Credit Card Processing & Payment Gateway Fees Explained
So You Can Understand Why Pricing Models Matter
Pricing models matter.
Credit card processing fees and payment gateway fees can be complicated and overwhelming to understand. Nevertheless, they must be paid if you want your business to have the ability to accept credits cards. Understanding how the fees are formulated will keep you from being taken advantage of by processing companies, as well as help you accurately calculate your overhead costs. You could be paying more than you should be.
The players: Who does what?
- Merchant Account Providers. The bank or agent of a financial institution that supplies you with your merchant account.
- Interchange Network. These are the financial services corporations that create the credit cards and set the rules. The biggest ones are Mastercard, Visa, American Express, and Discover.
- Issuing Banks. The financial institutions that issue the credit cards of the credit card associations.
- Processor. An intermediary that enables transactions to flow through the system to obtain authorizations and deposits via the Interchange Network. Merchants do not choose their Processor. It is usually determined as a result of which bank or financial institution your bank or Merchant Provider represents; however, this is transparent to you.
- Payment Gateway: Software service and set of APIs that enable the Merchant to access the systems needed to transmit a request for payment.
Three categories of fees that you can expect to pay:
- Payment Gateway fees. The Payment Gateway will typically bill you for its service fees, which can include a per-transaction fee, a monthly maintenance fee, and fees for value-added services you have opted for.
Your Merchant Provider bills the remaining two categories of fees:
- Interchange fees
- Processor fees
It is important to factor these fees into your overall credit card processing costs before selecting providers. There are two basic pricing models related to interchange and processor fees:
- Bundled, also known as Tiered Pricing. Bundled pricing is when the Merchant Provider combines all the interchange fees and processing fees into one bundled rate. As a result, you are not able to clearly see what you are paying for.
- Interchange Pass-Through (also known as Cost-Plus) Pricing. Interchange pass-through pricing is a more transparent and trustworthy pricing model. Your statement plainly shows how the fee for each and every transaction is calculated, so that you know the service charges you’re paying are accurate and fair.
Interchange pass-through pricing is a more transparent and trustworthy pricing model. Your statement plainly shows how the fee for each and every transaction is calculated, so that you know the service charges you’re paying are accurate and fair.
Payway uses interchange pass-through pricing. We charge the actual interchange rate based on card type plus 10 cents per transaction. If you’re paying a bundled rate for payment processing, you’re likely paying more than you should be to accept payments.
See how much you could be saving by using our interchange pass-through interchange pass-through savings calculator.
Mary Caldiero, Director of Performance Marketing
Mary Caldiero is Director of Performance Marketing at Payway. She is responsible for driving consistent, cost-effective new customer growth as well as creating marketing retention strategies.