When we talk about credit cards online, we primarily encounter two schools of thought.
Which school of thought you resonate with more, depends on your financial habits. Individuals that have good financial habits and know how to use their credit cards correctly can potentially save thousands of dollars in fees and rewards every year. On the other hand, people who often overextend themselves and have poor saving habits end up penalized with massive credit card debt.
In this blog, we discuss the use of credit and debit cards from a merchant’s point of view. We briefly touch upon the following:
In our previous blog on 24 FAQs on Credit Card Processing Fees, we covered the different types of fees associated with credit cards on both consumer and merchant fronts. To give you a quick recap, here are the most common types of credit card fees:
Debit card fees are mostly similar to credit card fees. They fall into one of the following three categories on the merchant front:
Swipe fees are essentially fees that are charged every time a card is used to carry out a transaction. Most individuals and retailers do not know about these fees, hence they are popularly classified as “hidden fees”.
Credit card and debit card swipe fees are usually different.
Banks and credit card companies secretly pull out a small percentage of the overall transaction cost as swipe fees on every credit card transaction. Most consumers and merchants do not understand these fees correctly. They also do not assess their impact since they form a small percentage of each transaction but can rake up to thousands of dollars over the long term.
Credit card swipe fee varies depending on:
Organizations like the National Retail Federation are currently fighting for a fair swipe fee reform policy to help small businesses accept credit cards at a transparent fee model.
The credit card swipe fees usually consist of the following components:
A few tech-savvy payment processors offer Authorization Optimization services that help the merchant automatically reprocess a failed credit card transaction on a set schedule. This service helps them charge the customers' credit card again:
Debit card swipe fees are more regulated than credit card swipe fees. The Durbin Amendment, passed in 2010, was brought in by the legislators to limit the processing fees charged to merchants for debit card processing. However, this amendment was met with mixed reviews by the merchant community. The Credit Union National Association termed it the ‘purest example’ of failed government policy.
Typically the credit card swipe fee averages about 2 - 2.5% of the total transaction amount. This amount is directly paid by the merchant to the card network. Businesses further recover the cost of these interchange fees by adding it to the total billed amount for the consumer. Therefore, the end consumer ends up paying more for their purchase. However, the merchant may choose to offer a cash discount, when a consumer pays through cash, check, or ACH. In a well-implemented and compliant cash discount program, the merchant passes the benefit of not paying additional swipe fees back to the consumer in form of an additional discount on the final bill.
Here are some resources that will help you understand the cash discount program in depth.
Although the swipe fee seems like a small percentage, it can quickly rack up to larger amounts. The Nilson Report statistics show that the U.S. merchants that accepted credit and debit card payments ended up paying $137.83 billion in processing fees in 2021 alone.
If the consumer does not have their card physically present with them during a sale, they might have to pay the fee for a card-not-present (CNP) transaction. This fee is typically as high as 2.5% of the total transaction cost but can go higher or lower depending on the type of card and card issuer.
The swipe fees for using a credit card in-person and online are different. Physical card transactions (in-person) attract a 1.95% to 2% swipe fee. On the other hand, online credit card transactions usually attract higher 2.3% to 2.5% swipe fees.
Merchants can save on hefty card processing and swipe fees by offering alternative modes of payment. ACH is one of the most popular methods of collecting payments at low processing costs. Complemented by SMS payments, Email invoicing, and IVR technology, it is versatile and customer-friendly enough to help merchants streamline payments frictionlessly. It is beneficial for both consumers and merchants. Learn more about the credit card alternatives to collect payments. These payment methods are especially helpful for business owners to accept payments during credit card outages.
While we cannot eradicate swipe fees entirely, we can put measures in place to ensure that we do not pay more than the bare minimum necessary amount. By limiting the number of swipes, merchants save on the extra unnecessary swipe fees. For every failed swipe transaction, the merchant still attracts the authorization component of the swipe fee. So, the consumers that try swiping their cards multiple times before switching to a different card incur swipe fee losses to the merchant.
Merchants that accept cards online can limit the number of virtual swipes for a consumer and offer them an alternative mode of payment after a set number of failed attempts. This small change in process can help them save hundreds, if not thousands, of dollars in processing fees every month.
Merchants can use a PCI-compliant hosted payment portal to collect payments safely online via credit cards and ACH. The best payment processors have technologies to collect consumers’ credit card information like PIN and card numbers safely to reduce PCI scope for the merchant. They also support the collection of additional personal information with customizable forms to reduce chargebacks. Here’s a small 5-step guide on accepting credit and debit cards for your business:
Moreover, merchants should not hesitate in contacting their banks if they detect any suspicious consumer activity. They should report offenses and fraud immediately.
Most consumers prefer online or card payments to pay for their purchases. They hardly carry paper checks or cash. Merchants that accept these card payments online and offline can attract a larger consumer base easily. If you are a partner looking to help your merchants accept online card payments, reach out to us today. Become a partner to help your merchants discover next-gen innovative payment technologies!