Among the many fees you have to pay to own and operate a business, credit card processing fees seem to be one of the most overlooked. Yes, you have to pay them. No, you can’t just offload them onto your customers.
And, unfortunately, if you’re a high-risk merchant, your credit card processing fees will likely be significantly higher than others who manage ‘low-risk‘ businesses. It’s unfair, we know, but it’s the nature of working in high-risk industries that require more oversight and regulation.
As a merchant, you may not even consider these fees to be that big of a deal at first glance, but because they’re generally charged on each transaction or on a monthly basis, they can have a significant impact on your business’s profitability and overall operations.
And trust us, you will definitely want to stay on top of these fees. Overlooking costs like chargeback fees, transaction rates, and interchange fees, can lead to costly mistakes overtime.
You’re in luck, though! Our payment experts teamed up to create this comprehensive list of common fees, an overview of what to expect, and tips on managing these costs effectively.
What Are Credit Card Processing Fees & Why Do Businesses Pay Them?
In simple terms, credit card processing fees are the costs that merchants have to pay to accept credit card payments.
The fees are charged for services that need to be involved for a payment to go through safely and securely. The service providers pays an irreplaceable role in the transaction chain, which is why they get a cut of the fees.
These generally include:
Issuing Bank: The bank that issued a card to your customer
Acquiring Bank: The bank that processes the payment on a merchant’s side
Payment Processor: The company that handles the transaction process
Why do high-risk merchants have to pay for these services, you may ask?
Well, for starters, all merchants have to cover these fees. High-risk merchants might end up paying a bit more, but everybody has to factor in these costs to run a business and accept payments.
The main difference is that high-risk merchants work mainly with high-risk payment processing companies. These providers help ensure the transactions are carried out efficiently and securely.
In addition to that, high-risk transactions typically also call for extra safety measures, like fraud prevention tools and chargeback alerts, that each add on to the costs of processing payments.
A Breakdown of Common Credit Card Processing Fees for Merchants
Processing fees for lower-risk businesses are lower, obviously, since the risks involved are reduced as well. For high-risk businesses, however, the fees can actually vary greatly from one business to the next.
Got it? Good!
With all of that said, there isn’t a set pricing structure for high-risk transaction processing costs. However, the ones below are pretty common across the board for high-risk businesses we’ve worked with.
Transaction Fees
Transaction fees are the fees that are collected on each credit card transaction a merchant processes. There are a few different types of fees that are charged per transaction which we’ve broken down for you below.
The interchange fee is a transaction based fee provided by the merchant account to the card-issuing bank for every transaction made via credit card. Interchange fees are important to cover fraud, handle processing costs, and the risk of verifying the payment.
Credit card networks as Visa or Mastercard have their own interchange fees, which are usually adjusted twice a year.
In general, the interchange fee is subject to factors related to the risks with the cardholder. These factors include:
The card type. Debit cards with PINs have a lower interchange fee than credit cards. Reward cards, however, have a higher interchange fee.
The transaction type. Any transaction made with a card, for example, like a point of sale purchase in a store, usually has a lower interchange fee than a transaction without the card present, such as mobile transfer. In that sense, the use of a card is less risky.
The business type. High-risk businesses like CBD or gambling will pay more than ordinary business merchants.
Scheme fees are different from interchange fees. Scheme fees are charged by the particular card scheme to the acquirer. This type of fees cover the price of the services provided by the card network and consist of the percent fraction of each transaction.
The payment processor fee is another fee charged to the processor. This fee, unlike the one discussed above, is negotiable, as there are many payment processors on the market with their own pricing strategies.
The merchant account fee is the money you pay your merchant service provider for processing card transactions. For example, some providers charge a fee per each transaction. There are many payment service providers on the market, though, so it’s important you do your research and choose the one with the most cost-effective solution.
Monthly Fees
Monthly fees are also higher for businesses in riskier trades (sensing a theme here?). That’s because the approach a processor needs to take to maintain a healthy merchant account in good standing and manage the risks involved requires a lot more knowledge, extra tools, more security measures, and often even guidance.
Statement fees are typically charged by your payment service provider on a monthly basis. The costs usually cover the efforts of preparing detailed monthly processing statements. By paying for this part of the processing service, you’re ensuring that you’ll get a full scope of your monthly revenues with all the processed transactions and fees incurred.
The gateway fee is another recurring fee that’s charged for high-risk payment gateway services, including activation of the account, transaction monitoring, and maintenance.
