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What You Need to Know About Payment Processing Fees

How much are fees and other costs

Payment processing fees are the worst.

If you’re just starting in business, these fees are a rude awakening about the cost of doing business. For example, you could get a $1000 payment from a client and then only see $950. And that’s not even that bad.

The other thing that’s awful about payment processing fees is that there seems to be no standard.I remember my last boss wanting to bang her head against the wall every time the statement for the payment processing terminal came in. There seemed to no rhyme or reason as to why some transactions were more expensive than others.

Unfortunately, you’ll need to get over it as a business owner. There are fewer people are carrying cash than ever before. Not only that, but some people prefer to pay with card so they get points and rewards. That means you may be leaving more money on the table if you don’t accept credit cards. Since credit card processing fees are a necessary evil, here’s what you need to know about how to deal with them.

Different companies have different fees.

Different payment processing companies have varying fee structures for processing payments. PayPal, for example, has higher fees than other online payment processors. The good news is business owners can shop around to see which fee structure makes the most sense for them.

You can negotiate payment processing fees.

Business owners may even be in a position to negotiate the fees with a payment processor. Don’t be afraid to let your payment company know that you’re not happy with your current fees. Having said that, you can review the fees and rates with your payment company and try to negotiate a deal.

This is especially the case if they process a lot of transactions for you. The more transactions they are processing, the more leverage for a business owner who can take their money elsewhere.

Remember, it’s more expensive for them to find a new customer than it is for them to cut you a deal.

Hardware costs money.

Part of the reason why my boss was experiencing high payment processing fees was because she was using a terminal to process payments. The hardware is usually expensive and you’re typically roped into a long-term contract to use it. The easiest way to deal with this to not use the hardware period. You can take payments online or take them straight from your smartphone.

In the 21st century, you also have the option of using e-cash, digital wallets and cryptocurrency. In other words, payment terminals are no longer a necessity, and therefore neither are their payment processing fees.

Different types of payment processing may have different fees.

Another thing that would drive my boss nuts was how different transactions had different fees. For example, a debit card from a particular bank would be a lower fee than a debit card from another bank. Credit cards were sometimes costlier.

On the other hand, depending on the bank, debit card transactions were cheaper. It was almost as if we needed a key to try and figure out the logic behind all of this.

Additionally, there could be different fees associated with one transaction. For example, one transaction could be subject to transactional fees and a flat fee. Flat fees alone could refer to terminal fees, payment gateway fees, annual fees, compliance fees, non-compliance fees, monthly minimum fees and statement fees. That is a whole lot of fees!

If something like a chargeback occurs, then that could accrue an incidental fee. Sometimes you’re also charged an additional fee for batch transactions. This is why it’s so important that business owners know they can shop around for different payment companies.

There are lots of players involved.

When processing payments, there is certainly more than meets the eye when it comes to how many people are involved. The reality is there are sometimes several companies involved just to make one transaction.

  • First, there are the credit card companies themselves. They are the ones who decide on the rules.
  • Second, are the credit card issuing banks (who may have their own deals with processors).
  • Third, are the credit card processors. These are the people who actually process the payment. They are basically the middle man between a merchant and the credit card companies.

(Note: There may also be different companies that handle the statements and tech support).

Next, are the merchant accounts. Often times, in order to process business payments you need a merchant account. And finally, you have payment gateways. This could be a shopping portal or a physical terminal. That’s at least five different companies that are involved in processing just one payment.

Payment processing is changing.

Payment processing fees may be a pain, but the good news is the payments industry is changing.

  • First, there are many payment processors to choose from and they are competing for business.
  • Second, payment processing terminals aren’t even necessary if you’re only taking payments online.
  • Third, we can literally send and receive payments via smartphone apps like Venmo.
  • Fourth, we now have things like digital wallets and Bitcoin.
  • Fifth, we can have mini point of sale systems attached to our phones with something like Square.

And for the record, most of this has happened very quickly. The payments industry is in the midst of big changes, which means payment processing fees are likely in for a change as well.

While we don’t really know where the payments industry is going, we do know that the 21st century has brought us more options for financial transactions than ever before.

Final Thoughts

Unfortunately, you can’t avoid accepting credits cards in an effort to cut costs on payment transaction fees. That could actually cost you more money in the long run.

The good news is business owners do have options not just with payment processing companies, but also by having the ability to accept various forms of payment.

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Millennial Finance Expert and Writer
Amanda Abella is a Millennial Finance Expert that helps people understand their finances and eliminate all bad debt. She wrote a book, Make Money Your Honey. It is a powerful guide on how to have a better relationship with work and money. You can actually start building an extremely profitable business around the things you’re passionate about.

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