Understanding The Complex Nature Of Credit Card Processing Rates And Fees

25 Jun Understanding The Complex Nature Of Credit Card Processing Rates And Fees

Credit cards are plastic money, which offer a lot of convenience to the holders. Every credit card holder is required to pay a certain amount as fees for credit card processing. Most credit card holders may fail to understand the calculation of the fee charged due to its complex nature.

Parties involved in credit card transactions

Credit card transactions involve a number of parties and each one of them has a specific role to play. The main parties involved include:

  • The credit card associations which frame the rules for various types of credit cards.
  • The banks which issue credit cards to customers.
  • Acquirers or credit card processors which pass authorization requests and help in the completion of transactions.
  • The merchant account providers such as sales organizations and financial institutions that handle processing of credit cards.
  • Payment gateways which help routing of transactions to acquirers for online purchases and transactions.

Types of credit card fees

Various types of credit card fees can be categorized into wholesale and mark up fees. Wholesale fee refers to the wholesale cost related to all transactions. These types of merchant services credit card processing fees are decided by credit card associations and the issuing banks. Mark up fees is charged in order to earn profits. Based on these two primary categories, credit card fees is sub divided into the constituents:

Transactional fees

This fee is charged for every transaction undertaken through the credit card and constitutes the main operating cost. The transactional fee consists of assessments and interchange reimbursement fees. This fee is charged as a percentage of every transaction. In addition to this, a flat fee may also be levied per transaction. Assessments on the other hand are charged as a certain percentage of the summation of the value of transactions undertaken in a month.

Flat fees

Apart from the transactional fees, flat fees may also be charged under the following heads:

  • Terminal fees which is charged on direct swiping of the card at physical stores.
  • Payment gateway fees which is charged for online transactions.
  • PCI fees which is charged by the payment card industry.
  • Annual fees which are charged for the services provided to card holders.
  • Early termination fees which is charged for terminating the contract at an earlier date.
  • Monthly fees which are charged to cover the various expenses involved in running call centers for providing support.
  • Miscellaneous fees like monthly minimum fees, statement fees, IRS report fees, online reporting and network fees.

Incidental fees

Incidental fees are charged only on the occurrence of certain incidents related to customer or merchant credit card account. This may be in the form of chargeback fee which is charged post the retrieval request. The incidental fees may also include the fee charged for insufficient funds in order to cover various expenses.

It is important for credit card holders to know the nature of the various types of fees charged. It can help in safeguarding their interests.

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