As a merchant, you can expect to pay some sort of processing fee when it comes to your point of sale system that processes credit cards. Every merchant who processes credit card payments must pay a fee to process credit cards. They may pass it on to the customer by requiring minimum purchase amounts when paying by credit card, or by using other methods, but it still has to be paid one way or the other.
The thing is, you may be paying more than you need to because you are most likely using tiered pricing instead of the interchange-plus model.
Processing Credit Cards
To understand where some of your fees come from, you have to understand how credit cards are processed. When the card is used, several institutions may be involved. There is the company that handles the processing, then there is your bank, and, last, the bank that holds the credit card account. It is very possible that each of these institutions will charge some type of fee for the credit card transaction.
What Is Tiered Pricing?
This type of pricing looks great on a bill. Everything is bundled into one or a few lines so that your bill looks neat and tidy. In reality, this is just a visual illusion. You feel good about it because it looks so simple, so your brain assumes it must be the best value. The problem is that this type of pricing makes it too easy for banks to hide fees and other costs, only giving you the end result.
What Is Interchange-Plus Pricing?
This type of pricing does not look as simple as the tiered version, but it may involve fewer fees. Instead of all of the fees getting lumped together in one or two lines, everything is itemized so that you can see exactly where your money is going and, potentially, why it’s going there. Though it may not be as visually pleasing as the other method, it offers more information so that you can make better decisions.
For one thing, you can see exactly where the majority of your costs are going. Which payments are costing you the most? Do you need to raise your minimum purchase limit, or is the fee the same no matter what the purchase is? Can you adjust your own prices and processing to make up for some or all of the fees?
These are the questions you can ask with this kind of pricing because you have all the information you need right in front of you. The solution may be as simple as asking your provider for Interchange-Plus pricing or by switching to a different processing company.
When you first decided to take credit card payments, you were probably mostly concerned with the convenience to the customer. Maybe you were willing to pay excessive fees in order to process more payments. Maybe you didn’t even know about some of the fees you were going to be paying. With the interchange-plus model, you can see each and every fee that goes into accepting credit cards.
For more information about this pricing model or other credit card processing options, feel free to contact Leap Payments today.
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