Business buyers want to make purchases using credit cards. With them comes convenience, access to rewards programs, and flexibility of delayed payment.
But, credit card processing fees are a big obstacle preventing many B2B sellers from accepting this payment method.
In this blog, you'll learn:
- What credit card processing fees are
- Who the players in the credit card processing cycle are
- How you can reduce credit card processing fees
- And more!
Improved customer satisfaction. Superior payment experiences. Lower churn rates. Higher-value transactions. Increased cash flow. Greater revenue.
If business-to-business (B2B) merchants could achieve even a few of these lifts, they’d likely do it in a heartbeat—until you tell them the key to it all is accepting credit cards.
Even though digital payments (including credit card transactions) have been trending upward in B2B over the last few years—particularly during the pandemic—many suppliers prefer not to accept cards. The primary reason? It costs too much.
Indeed, credit card processing fees and rates are a significant factor when deciding whether to offer credit cards as a payment option. In 2020, US merchants paid more than $110 billion in credit card processing fees. And when you consider that B2B transactions are typically higher in value than business-to-consumer (B2C) purchases, it’s clear that credit card processing fees are a huge obstacle to accepting this payment method.
Despite the financial challenges of accepting credit cards, it’s becoming as imperative in the B2B world as it is for B2C merchants. Business buyers want the same convenience, opportunity to take advantage of rewards programs, and flexibility of delayed payment.
If you still can’t get past the cost, we’re here to help. In this article, we’ll break down exactly what goes into credit card processing fees and share some of the ways B2B businesses can reduce those costs. After reading this, you might be ready to start offering your customers more payment choices—and reap the business rewards that come with it.
What are credit card processing fees?
Credit card processing fees are the fees a merchant must pay whenever their customers elect to pay by credit card. This means that the good deed of providing payment flexibility for your customers does not go unpunished. Every transaction comes with a cost (which happens to be predetermined by your merchant services provider).
Here’s a breakdown of the credit card processing fees that you can expect:
1. Credit card processor fees
To accept credit cards, you need to partner with a vendor that offers payment processing services. The payment processor moves the money from the issuing bank to the acquiring bank. The processor’s fees depend on the amount and value of the transactions processed and the pricing model you choose.
Some payment processors also act as the payment gateway. This means they’ll facilitate the payment acceptance, securely transmit the payment data to the card networks and banks, and fund the merchant (you).
When providing a custom fee for your business, payment processors will look at factors like your industry, business and credit history, and your sales volume. Businesses that transact in high volumes (and who are considered lower risk) will usually have lower credit card processing fees. Businesses who don’t fit this profile or don’t have much payment history (as they’re just getting started) tend to pay higher fees.
2. Interchange fees
These are the fees that make up the bulk of the cost of accepting credit cards. Interchange is what’s paid to the issuing bank (the cardholder’s bank) by the acquiring bank (the merchant’s bank) to cover any costs associated with the risk of approving the payment.
Every credit card payment network (Visa, MasterCard, American Express, etc.) has a published, percentage-based interchange fee. Some payment processors also add a fixed dollar amount per transaction, typically from $0.10 to $0.30 as part of the interchange fee. (This cost varies by processing company.)
Merchants pay interchange fees to the payment processor, who is responsible for paying the interchange fee to the credit card issuer. The credit card issuer will then pay it to the issuing bank.
Not all credit cards are created equal when it comes to interchange fees. A basic card will have lower interchange fees than an international business card with plenty of rewards. The rate also depends on the brand and type of the card, as some will have higher rates than others. The interchange rate for a debit card is around 0.3%, while the average credit card has an interchange rate of about 1.81%.
3. Assessment fees
Usually paired with the interchange fee, the assessment fee is a small fee that merchants pay directly to the card network (Visa, Mastercard, etc.). These fees will vary based on a number of factors that are unique to each network. Some charge higher rates for credit cards vs. debit card transactions, while others may charge more for higher-volume transactions.
Mastercard charges 0.12% for transactions greater than $1,000 and 0.13% for transactions less than $1,000
Visa charges 0.13% for credit card transactions and 0.12% for debit card transactions.
