Understanding Credit Card Processing Fees


Fees for credit card transactions are no game – they are unavoidable and can affect a business’s bottom line immensely. With the wrong processing provider and pricing structure, a business could be paying upwards of 1-2% more than they should be. How is this possible? Let’s dive into a couple examples that could be costing you money, and end on what you can do to fix it.

Bogus Pricing Structures

When a credit card provider says he can set you up with a 1.87% rate on all Qualified (target rate) transactions with a slightly higher percentage for Mid- and Non-Qualified transactions, that sounds good right? Did you know that only a select amount of transactions (like Debit card transactions) that qualify for the target rate will hit that rate, while all other transactions will be assessed the lowest rate AND the Mid-Qualified rate AND sometimes even the Non-Qualified rate on top of that? What isn’t made clear is that this tiered pricing structure could lead to major costs in processing charges that the provider is reaping the benefits from.

This structure allows for transactions to downgrade, or be assessed a higher rate compared to the target rate, if they are not settled in a timely manner or do not contain the amount of information necessary (i.e. AVS like a Zip code) to qualify for the target rate. Downgraded transactions are more often seen for card-not-present transactions since more information is required to qualify for the target rate. Businesses of all types should be on the lookout for this pricing structure as they are likely paying more than they should.

Padded Fees

Another trend we have seen in the industry is a bit harder to identify if you are not aware of what the card associations charge you. Padding Interchange fees is a deceptive tactic where a processing provider will slightly mark up Interchange rates that are supposed to be passed through to the merchant. Interchange is the pre-set rates and fees that the card associations will charge, dependent on card type used, type of business category, and how the transaction is processed (i.e. online, in-person, etc.).

For example, a Visa Classic credit card used at a restaurant will have an Interchange rate of 1.54% + $0.10 per transaction. We come across many cases where that percentage is marked up by .05% to .10%, with some instances over .50%! The provider usually will know that this is the case, but they will never disclose that information to you even if you ask. After all, they are the ones making the money under your nose.

Choosing the Right Provider

We at PolyPay understand the difficulties of choosing the right processing provider. There are hundreds of them out there who all specialize in one thing, and will boast another thing they are good at. That is why we recommend doing some of your own research on the companies you are interested in beforehand, and then ask the right questions when you approach them.

Questions like these about rates and fees are a good starting point:

  • “What pricing structure will I be set up with?

  • “Do you pass through the fees charged by the card associations to me?”

  • “What fees will I be charged in addition to the cost of each transaction?”

  • “Are there any termination fees if I cancel my account?”

It is important for a business to fully understand the processing partner they are about to choose to provide their credit card processing services since a mistake here could substantially impact their profitability.

PolyPay takes a head-on approach to this topic. We offer full transparency of our rates and fees with the aim that you will trust us to set your business up with the most appropriate solution. Contact us today to learn more about processing rates and fees, and how we can save you money with our processing solutions.