Compliance fees cover the costs of ensuring the merchant’s business is compliant with the industry’s regulatory requirements. The fee is charged for the service of maintaining the security of your business and the data being handled.
The monthly minimums you see on your account statement or contract with your provider are so-called “goals” determined by the merchant and the processor prior to starting a cooperative relationship and are based on your business’s transaction history or cash flow forecasts.
Each established “goal” means you’ll have to hit the mark every month, and if your monthly volume doesn’t reach the set minimum, you’ll have to cover the difference.
Setup and Termination Fees
The setup fee is charged by your chosen payment service provider after having your merchant account approved by an acquiring bank. The fee covers the service for the whole on-boarding process of a merchant including KYC procedures, integrations, support, etc.
The termination fee is a simple flat fee determined by your service provider. This fee is charged only if the merchant decides to close their account before the agreed-upon term ends.
Both of these fees depend on your processor, so we can’t give you an estimate here. However, it’s wise to remember here that presenting your company in the best possible light and building a trusting relationship with your provider can help you negotiate the terms (at least over time).
PCI Compliance Fees
The Payment Card Industry Data Security Standards are the guidelines designed to protect environments where payment account data is being handled. High-risk businesses must adhere to these requirements to guard their company and customers against data breaches and credit card fraud.
The PCI compliance fee is required to ensure a business meets the standards and is typically charged by a straight-forward flat fee.
Non-compliance with these requirements, however, can lead to costly fines ranging anywhere from $5,000 to $100,000 per month. That’s why it’s so important to be certain that your business is in accordance with the current terms and conditions.
At FastoPayments, we provide our customers with a PCI DSS self assessment questionnaire along with expert advice and support to help you stay ahead of the curve and avoid significant forfeitures.
Chargeback Fees
A chargeback fee is charged every time a chargeback initiated by a customer goes through successfully.
While they might seem annoying, the whole issue of chargebacks, in general, add to your security fees as well since chargebacks can be prevented with the right tools and approach.
So, if your business model is associated with a higher rate of chargebacks, you’ll likely need to utilize chargeback alerts which will help you address the problem timely and keep your chargeback rates low.
Additional Service Fees
What else can you expect to pay her and there to process credit card payments as a high-risk merchant? Here are a few common ones that aren’t usually recurring but do happen from time to time:
Batch processing fees are charged if a merchant needs to group transactions and submit them to the acquirer in a batch at the end of the day.
AVS (Address Verification Service) fees are charged if a merchant wants to use address verification services to prevent fraudulent transactions. This will confirm whether the person making the purchase should have a hold of the credit card that’s being used to pay for the purchase.
Cross-border fees are charged only if the card being used to make a purchase was issued by a foreign bank. This covers the cost of currency conversion and cross-border processing costs.
How Much Should You Expect to Pay in Credit Card Processing Fees?
Unfortunately, it’s difficult to estimate the overall costs for your high-risk business specifically, since it depends on so many different factors.
The fees you incur on a monthly basis can (and likely do) vary greatly from one business to the next.
The factors that can affect the processing costs for your high-risk business specifically include:
The industry you’re in
Your business model
The value of your goods or services
Your average ticket sizes
The regulations for your products in different regions
The inherent and business-specific risks involved
Your acquiring bank
Your processor
Tips for Managing and Reducing Fees
Even though the fees for processing high-risk transactions scale higher, there are ways to reduce them (or at least ensure they don’t incrementally get higher and higher…).
Our first suggestion is to never go with the first payment processor you find. Sure, you might end up choosing them in the end. And that’s fine. However, it’s better to do your research and get a good understanding of the average costs. Compare prices, shop around a little, and then make the final decision.
It’s also important to remember that you don’t have to settle for the prices you get offered straight away! Build trust with your processor and negotiate. It might be tricky at first, but it’s better to try than to settle for costs that you won’t be able to handle.
Also, keep in mind that doing everything in your power to keep your business compliant and in good standing could help you in terms of processing pricing, too. Low chargeback rates, healthy revenue streams, and happy customers will better your odds at scoring good pricing proposals for sure.
Learn More About High-Risk Credit Card Processing Services
Don’t leave the livelihood of your business in the hands of a payment processing partner who doesn’t help you understand and manage your credit card processing fees as a merchant. Work with FastoPayments instead.
Get a free, no-obligation quote for high-risk merchant account and payment processing services here. We’ll review your business information and get back to you ASAP.