Small businesses can quickly find themselves in debt from credit card fees. According to the National Small Business Association’s recent study, small businesses pay $2,487 annually in credit card processing fees. This is just for credit card-accepting businesses.
It can be difficult to keep track of the amount you pay in credit card processing fees due to so many types of fees, including interchange, assessment, and transaction fees. As if all that weren’t enough, these costs will only increase in the future.
The NSBA study shows that the average small business will pay $3,081 per year in credit card processing fees, an increase of 24% over 2018.
What can you do to control your credit card processing expenses? It’s crucial to be familiar with the types of fees that may be charged, and how they are calculated. There are several steps you can take to lower your credit card fees. These include negotiating with your bank or switching to flat-rate pricing.
There is no way to eliminate credit card processing fees, regardless of what you do. You can improve the efficiency and profitability of your business by looking at your costs closely and taking steps to reduce them.
What are Credit Card Processing Charges?
When you receive a payment by credit card from a customer, you will be charged processing fees. There are many types of these fees. The most common ones include interchange fees, assessment fees, and transaction fees.
Interchange Fees: These fees are set each year by credit card companies (Visa and Mastercard). Interchange Fees: These fees are set by credit card companies (Visa, Mastercard, etc.) and paid to the issuing bank each time a customer uses their credit cards to make a purchase. The fee amount varies depending upon the card used and the transaction size, but typically it is between 1% and 3% of the total purchase price.
Assessment Fees: These fees are set by credit card companies and paid to card associations (Visa or Mastercard). These fees are usually flat and range in price from $0.01 to $0.03 per transaction.
Transaction fees: Your credit card processor charges transaction fees for every credit card transaction they process for you. They can either be a flat fee or a percentage. Typically, they range between $0.15 and $0.30 per transaction.
These are just three types of fees. Your credit card processor may charge you miscellaneous fees such as account setup fees and monthly statement fees.
How are Credit Card Processing Fees Calculated
Processing fees for credit cards are usually calculated as a percentage of the transaction amount plus a flat fee per transaction. If you are charged a 2.9% transaction fee and a $0.30 interchange fee, your total fee will be 2.9% + $0.30 = $0.59.
These are the three things you need to know to get an accurate estimate of your credit card processing fees.
1) The interchange rate applicable to the card type being used
2) The card association’s assessment rate
3) A transaction fee charged to your processor
Once you have all the information you need, you can use this formula for calculating your credit card processing fees.
Total Fees = Interchange Rate + Assessment Rate + Transaction Fee
Let’s take, for example, a $100 credit card transaction that you process with a Visa card. Your processor will charge a $0.30 transaction fee. The interchange rate for Visa cards is 1.51%. The following formula can be used to calculate total fees:
Total Fees = 1.51% + $0.01+ $0.30 = $1.82
In this example, the total processing fee for credit cards would be $1.82, or 1.82% of the total transaction amount.
What is the Average Credit Card Processing Fee in 2022?
Average credit card processing fees are around 2.9% + $0.30 per transaction. The actual amount that you are charged will depend on which card type, card association, and transaction fee your processor charges.
Below is a breakdown of average fees for credit cards of different types:
Type of card Average fee
Visa 2.54% + $0.24
Mastercard: 2.43% + $0.21
Get 2.5% + $0.25
American Express 3.5% + $0.30
American Express has the highest fees while Discover Card has the lowest. These are only averages. Your actual fees could be higher or lower depending upon the factors listed above.
What is the Cost of Credit Card Fees in 2022 for Small Businesses?
For small businesses, the cost of credit card processing fees will rise in 2022. This is due to several factors, including the rising costs of transaction fees and interchange fees.
Many small businesses will have to raise their prices to offset rising costs. If you charge $100 per product or service currently, your price will increase to between $103 and $104 by 2022.
It’s crucial to plan for higher costs if you own a small business. You can increase your prices before they are needed, which will help you avoid shocks and dissatisfaction from your customers.
What is the Cost of Credit Card Fees in 2022 for Large Businesses?
Large businesses can also expect to see an increase in credit card processing fees by 2022. These businesses will have more options when it comes time to offset the cost.
Large businesses may be able to negotiate lower interchange rates with credit card processors. Some of these businesses can pass some of their costs onto their customers by charging convenience fees for credit card payments.
The cost of credit card processing fees can vary depending on your business size. All businesses can expect an increase in their expenses in 2022.
How Can I Reduce My Credit Card Processing Fees?
There are several ways to reduce credit card processing fees. The size and type of your business will determine the most efficient method.
Small businesses, for example, can negotiate lower interchange rates from their processors. Some businesses can pass some of these costs onto their customers by charging convenience fees for credit card payments.
A merchant account at a large bank can offer better deals for larger businesses. These accounts often have lower transaction fees and interchange rates.
The best way to lower your credit card processing fees is to compare offers from different processors. This will allow you to find the right processor for your business and help you save money.
The Bottom Line
For small businesses, the cost of credit card processing fees will rise in 2022. This can be attributed to several factors such as the rising costs of transaction fees and interchange fees. Many small businesses will have to raise their prices by an average of 3% to 4.4% to offset rising costs.
The credit card processing fees for large businesses will increase as well. These businesses will have more options to offset the increased costs. The best way to lower your credit card processing fees is to compare offers from different processors.
Your current credit card processing system may not be working for you. You might consider switching providers or looking at other systems that can handle your usage and reduce fees. One of the most respected payment consultants Balanced Process Partners will work with you to identify the right system for your business and lower fees.