There are Several Ways to Keep Your Merchant Rate Reasonable

Because credit card processing requires so much in the way of infrastructure it is impossible to offer the service for free.  To keep costs as low as possible and charge those that use the service more than those that don’t, the merchant rate is usually billed at a percentage rate.  There is a per transaction fee as well, but it is usually lower than $.25.  The real cost comes on the percentage fee that charged.  The credit processing company has some flexibility with a merchant rate, but much of the fee goes directly to Visa or MasterCard as the credit agencies. 

Visa and MasterCard charge merchants because they assume the risks on the transactions.  Each time a credit card transaction is processed, the credit issuer pays out the cash and then bills the consumer.  The consumer may pay the amount in full, they may make small payments over the course of months or years, or they may default on a credit card balance.  Even if the customer defaults on their credit card, the retailer still gets paid.  All of the default risk is assumed by the credit issuing agency.  Because businesses assume no risk on the transaction, they are asked to pay a merchant fee.  Credit issuers must maintain high standards for data security in order to meet federal guidelines.  These services can be very expensive, and as some recent issues with data security have demonstrated, these costs are only expected to rise.

Businesses benefit by offering credit card payments, but they do also take a small hit in terms of the merchant fee.  The tiered pricing structure ensures that no merchant pays more than their share, but only charging a fee based on the transactions processed.  This allows small businesses to minimize costs for credit card transactions.  Some merchants offer discounts to cash customers to avoid fees, but by having either payment method, they never miss out on a sale.  This is important for the small business retailer.  Some businesses may only make three or four sales per day.  Failing to close one because they couldn’t offer credit card processing could be severely detrimental to their cash flow.  When put up against lost sales, the merchant rate is very much the lesser of two evils.  No one enjoys paying the merchant rate, but the additional revenue streams made possible by credit card processing make it worthwhile.  No one enjoys paying utilities or taxes either, but they are still necessary to transact business.

Retailers have several ways to offset the cost of credit processing.  Only accepting a most qualified or a mid-qualified credit card is one step that merchants can take to keep their rate low.  Another option is to only process cards that swipe, and refuse to offer manual entry.  The merchant rate can be figured based on several factors for each transaction.  Ensuring that you are familiar with the way that fees are charged can help you get the best merchant rate on each transaction.