Business Owners: What It Really Costs to Accept Plastic

Processing fees and rates can be confusing. More often than not, business owners lack a certain understanding of why they pay what they do to accept credit cards. Perhaps they are too  busy running their practice to focus on this service. Often, it seems as though the service providers are out to confuse, with convoluted pricing and statements that appear to be written in a foreign language.

The truth is, the majority of the money you pay to accept plastic goes to a combination of the credit card’s issuing bank, the card association and the processor. The vast majority of the expense associated with accepting credit and debit cards is the same for all businesses, large and small. It is referred to as “interchange,” and all of the cost goes directly to the bank, which issued the credit card to the consumer.

Regardless of the size of the practice, everyone pays the same interchange cost to banks. The card associations (Visa, MasterCard and Discover) also add a very small percentage on to every transaction, typically, around 0.1%. This may seem like a small number, but payment volume in the United States alone will be almost $4 trillion in 2012.

Whatever is leftover after paying interchange and association fees is the processor’s margin. Some of this margin covers costs and the remainder is profit.  The monthly transaction volume will determine the amount of actual margin left over.

Unfortunately, most merchant service providers take advantage of business owners, with regards to this expense. Often, the worst culprits are the bank, who offered the service along with the checking account, when the practice opened their doors. They create complicated pricing metrics and tiers, which can further cloud the confusing interchange cost structure. This is done to create more margin between the interchange cost and merchant rates.

There are simple pricing options available, however, which will create fair margin and minimize your practice’s exposure to fluctuations in monthly costs. Working with a trusted partner to review your statement is the best way to start.

Henssler Small-Business Solutions delivers a transparent pricing model for all clients, and can tailor rates to your business’ specific needs. For more information, contact us at experts@henssler.com.

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