Credit Card Processors,
Fees, & Which To Choose

PCI Compliance, Lower Fees, High Risk Needs

Credit Card Processing Services

We all are aware of PayPal, Square, and Stripe for credit card processing. As a marketing agency, we see these all of the time. These credit card processing services are excellent for those starting and earning less than $10,000/month in transactions. Once your business has moved beyond that threshold, you will pay more processing fees than you should. By moving to a better credit card processor, you will be able to increase your profits.

We work with multiple processors on our client's behalf. When you move from higher per-transaction costs, there are equally cons. The pros far outweigh the cons. If your marketing agency is doing its job correctly for your business, they would already be doing those items to protect your business's reputation online. We'll cover the cons and the pros, remove all the technobabble we hear all the time, and what they mean in terms you can understand.

Cons to Credit Card Processors

PCI Compliance - The biggest one we see anyone not doing your annual PCI compliance. With an actual credit card processor, you will need to do one.

If you have a full-service marketing agency, like Fawkes Digital Marketing, you will have PCI compliance testing done monthly. Your full-service marketing agency should be doing PCI compliance testing annually, whether you are with PayPal, Square, Stripe, or an actual credit card processing company. At Fawkes Digital Marketing, we perform a monthly PCI compliance test for every care plan customer and keep them in compliance.

Your full-service marketing agency should help you do this as they should have their "skin in the game" when protecting your digital asset online, including your PCI compliance. As the business owner, you are ultimately responsible for this. With your web designer equally involved, they will be more aware of the technology to help protect you and your customers.

The PCI compliance audit will typically take 1-2 hours to complete. The PCI compliance verification often takes less than an hour to complete. The first assessment will take longer as the questions you might not immediately have an answer. Your marketing agency with you the first time as they should be aware of every question asked.

Point of Sale systems - Point of Sale systems, or POS systems, most businesses run. These systems are integrated to keep track of your products, inventory, and more. Often they are "given" to the company for free or at a significantly cheap cost. The low cost to a business owner is they will often lock you into their credit card processing, where they get a cut of the sales. When it is a closed system, you will not be able to switch credit card processors and save money.

CBD - Not every provider will work with you if you sell CBD products. Thankfully, the providers have solutions so that you can sell CBD products and save money. With Square, Stripe, and PayPal, you are in violation of their terms, and if they find out (catch you), they can, and will, red flag you if you are caught selling it. Even if it is legal in the state, you are in.

Pros to Using Credit Card Processors

We'll start where everyone wants. Lower Fees will typically be associated with using a dedicated processor. Don't think this will be an instant "win fall" where you make a fortune. The numbers will be small. Where you will typically save are:

  • Lower or no monthly fees
  • Percentage decrease. Often this is not a considerable amount. The amount can be as small as 0.01%. We often see a more significant increase, but there are many factors. The most crucial factor for the rate decrease will be whether a person swipes their card (e.g., in-person) or if you key in the information (this can include eCommerce sites where the customer keys in their credit card information on your website).
  • For example, we used to use QuickBooks, Freshbooks, and a local bank as our credit card processor. Starting in 2021, we re-looked at the numbers and realized we were losing thousands a year to credit card processor charges. The amount may not seem like a lot, but by moving to a real credit card processor, we added $1,625/year to our bottom line allowing us to increase the pay for our team members without affecting the company's annual budget.

  • Your accountant will love you more for sure. The reporting will be more detailed, making your accountant/bookkeeper's life easier. Reports are easier to read, customizable, and often work directly with your accounting software like QuickBooks, Freshbooks, and other major accounting platforms.

Note: There are ways to make PayPal, Square, and Stripe work with your accounting software.

What are the types of fees will you see with credit card processors?

Before a processor gives you a custom rate, they consider several factors. They will analyze your type of industry, your credit history, business track record, and your sales record (whether it's established or a projection).

Some of the flat fees you can expect to receive from a payment processor include:

  • Monthly fee
  • Batch fee
  • Interchange fee
  • Annual fee
  • Terminal fee
  • Online reporting fee
  • Statement fee
  • Network access fee
  • Payment gateway fee

A critical point to note about flat fees is that you should review them before you sign a contract with a processor. If you fail to do so, you might end up with a substantial financial hit when your merchant statement comes in.

Processing fees are calculated per transaction and make up the bulk of what you will pay the processor.

