What are the costs associated with online payment processing?

Understanding online payment processing fees is essential for any business looking to sell products or services online. These fees can significantly impact your bottom line, so it’s crucial to know what you’re getting into before choosing a payment processor. This article will explore the different pricing models & factors affecting online payment processing fees to help you make an informed decision.

Exploring the Costs of Credit Card Processing Online

When selecting an online credit card processor — you will encounter various pricing models. Each model has its advantages & is suited to different types of businesses. Here are the primary pricing models you need to understand:

Flat- Flat-Rate Pricing Model

Flat-rate pricing is straightforward: you pay a fixed percentage & a small fee for each transaction. This model is popular with third-party processors like Square & PayPal.

Best for: Lower-volume merchants
Sample pricing: 2.9% + $0.30 per transaction
Pros: Easy to understand/predictable costs
Cons: Can be more expensive for higher-volume businesses

Interchange-Plus Pricing Model

Interchange-plus pricing is more transparent & often more cost-effective for higher-volume merchants. You pay the interchange fee (set by the card networks) plus a small markup (set by the processor).

Best for: Mid- to high-volume merchants
Sample pricing: Interchange + 0.20% + $0.10 per transaction plus assorted monthly fees
Providers: Dharma/Helcim
Pros: More transparent/potentially lower costs
Cons: Can be more complex to understand & manage

Membership Pricing Model

Membership pricing involves paying a monthly subscription fee in addition to a flat per-transaction fee & interchange fees. This model can be very cost-effective for high-volume merchants.

Best for: High-volume merchants
Sample pricing: Single monthly fee + interchange fees (with no markup) per transaction
Providers: Clearly Payments/CDGcommerce
Pros: Lower transaction costs/beneficial for high-volume sales
Cons: Monthly fee might not be justified for lower-volume businesses

Other Costs to Keep in Mind

Beyond the basic transaction fees —several other charges can affect your overall payment processing costs:

Monthly and/or annual account fees: Some processors charge these fees to maintain your account.
PCI compliance fees: Ensuring your business complies with Payment Card Industry Data Security Standards (PCI DSS) can incur additional costs.
Payment gateway fees: These fees apply if you use a payment gateway to connect your e-commerce site to the payment processor.
Fees for ACH acceptance & other alternative payment methods: If you accept ACH payments or other payment types —additional fees may apply.
AVS checks & fraud monitoring fees: Address Verification Service (AVS) & other fraud prevention measures can incur extra charges.
Monthly minimum fees: Some processors require you to meet a minimum amount of fees each month —which can be a drawback for smaller businesses.

The Impact of Card-Not-Present (CNP) Transactions

Online purchases are considered card-not-present (CNP) transactions, which typically cost more to process than in-person transactions. This is because CNP transactions have a higher risk of chargebacks & fraud. This increased risk is factored into the cost of processing each payment.

Is Free Online Payment Processing Possible?

You may encounter claims of “free” online payment processing. Typically this means there are no monthly fees rather than no per-transaction costs. Some processors offer surcharging programs, which pass the processing fees to your customers. While this can save you money —it may deter customers & is subject to legal restrictions.

What You Need to Know About Online Credit Card Surcharging

Surcharging involves adding a fee to credit card transactions to cover processing costs. While this makes processing “free” for the merchant, it can lead to customer dissatisfaction & lost sales. Additionally —surcharging is illegal in some jurisdictions and not permitted for debit or prepaid card transactions.

Conclusion: Navigating Online Payment Processing Fees

There is no such thing as truly free payment processing. Understanding the different pricing models & additional fees can help you choose the best processor for your business. Flat-rate pricing may be suitable for smaller businesses due to its simplicity —while interchange-plus or membership pricing could benefit larger businesses by reducing per-transaction costs.
No matter your business size or type —one of the many available credit card processors should offer a pricing model that meets your needs. By carefully evaluating your options and understanding the associated costs, you can optimize your online payment processing & protect your bottom line.