Credit card processing fees for small businesses, explained

Quick insights

• If a small business accepts credit cards or debit cards for payment, they will be charged processing fees by the credit card network or payment processor.
• The fees are usually a percentage of the transaction or a fixed fee.
• Despite the fees, businesses may find that accepting credit cards as a payment option may be beneficial.

If a small business wants to accept credit cards as payment, a set of processing fees may be required to facilitate those transactions. Many businesses find that the customer convenience of using credit cards is worth these fees. In addition, there are some ways that businesses can potentially minimize these fees or even negotiate them lower.  

What is a payment processing fee?

A payment processing fee is a charge incurred by a business on each credit card and debit card transaction they accept. The fee is paid to help facilitate secure and accurate electronic payment transactions between a customer, a bank and a business.

How do small business card processing fees work?

Regardless of the size of the business, the credit card network creates virtual payment infrastructures that support transactions between merchants and card issuers. The credit card network charges either a percentage of the transaction value or a fixed fee. This covers the expenses associated with processing the payments.

The company that communicates the transactions between the card networks and the issuing banks is called a payment processor. In some cases, they may provide the hardware or software that accompanies the point-of-purchase transaction.

Who pays credit card processing fees?

Businesses (sometimes referred to as merchants), usually pay the credit card processing fees. However, businesses may decide to set their price of goods or services to a higher amount to account for these fees.

What small business owners should know about processing fees

There are several things business owners may want to understand about processing fees:

Leverage volume discounts

High transaction volumes may open the doors to certain discounts with payment processors. If you’re projecting large growth in the coming months or years, you may be able to negotiate favorable terms, which could result in cost-savings over time.

Watch industry trends

The payments industry is dynamic, with ongoing advancements in technology as well as changes in regulatory requirements. It may be wise to stay informed of industry trends and then adapt your payment strategies to potentially benefit from things like improved services, benefits or cost savings.

PCI compliance

Adhering to the Payment Card Industry Data Security Standard (PCI DSS) requirements is crucial. The PCI DSS is an accepted set of policies that optimizes the security of credit and debit card transactions and helps to prevent cybersecurity breaches. Maintaining compliance helps prevent data security and may minimize costs associated with any breaches that do occur.

Why small business owners may want to accept credit cards

Some customers may prefer using credit cards over cash, so accepting multiple methods of payment could encourage more sales due to convenience.

Accepting credit cards could offer several other perks for small businesses:

• Enhanced credibility: Accepting credit cards can add credibility to a business because many credit cards offer customer security features.
• Expanded market: Most credit cards are accepted globally, which means a business could expand their market beyond a specific locale by offering an e-commerce platform.
• E-commerce: Likely, a portion of a business's potential customer base is online. When they accept credit cards for payment online, businesses may potentially see higher sales volume. Above all, this option offers a convenient way for online shoppers to do business with them at any hour of the day or night.

In summary

By being proactive and informed about how small business credit card processing fees could affect your business, you can determine what’s best for you. This could include attempting to negotiate with payment processors, leveraging volume discounts as you grow and staying informed of industry trends.