Situational Fees

Monthly minimum fees A credit card processor will, at times, charge you a fee when a specific action takes place. Examples of such event-related payments include:

  • Cancellation fees
  • International fees (which are non-negotiable)
  • Monthly minimum fees
  • Chargeback fees (which are also non-negotiable)
  • Set-up fees
  • Liquidated damages fees
  • NSF fees (non-negotiable as well)

To get the most out of a processor, you can seek discounts on negotiable situational fees while limiting the number of events that happen per month to trigger them.

Things to Consider When Comparing Merchant Services

Selecting the right credit card processor can be a tricky affair if you don't know how to benchmark the vendors. Let's take a closer look at the sticking points against which you must weigh each potential processor.

The Risk Level

Credit card processors classify merchants they serve according to their risk level. As such, some processors serve high and low-risk segments with little overlap between them.

When determining a merchant's risk profile, a processor tends to look at:

  • How well management runs the business
  • The prevailing rates of customer fraud
  • The frequency of customer chargebacks
  • A merchant's regulatory risk

A retail business that accepts most of its customer purchases in person will experience fewer instances of fraud. It will be hard for a malicious actor to use stolen credit cards, for example, if they have to pay at the till in person.

Which Credit Card Processors To Choose

The numbers for each processor will vary depending on the (1) card type used, (2) whether it was swiped in-person or typed in, and (3) the amount of the transaction. The numbers below are averages we have seen to help you make a proper decision.

DescriptionFawkesPayPalSquareStripe
Amount Recommended To Use$2,500+$0 to $10,000$0 to $10,000$0 to $10,000
Monthly Charge$0 to $20$0 to $50$0 to $50$0 to $50
Percentage Rates2.75% to 3.5%2.9% to 3.9%2.9% to 3.9%2.9% to 3.9%
No Fee Card Processing / Can Pass Fees To CustomerYesNoNoNo
ReportsYesYesYesYes
Custom ReportsYesLimitedLimitedLimited
Export to Accounting SolutionsYesThird-PartyThird-PartyThird-Party
PCI CompliantYes, Annual AssementNot RequiredNot RequiredNot Required
Local Customer SupportYesNoNoNo
CDB Options AvailableYesNoNoNo
eCommerce ReadyYesYesYesYes
Cash DiscountYesNoNoNo

Frequently Asked Questions (FAQ) Related To Processing Credit Cards

Credit card companies and processors have a many terms. Some are common that we all grasp. Others will be new. Over the years we have created a list of commonly used words that we have consolidated into a simple set of frequently asked questions (FAQ) to help educate you on the terminology you will hear.

