The Guide To Small Business Credit Card Processing

Posted In: Credit Card Processing, Small Business


Everything you need to know about small business credit card processing considerations is included in this guide. This is your chance to clear up the confusion around fees, rates, security concerns, and choosing a merchant account provider to help grow your business.

Small Business Credit Card Processing Guide



Merchant Account/Merchant Services Provider: These are the companies that manage credit card processing, including sales and support. They might operate as an independent sales organization or financial institutions.

Credit Card Issuing Banks: Financial institutions that issue credit cards, like Wells Fargo, Bank of America, Chase, etc. Discover and American Express take on the role of a credit card and a bank.

Credit Card Associations: Companies that create credit cards, like Visa, MasterCard, and American Express. Credit Card Associations are the parties responsible for establishing interchange fees.

Credit Card Processors: Acquiring Banks, or Acquirers, process the credit card payments between merchant and credit card associations. They process authorization requests from the merchant to the card association.

Payment Gateways: The most common type of payment gateway is through the shopping cart on an eCommerce site. Gateways route transactions to an acquirer to be processed.



Interchange Fees

These are the fees charged by the credit card associations and card-issuing financial institutions for each transaction. These are wholesale rates that are published by each card association throughout the year and cannot be negotiated with your merchant services provider. They often include a percentage of each transaction plus a flat fee per transaction. An example would look like 2% + .10. If you are quoted an interchange plus pricing structure, you can expect to see something like this.


Payment Gateway Fees

Payment gateway fees are those charged from the eCommerce sales.


Terminal Fees

This is the cost of the terminal used by merchants to swipe credit cards.


PCI Fees

PCI-DSS refers to the Payment Card Industry Data Security Standards. These are the standards created by the PCI Security Standards Council and must be followed by anyone who processes financial data. The fees associated with PCI can be charged for noncompliant, or for ensuring you are compliant. To ensure compliance, merchant service providers charge PCI fees each month, generally around $10-12 per month.


Early Termination Fees

Early Termination Fees, or ETFs, are fees that are charged if you break a contract with a vendor early. Be sure to read the fine print so you are aware of what this might cost you.


Monthly Minimum Fees

These fees vary by provider, but are the fees charged when a merchant doesn’t reach a minimum amount of transactions per month or year.


Wholesale Fees

Wholesale fees are the same as interchange fees, the fees that are determined by the credit card associations. These fees are the same across the board, so they are non-negotiable.



Unlike wholesale fees, markup fees ARE negotiable. Markups are what the merchant account provider charges for their services. Like the example earlier, 2% + .10, the markup fee is .10. This is the provider’s margin per transaction. These fees vary from vendor to vendor, but they can be negotiated for a better cost.


Chargeback Fees

Chargebacks occur when a customer disputes a fraudulent transaction made on their credit card. The complaint goes to the customer’s issuing bank, and the merchant receives a retrieval request and is charged a chargeback fee which could range from $10-50. There may be an additional fee or the merchant could lose the transaction completely if it is not handled in a timely fashion.


Authorization Fees

This is the fee charged by the credit card processor when a card or cardholder is not present. For example, to ensure you get the discount rate from your processor, you might need to verify the cardholder’s address. A flat fee is applied for each transaction when this is necessary.



There are four main pricing models that a merchant may be presented with when comparing providers: interchange plus, tiered, subscription/membership, or blended. Let’s break these down a little further to help you understand the pros and cons of each one.


Interchange Plus Pricing

As we mentioned in our definitions earlier, the interchange plus pricing structure consists of the interchange fee set by the credit card associations, plus a markup from the processor. This is the most transparent pricing model as it clearly lists each fee.


Tiered Pricing

Tiered, or bundled, pricing categorizes credit card transactions into three categories: qualified, mid-qualified, and non-qualified. These categories determine which rate is applied. Qualified transactions are charged the lowest rate, followed by mid-qualified, and then non-qualified rates as the highest.

To be considered a qualified transaction, it must meet all of the processor’s requirements. Failure to do so could result in a downgrade to a lower tier.

Tiered pricing structures, while not bad in nature, are sometimes perceived that way because they are more complicated to understand. Merchants may be charged excessive, complicated fees by providers who take advantage of them. So it is important to fully understand what fees are being outlined if you are in a tiered pricing model.


Subscription/Membership Pricing

A newer pricing model, but similar to the interchange plus pricing model. The actual cost of the transaction is charged separately from the markup fee, but merchants don’t pay the markup percentage. Instead they pay a small transaction fee. This is an attractive model for merchants who process large transactions.


Blended Pricing

In a Blended Pricing Model, all costs are grouped together in one flat fee. This is not the most attractive option for merchants who process a low-volume of transactions, because it can make the transaction cost very high.


While there are certainly more terms that should be paid close attention to when considering a credit card processor, these are some of the most common and most important. Merchants should do their homework to find the merchant service provider who is best for their business. Do not sacrifice safety and support for a lower rate and be sure to read the fine print so you know exactly what you’re getting into.


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