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How Per Transaction Fees Are Calculated By Credit Card Processors

The cost of accepting credit cards comes in the form of transaction fees that are charged by credit card processors. Each processor charges their own set of fees, sometimes in a sliding scale depending on the dollar amount of transactions that are swiped within a certain time period. Merchant account providers make no secret of their fees, which is required by law, making it easy for the account holder to do the math on an average transaction. It is important to have at least an estimated average of transaction fees for purchases. By doing so, you will be able to keep track of how the fees are affecting the profit of any given item and adjust your costs accordingly.

Before starting on the calculations, you must first eliminate all of the recurring fixed fees. While they are important, they do not affect the per transaction fees. These are deducted from your account at the end or beginning of the billing cycle. The same tends to be true for the transaction fees, although some merchant services deduct on a per diem basis.

Here’s a look at a simple transaction in order to calculate transaction fees. A customer makes a $35.00 purchase on their credit card, and the business processes the transaction. The transaction fee is 25 cents and the percentage is 1.69 percent, resulting in a total of 84 cents being deducted from the $35.00 purchase, leaving the business with $34.16.

Most merchant account providers charge a set fee for the transaction. However, the percentage is dependent on the tier that the business falls into, which triggers a qualified rate. There are three tiers that a business can fall into. They are: First tier – qualified rate, second tier, mid-qualified rate and third tier – non-qualified rate. Each tier has a set of criteria that the business must comply with in order to get a more favorable percentage.

In order to get into the first tier and obtain a qualified rate, credit cards must be accepted through either an actual terminal or via the Internet. These transactions are considered to be “standard” by the credit card processors. Second tier transactions are defined when a merchant keys their cards into a terminal instead of swiping, or a rewards card is used. The third tier is reserved for cards that are processed without verification or when the merchant does not batch within 48 hours of the last transaction.

Transaction fees are a fact of accepting credit cards. A business can lessen their costs via accepting cards in the most secure manner possible as well as transaction volume. The less money paid in fees translates into more profit made by the business.


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