  • Account number: A credit card account number is a unique number assigned to each credit card customer, and it is also the number embossed on the physical credit card. The first digit of the account number denotes the card network (Mastercard, Visa, American Express, etc.).
  • Acquirer: The acquirer is the financial institution that processes credit card payments for products or services on behalf of a merchant. An acquirer is licensed as a member of Visa / MasterCard as an affiliated bank or processor.
  • Acquiring bank: Sometimes referred to as the "merchant account provider" or "merchant's bank," this is the bank, credit union, or financial institution that creates and maintains your merchant account (e.g., Chase, Bank of America, etc.)
  • Address Verification System (AVS): This is a system used to verify the cardholders' billing address by checking for validity against information provided to the issuing bank. This verification system helps reduce instances of fraud and is supported by Visa, MasterCard, Discover, and American Express.
  • Adjustment: This refers to a correction made in the case of a duplicate transaction or an incident where a cardholder disputes a transaction. The acquirer initiates the adjustment to rectify the processing error. Depending on the situation, either a debit or credit is applied to the merchant DDA account when an adjustment is made.
  • Affinity Card: An affinity card is a credit card issued with an organization or professional group, such as a professional association or retired persons group. These organizations often earn a royalty from the card issuer, who may or may not pass that cost on to the cardholder.
  • Annual Fee: A credit card's annual fee is the yearly cost associated with having a credit card if the card issuer assesses a fee. This fee is separate from the interest rate on purchases.
  • APR (Annual Percentage Rate): APR is the yearly percentage rate charged when a cardholder carries a balance on a credit card account. The APR is incurred each month when an outstanding balance exists.
  • Assessments: Assessments are the fees that card brands charge to the acquiring bank. These fees exist the maintain the Interchange system.
  • Authorization: The process of verifying that the cardholder has adequate available credit for the transaction in question is called authorization. If approved, an authorization code is generated, and the cardholder's available credit limit is reduced by the amount of the purchase.
  • Average Sale: This is the total sales volume divided by the total number of sales for a given period of time. It is used to establish the merchant's average ticket amount in order to monitor for any irregularities.
  • Back End Processor: When a merchant submits a batch of payments, it goes to the front-end processor, which routes it to the back-end processor. A back-end processor accepts the settlement from the front-end processor and then moves the money from the issuing bank to the acquiring bank.
  • Balance Transfer APR: The Balance Transfer APR is the amount applied as an interest to any balance transfer a cardholder might make on their credit card account. This rate is usually the same as the purchase APR but may vary depending on the card issuer.
  • Balance Transfer Fees: Balance Transfer Fees are any fees associated with transferring a balance from one credit card account to another. The fees typically range from 1% to 5% of the balance, but many credit card issuers do not charge this fee.
  • Bank Card: This refers to a Visa or MasterCard branded credit card issued by a financial institution. Other Card brands such as Amex, Discover, JCB, etc. issue their cards directly and not through banks.
  • Batch: A batch describes an accumulation of transactions (sales) waiting to be settled. Throughout the course of one day, numerous batches may be settled.
  • Card Holder: This is the person who has obtained a credit card from a bank or other institution and uses it for the purchase of goods and services.
  • Card Issuer: The issuing bank or card issuer refers to the bank or financial institution that lends money to the cardholder. It can also be referred to as the cardholder's financial institution.
  • Card Member Agreement: The Card Member Agreement outlines all the terms and conditions of a credit card account. This agreement is a federal requirement and acts as a binding agreement between card issuers and cardholders.
  • Card networks: Sometimes referred to as card associations, these are essentially the credit card brands — Visa, Mastercard, Discover, etc.
  • Card-Not-Present: Refers to transactions in which the actual credit card is not presented for payment. Instead, the credit card information is transmitted via the internet, fax, mail, or telephone because the card is not physically presented to the merchant for processing, these kinds of transactions are referred to as card-not-present transactions.
  • Chargeback: A Chargeback occurs when a cardholder or the cardholder's bank disputes a specific transaction. The merchant bank is then responsible for resolving the issue within a set amount of time, according to the rules of the card association.
  • Check Digit: A Check Digit is a single digit of the credit card account number that is the result of an algorithm applied to the remaining digits and is used for error detection when credit card numbers have been entered manually.
  • Chip Card: A credit card embedded with a computer chip is also known as an integrated circuit card or simple a Chip Card. The chip holds memory that can be updated if necessary.
  • Co-Branded Card: A credit card sponsored by the issuing bank along with a retail organization (like a department store or airline) is called a Co-Branded Card. Cardholders may be eligible for benefits from the sponsoring merchant, such as discounts or free merchandise, for using their credit card. ]
  • Compliance: Compliance describes the process by which any of the parties in a payment transaction adhere to regulatory requirements applicable to that transaction, which include government regulations, card network regulations, bank regulations, and others.
  • Credit card processor: The credit card processor is a third-party company that passes along cardholder information to the card network (primarily) as well as various other parties. Credit card processors earn revenue by charging merchants such as yourself for their services.
  • Credit Line: The amount of credit awarded to a cardholder, which is also the amount of money that can be charged to a credit card account, is known as the Credit Line. This is also known as the credit limit.