4. Authorization fees
Credit card authorization is the process of ensuring a customer has sufficient funds before a transaction can be approved. This is run through the payment processor, who gets in touch with the issuing bank. If the customer has sufficient funds, a hold in the amount of the transaction will be placed on their card and a message will be relayed to the processor that the transaction can be completed.
Credit card associations will charge a small fee to complete this process on every transaction, which the processor passes onto the merchant. Even if a transaction isn’t approved, merchants are subject to this fee.
If your business falls victim to credit card testing (where bad actors use your ecommerce site to test stolen credit card details), these small fees can amount to significant losses, so it’s important to be aware of them.
5. Other fees
There are several other credit card processing fees that are imposed by the payment processor, including but not limited to:
- Markup fees, per transaction
- Monthly service fees
- Monthly minimum fees
- Batch fees
- Chargeback fees
- Payment terminal fees
What are the average credit card processing fees?
When you add up all the various fees associated with accepting credit card payments, merchants can expect to pay between 1.3% and 3.5% of each transaction. The average is about 2%.
The precise amount for each transaction will depend on the credit card network (Mastercard, Visa, etc.), the type of card (basic vs. premium, etc.), and the industry in which you operate.
Here is an estimate of the various processing fees charged by the credit card networks (curated by Value Penguin). These values are only estimates as there are several factors (like those described earlier as we went through the various types of processing fees) that will influence how much a merchant actually pays.
American Express : 2.5%–3.5%
Who collects credit card processing fees?
The credit card processing cycle involves a number of players—and each one needs to be paid.
When you break down average credit card processing costs by party, it looks something like this:
Authorization fee: collected by the payment gateway (accounts for 3% of total cost)
Transaction fee: collected by the payment processor (accounts for 7% of total cost)
Assessment fee: collected by the credit card network (accounts for 10% of total cost)
Interchange fees: collected by the issuing bank (accounts for 80% of total cost)
Can credit card processing fees be reduced?
Yes! As a B2B merchant, don’t assume that you will automatically pay the highest posted rates. There are ways to decrease some credit card processing fees. Here are a few of them:
1. Negotiate with your payment processor
As you set up your merchant account with a payment processor (or vendor that offers payment processing software), you’ll have an opportunity to negotiate payment processing fees. Things like the size of your business and volume of sales (bigger and more is better), plus risk mitigation processes will all work in your favor as you discuss costs. Look over all of the fees associated with a partnership and ask which ones can be adjusted.
2. Engage in interchange optimization
When you consider that the vast majority (80%) of credit card processing fees are found in interchange fees, it’s critical to get that number as low as possible. You can do that through interchange optimization, the process of sending additional data along with a transaction in order to qualify for the lowest interchange rates possible.
Remember that interchange fees go to the issuing bank, who wants as much assurance as possible that the risk of extending credit is low. The more data you can provide about a transaction, the more the bank will feel secure.
When you can share information such as your client’s industry (some have higher rates than others), where the product is shipped to and from, the invoice number, and the invoice line-item details, you’ll likely be able to lower the interchange fee.
The most basic amount of data you can pass along is known as Level 1 processing. By passing along more data, you can qualify for Level 2 or Level 3 processing.
If you integrate your payment processing service with your Enterprise Resource Planning (ERP) platform, it’ll be even easier to practice interchange optimization. Solutions like Versapay make it simple to automatically send Level 2 and Level 3 data along with each transaction—with no extra effort from your staff. That’s because information like customer invoice numbers, number of items purchased, sales tax, and customer codes is already housed within your ERP.
When your ERP and payment processing are linked, you’ll qualify for much lower interchange rates—with potential savings of up to 40%.
3. Consider a credit card surcharge
In an effort to recoup some of the costs associated with accepting credit cards, merchants have the option to charge a fee to customers who pay by credit card. Surcharging is permitted in most US states, but not all, so it’s worthwhile to check the rules of your jurisdiction.
While credit card processing fees may seem like a deterrent at first glance, there’s a lot to gain when you provide your B2B customers the flexibility and convenience of paying by credit card. By offering them the choice to delay payment, you’re providing enhanced customer service and encouraging higher-value transactions. All the while, you’re able to improve cash flow thanks to the near-immediate nature of credit card transactions.
With the right strategies in place, you can reduce your credit card processing fees and give your customers the payment flexibility they want.
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