When processing payments from clients, the company in any case incurs costs related to payment processing, regardless of which firm it applies to. It is important to understand that the company will pay a commission, which will depend on a huge number of factors, in particular on what method of payment is used, what type of cards is used, how high the risk level of the transaction is, what pricing model is used to calculate the commission, and so on.
In this article, we’ll take a closer look at what payment processing costs will depend on and how they can be optimized.
The most popular method of payment among customers is the use of credit cards. In order to understand what kind of commission the company will have to pay; you need to consider several factors affecting the final amount at once:
- The cost of exchange. This is the fee charged by the company that issued the card. It is mandatory and will be charged whenever you pay by credit card. This fee covers the cost of processing the card and issuing it, the company assuming the risks that are invariably associated with fraud, etc.Depending on which company, MasterCard or VISA, issued the card, there will be its own amount of fees. In addition, the type of card used, the risk level of the firm offering its services to customers, and the method of accepting payments are often taken into consideration to determine this amount.
- Merchant Account Provider Fees. For opening a merchant account and providing further services for its maintenance, the company also pays a certain amount of commission. At the same time, the merchant account provider undertakes to credit funds to the merchant’s bank accounts, as well as to provide other services. The amount of the final fee will depend on what type of business the company is in and how many transactions it makes per month. In addition, the merchant account provider may also charge a fee for all disputed transactions.
- The way the credit card is processed. The amount of the fee and the number of these payments will also depend on how the card is processed. After all, each method has its own degree of risk, and the higher the risk, the more you will have to pay for it.For example, if the transaction is done online, the degree of risk will be quite high, as well as the fee, which is not the case with payments over the counter, in the case of which the fee will be less.
Types of processing fees
A payment processor may charge a company different type of fees. Let’s consider the most popular of them:
- Fixed fee. Regardless of what cards are processed and by what method, the processing company sets a fixed fee that is charged to the merchant. In the end, the company will need to pay a percentage of the transactions as well as this fixed fee.
- The fixed commission plus a percentage of the transaction. This pricing scheme is more complicated, here the company will pay a percentage per transaction as well as a fixed fee. For example, it could be 0.5% of the transaction amount + $15. How profitable is this scheme? A lot will depend on how many transactions the company makes.
In addition, the processor may take a fee depending on the risk level of each transaction. The lower the requirements of the processor, the higher the risk, and therefore the company will have to pay a higher fee.