  • Credit Report: A Credit Report is produced by one or more of the credit bureaus and reports on credit history, credit inquiries, and payment history on all accounts belonging to a specific individual.
  • Credit Score: Also known as a FICO score, a Credit Score is a three-digit number calculated by the credit bureaus that represents an individual's credit standing. The credit score is produced using a formula that includes various weighted factors, such as income, outstanding credit lines, repayment history, and debt to income ratio.
  • Card Verification Code (CVC): A CVC is a three-digit number that appears on the back of a MasterCard card. The number is a unique value that is calculated from the data encoded on the magnetic stripe on the card and is used to validate card information during authorization.
  • Card Verification Value (CVV): A CVV is a three-digit number that appears on the back of a VISA card. The number is a unique value that is calculated from the data encoded on the magnetic stripe on the card and is used to validate card information during authorization.
  • DBA: DBA stands for "doing business as" and is a legal term used in the United States and Canada, meaning that the trade name, or fictitious business name, under which the business or operation is conducted and presented to the world is not the legal name of the legal person (or persons) who actually own it and are responsible for it.
  • DCC: DCC stands for dynamic currency conversion and is a financial service in which a cardholder can have the cost of a transaction converted to their local currency when making a payment in a foreign currency.
  • DDA Account: The merchant's demand deposit account is the bank account that the acquirer/processor credits or debits for deposits, fees, and adjustments.
  • Debit Card: This is a payment card that draws funds directly from the cardholder's bank account at the time of purchase.
  • Debt Consolidation: With credit card debt, Debt Consolidation refers to the process of combining multiple lines of credit, often involving a balance transfer from several higher interest rate cards to a single card with a lower rate.
  • Deferred Interest: Interest that accumulates on a credit account during a holding period but is not paid until a later date is called Deferred Interest.
  • Deposit Correction Notice: Refers to the adjustments (debits or credits) made for an out-of-balance condition due to various problems in the transmittal. The correction is made by the merchant's acquirer at the time of capture prior to being sent out for interchange.
  • Digital Wallet: A Digital Wallet describes software or an app that stores information for multiple credit cards and allows you to make purchases. Examples include Google Wallet, Apple Pay, and Paypal.
  • Discount Rate: This is the fee charged to the merchant for the settlement of the transactions by the acquiring bank.
  • Disputes: When a cardholder makes a claim to the issuing bank questioning the validity of a charge, the claim is called a Dispute. This may stem from suspected credit fraud and generally kicks off an investigation with the merchant that could lead to chargebacks.
  • E-Commerce: E-Commerce, or Electronic Commerce, refers to the buying and selling of products or services online via the internet or using other electronic means.
  • EMV (Europay, MasterCard, and VISA): EMV is a technology that uses microchips embedded in credit cards to prevent fraud at the point of sale.
  • Encryption : Encryption is a security measure that involves scrambling data automatically before transmitting it in an effort to prevent fraud.
  • Finance Charge: The total cost, in a dollar amount, of borrowing credit that includes an interest in fees. This is called a Finance Charge.
  • Forbearance: Forbearance is a temporary allowance a credit card company may grant to a cardholder to alleviate financial hardship for a specific period of time. This could involve postponing payments, removing or reducing fees, reducing minimum payments, and/or lowering interest rates.
  • Foreign Transaction Fee: When a credit card transaction is processed in foreign currency or simply processed outside of the United States, a Foreign Transaction Fee may be assessed.
  • Front End Processor: The front-end processor handles the capture, authorization and settlement with the acquiring banks; has connectivity to all the card companies; and routes transactions to the appropriate network for authorization.
  • Grace Period: The time during which a cardholder may pay their credit card bill without interest is known as the Grace Period. The Credit CARD Act of 2009 stipulates that, if offered, a grace period must be at least 21 days long.
  • Hard Credit Inquiry: A Hard Credit Inquiry or hard inquiry occurs when a credit card issuer or lender checks an individual's credit report to determine whether or not to extend a loan or credit line. Hard inquiries lower an individual's credit score and can remain on the credit report for up to two years.
  • Interchange: Interchange refers to the systems operated by VISA and MasterCard, both domestic and international, that manage authorization, settlement, and the passing through of interchange and other fees.
  • Introductory Rate: An Introductory Rate is a lower annual percentage rate (APR) that credit card companies sometimes offer for a temporary period as an incentive for enrollment. After the introductory period, the APR increases to a higher amount that is typically predetermined.
  • Independent Sales Organization (ISO): An ISO is an entity affiliated with banks and/or payment processors. An ISO typically helps merchants find and set up their payment processing systems, and some organizations provide additional services such as customer support and payment system maintenance. ISOs mainly work with Visa, while entities that work with MasterCard are called Member Service Providers or MSPs.
  • Issuing bank: Also known as the cardholder's bank, this entity is the bank or financial institution that grants the credit card account to the customer. During a transaction, the issuing bank pays the acquiring bank the sum in question.
  • Maintenance Fees: Maintenance Fees may include an annual fee that is added to the balance on the card, as well as a setup charge or charges for additional cards associated with a single account. Not all credit card companies charge maintenance fees.
  • Member Service Providers (MSP): An MSP is pretty much the same thing as an ISO (see description above). But instead of working with Visa, MSPs work with MasterCard.
