By Colin O'Keefe, Merchant Cost Consulting

"What are the average credit card processing fees I should be paying?" This is the most common question we tend to get asked at Merchant Cost Consulting when merchants try to lower their credit card processing fees. Unfortunately, there is no easy answer, and the solution typically involves various moving parts.

These factors include the types of credit cards you accept, how you accept credit cards from customers and the processing markup that a credit card processor will charge you. All these play vital roles in the average credit card processing fees your business will be charged monthly.

Average Credit Card Processing Fees Explained

The average credit card processing fee cost for card-present transactions ranges from 1.7% – 2.05% for Visa, Mastercard and Discover.

The average credit card fee cost for card-not-present transactions ranges from 2.25% – 2.50%. Again, these credit card merchant rates can vary depending on numerous factors and should not be precise numbers for you to go by, but rather estimates.

American Express

As many business owners are aware, American Express (AmEx) tends to be its own monster in this industry, and you typically will pay more in fees compared to the other three major card brands if you accept it. If you wonder how AmEx can charge more than the other card brands, you are not alone. We go into more depth on the issue in this blog post.

Recently, AmEx introduced a new credit card processing pricing structure called Opblue. This new model offers the possibility of lower credit card processing fees but depends on the pricing negotiated with your current merchant services company and how you accept credit card payments.

When dealing with Opblue and your current credit card processing company, you will want to be careful. Most credit card processing companies try to use this as a money grab and claim the service markup—the revenue the credit card processor makes—needs to be much more than the other card brands, which is not true.

To give an average credit card processing fee for AmEx is difficult because of the different AmEx credit cards your customers may have. Each credit card has a different rewards program associated with it, which will dictate the interchange fee that is passed along to your business. In addition to the interchange fee, you will be charged the service markup that was pre-negotiated with your current credit card processing company.

A good way to see your average credit card processing fees with AmEx is to figure out exactly what you are paying for the other card brands. If it is significantly more, then something is most likely incorrect. If you would like to have one of Merchant Cost's payments experts take a look, you can submit your statement to our analyzer here.

How to Calculate Average Credit Card Processing Fees

This is another question we frequently receive, and it is another one that is hard to answer because of how subjective it can be.

The effective credit card processing rate, also known by calculating total fees divided by total volume, does give you a good representation of what your all-in costs are. However, it does not always give a good representation of if you are priced appropriately.

For example, an auto body shop that is seeing a lot of debit cards and swiping them through a credit card processing terminal would have a much lower cost than an e-commerce shop seeing a lot of reward credit cards, even if both merchants were on the same service markup with the same credit card processing company.

We never would tell someone to only rely on an effective rate to understand what they are paying. It is better to be accurate and have an idea of the markup the processor is making on your business.

Effective rates can fluctuate heavily based on card types, transaction sizes and volume.

Different Processing Methods Can Fluctuate Effective Rate

As mentioned earlier, how your business is processing cards has a large impact on your average credit card processing rates.

There really are two general ways to process cards: card-present and card-not-present. Card-present transactions are when the card is physically in the location—this can be EMV, swiped, Apple Pay, etc.—and "card-not-present" refers to businesses that are processing cards remotely. An example of this would be an e-commerce business or any type of mail-order business.

Interchange costs are all affected by how your business is processing cards. Most of the time, a card-present transaction is going to be cheaper than a card-not-present transaction.

Why Do Interchange Costs Fluctuate?

The variation of higher rates for card-not-present transactions has to do with risk. The card brands feel that accepting a card that is not actually present at the business brings much more risk relative to someone presenting the card for payment, hence the higher costs due to the higher risk factor associated with card-not-present transactions.

Card-present businesses:

• Typically are lower risk and receive lower interchange plus markups from processors;
• Suffer fewer chargebacks and less fraud that contribute to overall cost; and
• Are charged interchange fees of roughly 1.65% + $0.10 per transaction.

Card-not-present businesses:

• Are higher risk and pay higher interchange fees plus markups from processors;
• Have higher occurrences of chargebacks and fraud, resulting in greater expenses; and
• Are charged interchange fees of roughly 1.90% + $0.10 per transaction.

How Transactions Affect Average Credit Card Processing Fees

Ticket size has a huge impact on a business's average credit card processing fees. Ticket size is essentially the average cost of transactions you are running at your business. As the ticket size decreases, the number of transaction fees incurred increases. Since transaction fees have a greater impact on smaller transactions, they have a greater impact on overall cost. This is the reason why a coffee shop or convenience store will tend to have a higher effective rate than an auto shop. However, the coffee shop might receive better pricing, even though its effective rate is higher.

To give you an example, let's pretend that two businesses are each processing $10,000 in volume. Business A has an average ticket of $5, and Business B has an average ticket of $100. This means Business A will have 2,000 transactions and Business B will have 100 transactions. For math purposes, let's assume these two businesses are on the same exact pricing and both paying a $0.20 per transaction fee. Business A would pay $400 in transaction fees while Business B would pay just $20 in transactions fees.

Debit vs. Credit Card Charges

Interchange rates for credit cards are approximately six times higher than they are for debit cards. The reason for this is purely based on risk. Debit card transactions are much easier and safer than credit card transactions because the funds come directly out of the customer's linked bank account, transaction approval is simple, and the transaction will be approved if there is enough money in the consumer's account to cover the transaction.

Credit card transactions require the card-issuing bank to extend credit to the consumer and then cover the cost. From there, the consumer is responsible for paying the bank later. In most cases, credit card transactions will be approved if the limit on the credit card can cover the cost.

Final Thoughts

By now, we hope you have a good understanding of the different factors that can influence your total cost. Calculating your effective rate helps determine what you are paying, but it should not be the only cost you look at. As mentioned above, the effective rate can vary based on numerous factors and should only serve as a ballpark figure. Some other things to look at on your statement include monthly costs, per-transaction fees, discount rates and surcharges.

We understand this stuff can be complicated and time consuming. If you want someone to have an unbiased look to see if you are receiving competitive pricing based on the factors above, you can send in your statement or reach out here.

Merchant Cost Consulting (MCC) is not a credit card processing company. Without switching your current credit card processing company or integrated management software, MCC helps medical spa companies reduce their credit card merchant fees, audit their merchant statements, and share within the savings it successfully negotiates for your business. AmSpa Members can save with MCC's Affinity partnership. If MCC does not find savings for you, you will pay nothing and you keep your peace of mind, at least in the present moment, that your fees are as low as they can be; if MCC can find savings, you share the savings it achieves for your business.