Processing Credit Cards at Fixed Transaction Fees

Processing credit cards at fixed types of bundled percentage discount fee agreements have the problem of frequently tacking on a fixed per-transaction fee assessed by the merchant account provider on each transaction. These charges can range quite widely from just pennies to amounts higher $0.25 per item.

This type of fee must not be confused with the per-item part of the interchange rate for processing credit cards, which is covered by bundled discount rate. The acquirer might add on an additional per-item fee resulting in a total fee to the merchant of, say 3.25 percent + $0.25. This may look like an interchange fee, but the actual Interchange - which also features both a percentage and per-transaction fee – is going to be much lower! The $0.25 per-transaction fee goes directly to the acquirer as an additional fee. If the merchant account user feels this is confusing, well, it is. This kind of pricing model is unfortunately widely used by acquirers processing credit cards, and is among the leading reasons why retailers look for payment acceptance audits.

The actual cost of this per-transaction fee is in fact proportional to the cost of the item being sold. So the lower the average sale's amount, the bigger the actual cost in terms of an actual percentage. This may not be a problem for many retailers processing credit cards. Per Visa regulations, the average sale's amount of the four major card brands (Visa, MasterCard, American Express and Discover) weighted to account for market share is about $80 or so. If the client is a merchant with a low average ticket amount, however, this per item fee can pile up rather quickly. For example, the $0.25 per-transaction fee used above would cause the fee on a $10.00 item to rise by 2.5 percent, raising the overall fee to 5.75 percent. This represents an overall increase of 77 percent over the base 3.25 bundled discount rate. on the other hand, this low-average-ticket-amount retailer has an advantage over the average merchant when it comes to the absolute cost that is associated with the base 3.25 percent bundled discount. The $10 retailer will pay $0.325 in base discount, while the $80 one will pay $2.60.

Retailers processing credit cards also need to be aware of other per-item charges, such as the authorization fees, as they also can lead to an increase in the overall cost of processing a payment. So, what a sophisticated, knowledgeable retailer has learned is that discount rates, fixed per-transaction fees, and interchange all have a deep correlation to the average ticket amount. Understanding the importance of these elements usually contributes to better pricing, sales and marketing decisions.