Payment Processing Fees?
These are the costs incurred by business owners when processing payments from customers. Payment processing fees vary depending on various variables such as the risk level of a transaction, the card type (reward, business, corporate, etc.) and the pricing model preferred by the particular payment processor.
Factors That Affect Payment Processing Fees
An interchange fee is charged to help the issuing bank cover the handling costs and the risk of authorizing the sale, as well as handling potential fraud. Therefore, it is the amount that the credit card issuer (such as Discover, Visa, and Mastercard) charges the receiving bank each time a credit card is used.
Merchant account provider fee
A merchant account allows a company to accept credit card payments as payments are deposited into the merchant’s account at regular intervals. However, for this process to work, the business must interlink the credit card network to a merchant account.
Merchant account providers charge a small fee on top of the interchange fee, based on the volume of transactions and business type. The company may also charge a monthly maintenance fee and an additional fee for disputes by customers.
How the card is processed
Payment processing fees will also vary depending on how the card is processed.
By swiping the card at the cashier, you can be charged a lower fee since this method is less risky. Fraudsters may abuse stolen or lost credit cards to make purchases online and over the phone, which results in higher fees as they carry a higher risk.
Types Of Fees Included In Payment Processing Fees
A flat-rate payment plan is one in which a payment processor charges the same fee regardless of the type of credit card, the brand, or whether the purchase was online or in-store. Fees for flat-rate transactions are either a percentage of the transaction amount or an additional fixed fee added to the percentage.
Interchange plus pricing
When the payment processor uses an interchange plus pricing strategy, it charges a fixed fee or percentage per transaction along with his interchange fee. It is more difficult to understand interchange plus plans than flat-rate plans, and it raises the complexity of your bank statement.
As part of a tiered pricing model, the processor groups interchange fees into three categories based on the level of risk associated with the transaction. The rates are divided into a qualified rate, mid-qualified rate, and nonqualified rate. One downside of tiered plans is that each transaction’s level of quality is determined by the payment processor, so a business cannot be sure where its customers fall in terms of tiers.