Introduction
Ever since the COVID-19 outbreak happened, the way people pay for things has really changed. A lot more people are starting to use digital payments, like paying with their phones or online, and it looks like by the year 2026, about 65% of all payments in India will be done this way. During the worst times of the pandemic, ways to pay without touching, like tapping a phone or scanning a QR code, really helped stop the virus from spreading more. Because these digital ways of paying are so helpful in keeping people safe, governments in many countries are encouraging. This is making more people need to use and set up these kinds of payment methods.
Since more people are using the internet now, the way businesses use online systems is expected to grow a lot, by about 10% every year until 2028. Most of the big online shopping companies prefer to do their business this way, even though they have to pay a little fee every time someone buys something, which is called the Payment Processing Fees. But just because they do a lot online doesn’t mean that stores where you go in person to buy things don’t have these fees too; they have them as well.
Offline merchants, especially small and local businesses, often struggle with bearing processing fees. In addition to losing customers online, they seek out payment solution providers who offer cost-effective options that help them handle these fees without hurting their profits. These businesses need affordable and efficient payment systems that allow them to compete with larger online retailers and attract customers who prefer shopping in physical stores.
According to a study analysis by Global Market Insights Inc., the payment processing solutions market will surpass USD 180 billion by 2028.
What is Payment Processing Fee?
When customers use credit cards or make online payments, they’re not directly charged, but the business has to pay a fee for processing the transaction. This fee is used to cover the costs of the service that handles the payment, like a credit card company. For example, a credit card company might take a small part of the sale amount as a fee from the business, which is often called a merchant account fee.
Factors affecting Payment processing fee
The transaction fee associated with processing payments varies depending on several variables.
1. Interchange Rate
When you buy something with a credit card, the company that gave you the card charges a small fee to the store’s bank. This fee is called the interchange rate. For example, if you use your ICICI credit card on a machine from a company called Innoviti, ICICI Bank takes a little fee to help handle the payment and keep it safe. This fee also helps stop anyone from cheating with the payment.
There are mainly three things this fee covers:
- Operating expense: This is the cost of running the services to handle card payments.
- Charges for the merchant’s payment assurance: This helps make sure the store gets paid.
- Cost of preventing frauds: This is for keeping the payments secure and stopping fraud.
Also, when you swipe your card at a store with a machine (that’s called a POS system), this fee is usually smaller than if you were to pay online. This difference is because when you pay online, the card isn’t there, which means there’s a higher chance for fraud. Swiped transactions, where the card is present, are considered safer, so the fees are lower.
2. Merchant Account Provider Fee
When a store wants to accept credit card payments, it needs a special kind of bank account called a merchant account. This account helps the store receive money from credit card sales. The merchant account provider puts the money from the sales into the store’s regular bank account.
The merchant account provider charges the store a small fee for every transaction. This is on top of another fee called the interchange fee. Sometimes, the merchant account provider might also charge a monthly fee to take care of the account, and if a customer doesn’t agree with a charge and complains, there might be an extra fee for that too.
Even though these fees might seem big and scary, for someone running a store, they’re just a small part of the money the store handles every day.
Card Processing
When you use your card to buy something, how you pay can change how much the store has to pay in fees. There are different ways to pay, like swiping your card through a machine, tapping it for a quick payment, buying something on the internet, or using your phone. Each way has different risks.
Paying with a card by swiping it at a machine in a store, like one from Innoviti, is one of the safest ways. It’s safer because everything happens right in front of you and the person helping you. This safety makes it cheaper for the store, so they might give you better deals or discounts. But when you buy something over the phone or online, it can be a bit riskier. Hackers, or bad people who try to steal information, are really good at grabbing card details when you can’t see what’s happening. That’s why those methods can have higher fees.
Having unpacked processing fees, let’s explore some associated fees that will help deepen your understanding:
Types of fee
1. Flat Fees
These fees are like a set charge that the payment processor takes out from each transaction you make, no matter what type of card you use, who provided the card, or whether you buy something online or in person. These fees are usually taken out once a year or every month from your merchant account or credit card.
2. Interchange Fees
These are the charges your business bank must make to the banks of your clients each time a transaction takes place. These fees have two primary objectives: to maintain and support handling costs while reducing the dangers of online and online transaction fraud. These fees are not negotiable, so you must pay them.
These are the charges your business bank must make to the banks of your clients each time a transaction takes place. These fees have two primary objectives: to maintain and support handling costs while reducing the dangers of online and online transaction fraud. These fees are not negotiable, so you must pay them.
