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4 Variables That Affect Your Credit Card Processing Fees

Updated: Jan 23

The ability to accept all forms of payment is crucial to the competitiveness of your small business, as customers expect to be able to pay using their payment method of choice. 


But did you know that the cost to accept a credit or debit card for your services varies not only by card type, but also by your business type?


In this article, we break down some of the key factors in determining the cost of accepting credit cards, and what to look out for when working with a merchant services provider.


The Company Type


Each industry and business type is classified by a “Merchant Category Code”, each of which is subject to different fee amounts that are affected by factors such as risk and business size.


Merchant Category Codes are designed by the credit card brands – this is their system for classifying merchants by the goods or services they provide. Each four-digit Merchant Category Code (MCC) determines the interchange fee, and specific benefits awarded to customers who shop in specific categories and card transaction rules.


For example, a veterinary clinic is assigned a merchant category code of 0742 for “Veterinary Services.”


The risk posed by a particular business type determines the interchange fee. Examples of “high risk” industries are casinos, pharmaceuticals, and adult entertainment. Whether a business type is particularly vulnerable to refunds and chargebacks can also influence the interchange fee.


Large businesses like supermarket chains can have a much lower rate as they have the “clout” to negotiate with card brands. This benefit is rarely handed down to small to medium-sized businesses like veterinary practices.


The Type of Card Used in the Transaction


Here’s the general rule: debit cards pose much less risk to a transaction than credit cards and are therefore cheaper to process.


The reason is simple. Funds that are approved are debited from the customer’s bank account straight away, unlike credit cards.


When your customers pay for your goods and services with their rewards credit card, however, things get more expensive. Branded credit cards fund customer rewards (like air miles and retail points) through the interchange fee. These awarding banks pass on the cost to you, the merchant, resulting in a higher interchange fee.


The Transaction Method


As a general rule, having the card and card owner present when they pay results in a lower rate, and card-not-present transactions result in a higher rate. This is simply a case of verifying that the card used belongs to the customer.


Different verification methods, like signature or PIN, carry nominally different rates. Telephone orders, e-commerce, and mail orders have a higher likelihood of fraud, and therefore carry a higher interchange rate.


How do your customers interact with your small business? Do you prefer contactless payments such as text to pay or online payments, or do you take payments via a credit card terminal in your business or at the curbside?


Whether you’re at a brick-and-mortar business, or out on the road, make sure to find a solution that works for you.


The Average Transaction Size


The wholesale fees charged by the card issuing bank and card brands contain a combination of a percentage and a fixed per-transaction fee. Generally-speaking, a lower average transaction size will result in a higher effective fee rate.


Businesses with a high average transaction size, such as a veterinary practice that specializes in complex or emergency care, may have a much lower effective rate.


To counteract the impact of credit card processing fees on lower transaction sizes, consider setting a minimum card payment amount. Another option is to pass on a card usage fee to your customers (a slightly riskier tactic). As a merchant, this is down to your discretion.


The breakdown of services you offer impacts your effective credit card processing fees. If you run a business with lower overall transaction sizes, explore fixed transaction fees for more predictable monthly payments. 


In any case, make sure you get all the available options from your merchant services provider.


Want to learn if you’re getting the best merchant services for your small business? Contact Gravity Payments for a free consultation with their veterinary experts today.


DVM Elite members contact your Practice Strategist about your special Gravity Payments discount offer or click here!

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