When a customer uses a credit card the retailer is charged a discount rate of between 1.5% and 4.5% and a transaction fee of around $.30 for each credit card transaction. The actual rates a merchant will pay are determined by a number of different criteria like the payment processor, credit card issuer, number of transactions and swiped versus manually entered. Much like banks and their various fees, payment processors may have additional fees for minimum transactions, monthly account maintenance and providing an invoice.
There are many credit card payment processors which can handle transactions for merchants. Most banks and credit unions will offer merchant services and the terms of those services can vary widely. When opening a business account at a bank or credit union, examine the merchant service terms closely if that is necessary for your business as it is best to have both at the same institution. While this is not required it can make life easier to have both together. A merchant service account, which is what allows for the receiving of credit card payments, is offered by a merchant service provider and the contract will outline the various fees and rates. The merchant service provider will process credit card transactions and then deposit the funds directly into the merchant's bank account.
To two most common fees for processing credit card transactions are the discount rate and the per transaction fee. Since these are outlined by the service provider it is best to shop around to get the best possible fee structure. The discount rate is the percentage of the total transaction which is paid directly to the service provider. So if you charge a customer credit card $100 and the discount rate is 2% then the service provider will be paid $2. There is additional transaction fee for each payment processed. If the contract stipulates $.25 per transaction then the total payment to the provider will be $2.25. Different merchant service providers offer different contract terms. If you have a business which has a high volume of small purchases then a service provider which waives the transaction fee might be better for keeping cost down.
Visa and MasterCard tend to offer lower discount rates, often around 1.5% to 2.25%, for merchants and are therefore accepted widely around the world. The next most popular credit cards are Discover and American Express which charge discount rates of up to 4.0%. The difference in discount rates is why when shopping or eating out, a business establishment may take some credit cards but not others. Discount rates may also be negotiated for better terms if the merchant has a particularly high volume business which is comparable to a bulk discount for many retailers.
Transaction fees can also vary widely due to incentives offered by credit card processors like online only banks and PayPal. Their lower costs due to being online only often result in better rates for merchants. Traditional service processors may have minimum per month transactions fees and if the merchant does not meet the minimum then the merchant would be responsible to pay the difference. Additional services could incur a fee such as mailing the merchant an invoice.
As with most other industries, it pays to shop around. There is no flat fee structure dictated by a government oversight body to determine discount rates and transaction fees for processing credit cards. Make sure to get copies of the contracts and compare the fees charged by each institution to help select the merchant service provider best suited for your business.