3. Assessment Fees
Imagine that the company that made your card, like Visa or MasterCard, has a special fee. They charge this fee so you can use their cards to buy things. This fee helps cover the costs of making sure your payments go through safely when you buy something. Even though these fees are set by the card company and can’t be changed, they’re usually not as high as some other fees you might see when you use your card.
Imagine that the company that made your card, like Visa or MasterCard, has a special fee. They charge this fee so you can use their cards to buy things. This fee helps cover the costs of making sure your payments go through safely when you buy something. Even though these fees are set by the card company and can’t be changed, they’re usually not as high as some other fees you might see when you use your card.
4. Tiered Fees
In this system, the company that processes your card payments sorts different fees into three groups, depending on how risky each type of transaction is. There are three levels of fees: qualified, mid-qualified, and non-qualified. The following are the specifics of the various tiers:
In this system, the company that processes your card payments sorts different fees into three groups, depending on how risky each type of transaction is. There are three levels of fees: qualified, mid-qualified, and non-qualified. The following are the specifics of the various tiers:
4.1 Qualified Rate
To get the lowest fees in the qualified rate tier, a payment needs to meet certain rules set by the company that processes the payment. For example, when you use a regular credit card and pay in person at a store’s payment machine, this is seen as very safe. Because it’s low risk, it costs less in fees. This type of payment fits into the safest category because everything is done right in front of the cashier, making it harder for mistakes or fraud to happen.
4.2 Mid-Qualified Rate
If a payment doesn’t follow all the rules set by the company that handles the transaction, it gets put into either the mid-qualified or non-qualified group, both of which have higher fees. For instance, when someone enters credit card details over the phone or through the mail and the card isn’t actually seen by the seller, there’s a bigger chance for fraud. Since these kinds of payments are riskier, the business has to pay more to help cover that extra risk.
4.3 Non-Qualified
Rate Non-qualified rates are used for payments that don’t fit into the safer, lower-cost categories. This includes using reward cards, buying things online, or when you sign for a purchase instead of entering a PIN. These transactions have the highest fees because they’re seen as having a higher risk of problems like fraud.
4.2 Mid-Qualified Rate
If a payment doesn’t follow all the rules set by the company that handles the transaction, it gets put into either the mid-qualified or non-qualified group, both of which have higher fees. For instance, when someone enters credit card details over the phone or through the mail and the card isn’t actually seen by the seller, there’s a bigger chance for fraud. Since these kinds of payments are riskier, the business has to pay more to help cover that extra risk.
4.3 Non-Qualified
Rate Non-qualified rates are used for payments that don’t fit into the safer, lower-cost categories. This includes using reward cards, buying things online, or when you sign for a purchase instead of entering a PIN. These transactions have the highest fees because they’re seen as having a higher risk of problems like fraud.
Conclusion
Understanding how payment fees work is really important for any business, whether they sell things online or in a store. With more people paying digitally, especially after COVID-19 changed how we shop, businesses need to pick the right company to handle their payments. This choice can really affect how much money they make and how happy their customers are. Companies like Innoviti help businesses by offering good prices and strong security, making sure that payments go smoothly, which keeps customers coming back and helps the business grow.
FAQs
When business owners accept payments from customers, they have to pay some fees. These fees depend on a few things, like how risky the payment is, what kind of card is used, and how the payment company decides to charge for handling the payments.
When you use a card to pay at a store, there’s a small fee called a processing fee. This fee is charged to cover the work needed to move money. Here’s what happens: when you swipe your card, the desired amount has to be moved from the customer’s bank account via the payment processor to the merchant’s account, which the bank will then deposit in the merchant’s personal account. If your bank and the store’s bank are different, there’s an extra fee added.
A processing fee is charged while using a payment provider’s terminal as well. However, until a merchant is cautious, payment companies often levy exploitative processing fees. That’s where companies like Innoviti offer fair and affordable processing fees to help stores save money.
The processing fee is calculated as a percentage of the total amount you spend. Here’s the formula used to find out the fee:
Processing Fee =
(Order Amount × Percentage Fee) + (Transaction Fee × Number of Transactions)
This means they take a percentage of the total purchase amount and add a fixed fee for each transaction.
If your business is seen as “high-risk,” you’ll have to pay higher processing fees. This happens because payment companies worry that they might lose money, so they charge more to cover the risk. Businesses in this category or those with risky transactions usually pay more because there’s a higher chance of fraud or problems with payments.
Yes, there are fees for processing debit card payments, but they are much lower than the fees for credit card payments.
Now that you know how processing fees work, you can use your POS terminals wisely to help your business save money. Innoviti’s POS terminals are not only fast and easy to use but also designed to give merchants the best value by keeping processing fees and other costs low. Using POS devices with Innoviti’s platform can make running your business smoother and more cost-effective.