Credit card processing is the act of accepting credit cards as payment for goods or services. The average credit card processing fee is around 2-3% per transaction. Many businesses choose to absorb these fees, but some pass them on to the customer in the form of a surcharge. When shopping for a merchant account, it’s important to compare pricing structures to find the best rate. Some providers charge a flat fee per transaction, while others tie their rates to the type of card used or the amount of the purchase.
When you swipe a credit card, the issuer approves or declines the transaction based on your credit limit and available funds. If approved, the issuing bank pays the merchant for the purchase price, minus the transaction fee. The merchant account provider also deducts a small percentage of the total sale, called a discount rate. The remaining funds are deposited into the merchant’s account, usually within two to three business days.
Credit card processing fees are paid by both the merchant and the cardholder when a credit card is used for payment. The fee is typically a percentage of the total transaction, plus a small fixed fee. For example, a 3% credit card processing fee on a $100 purchase would cost the merchant and cardholder $3 each, for a total of $6.
There are two main types of credit card processors: banks and independent sales organizations (ISOs). Banks typically charge higher fees than ISOs, but offer more comprehensive services. ISOs are often small businesses that specialize in credit card processing and merchant accounts. They usually have lower fees and may be able to provide custom pricing structures to meet the needs of your business.
When shopping for a credit card processor, it’s important to compare pricing structures and fees. Some processors charge a flat fee per transaction, while others tie their rates to the type of card used or the amount of the purchase. It’s also important to compare features and services, such as customer support, fraud protection, and mobile credit card processing.
The best way to find the right credit card processor for your business is to compare multiple options. Once you’ve narrowed down your choices, contact each provider to learn more about their rates, fees, and features.
What are the Benefits of Credit Card Processing for Small Businesses?
Credit card processing can be a great way for small businesses to improve cash flow and make it easier for customers to pay. Credit card processing also offers a number of other benefits, including:
- Increased sales: Customers are more likely to make impulse purchases when they can pay with a credit card.
- Improved cash flow: Credit card payments are deposited into your account more quickly than other types of payments, such as checks.
- Reduced fraud: Credit card processors offer fraud protection services that can help reduce the risk of chargebacks and fraudulent transactions.
- Greater convenience: Customers can use their credit cards to make purchases online, over the phone, or in person.
- Increased customer satisfaction: Customers appreciate the convenience of credit card payments and are more likely to return to businesses that accept them.
What Are the Disadvantages of Credit Card Processing for Small Businesses?
Despite the many benefits, there are also some disadvantages to credit card processing, including:
- Increased costs: Credit card processing fees can add up, especially for small businesses.
- Chargebacks: If a customer disputes a charge, you may be responsible for the cost of the transaction, plus a fee from the credit card processor.
- Fraud: Credit card fraud is a serious problem that can cost businesses thousands of dollars.
- Inconvenience: Some customers may not have a credit card or may not want to use it for small purchases.
Despite the disadvantages, credit card processing can be a great way for small businesses to improve sales and cash flow. If you’re considering accepting credit cards, be sure to compare pricing structures and fees from multiple providers. You should also consider the needs of your business and your customers before making a decision.