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What are merchant processing fees?

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Accepting credit cards has a positive effect on sales. Now you only need to choose a company that will ensure smooth processing of online payments. But it is not that simple, because you will have to pay a commission for it. How to calculate it? Which company will offer the best conditions?
Unfortunately, it will not be possible to find a quick answer to these questions, because each company uses its own pricing models. In this article, we will explain what is merchant fees and which one will be the most beneficial.

What is the merchant fee and where does it come from?

If you offer your customers to make a purchase using credit cards (relevant for 99% of companies), for each transaction with the card you pay the standard commission of Visa or Mastercard, depending on which card is used. The amount of commission is determined as a fixed amount or percentage of the sale.
In this case, somebody has to process these payments, right? For such processing, a merchant services provider charges its own commission, which, together with the commission of Visa or Mastercard, make up the commission of the credit card seller.
As a company, it is profitable for you to pay the minimum fee for processing payments. To understand what exactly the minimum commission will be, you need to know several pricing models that are used to form these commissions. The most popular models are:

  • Multi-level;
  • Fixed-rate;
  • Interbank Pricing.

Interestingly, the same model can be beneficial for one company, but completely disadvantageous for another.

Fixed rate

As the name implies, you pay the same commission for each trade. For example, a trading service provider may charge your company 2.5% for each credit card transaction. Also note that each firm may charge an additional 20 to 40 cents for each credit card transaction, which is added to that commission.
With this pricing model, you do not have to make any complicated calculations. This method of calculating the commission will be great for those companies that have a few small transactions every month. At the same time, the more deals and for larger amounts is carried out by the company, the less profitable it becomes this scheme for determining the commission.

Multi-level rate

This commission calculation is one of the most popular, it is offered to its clients by many companies.
In this case, depending on the type of payment, each transaction belongs to one of three types:

  • Qualified
  • Mid-Qualified
  • Non-Qualified

At qualified rates, companies pay the lowest commission because these transactions are the safest. What could be safer than when the card is in the hands of the buyer. This model is used if we are not talking about bonus cards, the service of which is not cheap for all parties to the transaction.
The average rate is used, for example, for payments made through a website where the card number is specified. In this case, the company will have to pay a commission that is higher than the qualified rate, but lower than the unqualified rate.
All high-risk transactions fall under the non-qualified rate. These include transactions in which the cardholder does not personally participate, or for which the payment of a certain fee to the consumer is expected.
If your company serves many clients and you need to more or less calculate the level of your expenses, a multi-level pricing system will be an excellent choice for you.

Interbank Pricing Model

In this case, the company pays for the transactions actually processed by the provider of trading services. The advantage of this system is its transparency. But you should not think that it will be easy to calculate the final commission.
The final commission will depend on the type of credit card that the client uses. All of this can lead to quite complicated calculations and will make it very difficult to forecast monthly expenses.

So what is the best pricing model?

If your company is just starting on the market and the number of credit card transactions is small, a fixed payment model will be optimal. But if your company starts to process from 5000 dollars per month, the fixed model will be disadvantageous for you.
If the most important for you is the predictability of monthly reports and a clear understanding of your expenses, choose multi-level pricing.
If you do not want to spend a lot of time on complex calculations and right now get the best conditions from a well-known payment service provider, contact us and we will offer you the best option, guaranteeing extremely secure payments and many other useful services.

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