  • Merchant Account: An account opened by a business that wishes to accept credit card payments. It is opened through a bank or a credit processing company.
  • Merchant Category Codes (MCC): The Merchant Category Code, or MCC for short, is a 4-digit code assigned to your business by credit card networks (Visa, MC, Discover, Amex). Credit card networks use MCC codes to categorize your business, as well as to track or even restrict transactions.
  • MID (Merchant Identification Number): Each merchant has a unique identifying number, called a MID that identifies them to all other parties in the transaction processing chain. This number exists only for accounting and billing.
  • Minimum Payment: Each month, a credit card company designates the lowest payment that is due on a credit card statement, which is called a Minimum Payment.
  • MO/TO: Refers to Mail Order/Telephone Order, which are credit card transactions that take place via e-mail, fax, mail or telephone. These kinds of transactions where the customer's card is not physically presented for payments are referred to as "card-not-present" transactions.
  • Multi-Currency Processing: This is an electronic payment processing service that allows an online business to price goods in over 60 different currencies. Overseas customers then have the leisure of choosing to see items priced in a currency they understand, their own.
  • Near Field Communication (NFC): Used primarily in smartphones and other portable connected devices, NFC makes it possible to make purchases via wireless communication with a payment terminal.
  • Over-the-limit fee: When a cardholder's balance exceeds the credit limit on their account, credit card companies often charge an Over-the-limit fee (and will decline additional transactions). The Credit CARD Act of 2009 protects cardholders against extremely high fees and caps the fee at the amount a cardholder exceeds the limit.
  • Payment Card Industry (PCI) Data Security Standards (DSS) (PCI-DSS): The payment card industry (PCI), which comprises credit, debit, prepaid, and other payment card businesses, established a proprietary information security standard that all merchants and payment processors must meet. These standards are collectively known as PCI-DSS.
  • Penalty APR: If a cardholder violates the terms of the card user agreement, the credit card company may raise the interest rate permanently, which is called Penalty APR.
  • Point-of-Sale (POS): POS is the location of the merchant in a credit card transaction, whether the cardholder is present or not.
  • Processor: A payment processor is a company (often a third party) that acts as an intermediary between the authorization request from a Point-of-Sale device and the card payment brands. A processor is appointed by a merchant to handle credit card transactions for merchant acquiring banks.
  • Representment: In the chargeback process, Representment is the name for the second stage, in which the acquirer returns a disputed transaction back to the issuer in response to the initial chargeback.
  • Real-Time Processing: This is a process where a customer's credit card is authorized and charged at the time of purchase.
  • Reserve: In some instances where risk is an issue, a merchant may be required to deposit funds in a reserve account held at the processor sponsoring bank. This process of mitigating risk is used by most ACH processors.
  • Retrieval Request: When a customer receives their credit card statement, they sometimes contact their bank to request additional information on particular transactions. This request for additional information is what is referred to as a retrieval request.
  • Secured Credit Cards: Often used by people with no or poor credit history, Secured Credit Cards require a cash deposit or another type of collateral to create a line of credit. The credit card company's terms on secured credit cards vary and can include hefty fees.
  • Secure Payment Gateway: This refers to a system that passes credit card data, authorization requests, and authorization responses over the internet using encryption technology.
  • Settlement: When a sales transaction completes the process of moving from merchant to acquiring bank to the issuer, and the acquiring bank and issuer exchange funds or data, this is known as the settlement of the sales ticket created by the purchase.
  • Shopping Cart: This is a virtual cart where customers can add or delete items they wish to purchase. It is a software solution that runs on a merchant website or online store.
  • Soft Credit Inquiry: A Soft Credit Inquiry occurs when an individual's credit report is checked as a background screening, in the "pre-approval" process of credit card offers, and when one requests their own credit report. A soft inquiry does not affect your credit score like a Hard Credit Inquiry does.
  • SSL (Secure Socket Layer): SSL is a secure web protocol used for encrypting data between the web browser and web server so that a third party cannot intercept the credit card information.
  • Terms and Conditions: The document in which credit card issuers outline their practices and policies is often called the Terms and Conditions. When a cardholder first uses a new credit card, the terms and conditions become a legal contract between the cardholder and the issuer.
  • Tokenization: Tokenization is a security measure that protects actual payment card numerical data by converting it into a unique token value. That token can be used for future transactions.
  • Unsecured Credit Cards: Unsecured Credit Cards do not require collateral as Secured Credit Cards do, and they are the most common type of credit card account.
  • Utilization Ratio (AKA Credit Utilization Ratio): The percentage of a cardholder's credit limit that is currently being used is called the Utilization Ratio. This factors heavily into the calculation of FICO scores.
  • Value Added Reseller: This is a third-party vendor that enhances or modifies existing hardware or software, adding value to the services provided by the processor or acquirer.
  • Variable Interest Rate (AKA Floating Rate): Most credit cards are also called variable-rate cards because they carry a Variable Rate of Interest, which is an APR that fluctuates in conjunction with another rate, called an index.
  • Virtual Terminal: This is an application that allows merchants to manually key in customers' credit card information. The information is then securely transmitted and authorized by the payment gateway.