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Understand the True Costs and Fees of Credit Cards

There are many well-known benefits for businesses who accept credit card payments. Credit card payments are convenient, help improve cash flow and increase sales. However, there are also many not so well known disadvantages that a business is faced with when they offer credit card payments to their customers. These disadvantages include interchange, charge back, and monthly fees, to name a few.

The interchange fee is calculated as a percentage of the good or service purchased. Every time a customer uses a credit card to make a purchase, that business pays an interchange fee to accept the credit card. In addition, charge back fees are applied when a customer disputes a credit card charge. This typically equates to a percentage of the original charge amount. Finally, companies are also charged monthly fees for credit card processing terminals.

Although Visa and MasterCard announced a freeze on interchange fees starting April 2015, fees still add up. Prior to April 2015, the fees were as high as 3%, now they average roughly 1.5% – 2.5%. To breakdown the interchange fee, for a $100 item, a business will pay on average 1.5% or $1.50. The “premium” cards that come loaded with loyalty points and incentives for consumers to spend more, have even higher interchange fees.

To get a sense of the real cost of credit card fees to business, we interviewed one of our Telpay customers. They are a franchise owner in the fitness industry where credit card use is popular. In a typical month with gross sales of $5,600, the percentage of customers that paid by credit cards was a whopping 64%. Based on the franchise owners Total Service Package, which includes all the fees, rental of Point of Sale (POS) machines and Payment Card Industry (PCI) security fee, they paid $120 that month to accept credit card payments.

Accepting credit cards not only comes with fees but, also comes with the risk of fraud. Fraud can lead to potentially large costs for businesses to be held responsible for. If you are accepting credit cards, or considering accepting credit cards,  you should explore other payment methods, such as direct deposit payments or pre-authorized debit. These methods are just as convenient, often have lower fees, are less susceptible to fraud and may be a better fit for your business needs.

There are pros and cons to accepting credit cards. If you are looking for a simple, convenient and secure alternative to accepting credit cards, contact a Telpay representative.