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Everything You Need to Know About Credit Cards
Let’s explore those burning questions about accepting credit card payments—questions such as what are credit card fees? Is there a difference between credit card transaction fees and credit card processing fees? And what are credit card surcharges, anyway?
The Biggest Question: What Are Credit Card Fees?
As a business owner, we want to understand what we are being charged for, but more importantly, we want to know how much it’s going to cost us. Let’s start there.
What Are Credit Card Transaction Fees?
Credit card transaction fees are the per-transaction charges. Each time a card payment is processed, a percentage of the transaction is charged and an additional amount are charged as a fee.
For example, for each payment transaction with Project 2 Payment, there is a 2.9% + 30 cents fee. The transaction fee to process a $100 payment via credit or debit card is $3.20:
$100 multiplied by 2.9% = $2.90
Plus $0.30
Total transaction fee is $3.20
What Are Average Credit Card Processing Fees?
On average, businesses pay 3% per credit card transaction.
Credit card processing fees can vary and are based on factors such as credit card type, fraud assessment, etc.
What Are Credit Card Surcharges?
A credit card surcharge is an extra fee added to credit card transactions. It helps business owners cover the cost of processing these payments. In simple terms, the business shifts this expense to the customer.
Please note that surcharging can only be added if your customer is using a credit card. You cannot charge fees when a customer uses a debit card.
Pros of Surcharging
- Surcharging can bring higher margins by passing along the fees to your customers instead of adding it as a business expense.
- Customers want to use their credit card, so by surcharging, you are providing them with that convenience without it costing your business.
- Sometimes, customers are unwilling to pay the surcharge, so they will opt to pay you in good old-fashioned cash!
Cons of Surcharging
- Credit card surcharging is not legal everywhere, and some states cap the amount you can surcharge. Currently, surcharging is NOT legal in Connecticut, Maine, Massachusetts, and New York.
- Each card brand (Visa, MasterCard, Discover, American Express) has its own set of surcharging rules, one of which is that you can’t specify there is a “cash discount”, you can only label it is a surcharge or convenience fee.
- Some customers may decide to go with another service or complain about “additional fees” to others and persuade them not to use your services.
- Most invoicing and payment software providers do not have surcharging built into their software. (But Project 2 Payment does!)
Surcharging has its benefits and obstacles; it’s up to you as the business owner to decide if the benefits outweigh the risks. It’s also important that you understand the laws and regulations in your service area before implementing credit card surcharges.
Why Would You Accept Credit Card Payments?
Customers Prefer to Use Credit and Debit Cards
According to a study from the Federal Reserve, “Increased credit and debit card use between 2022 and 2023 resulted in more than 60% of payments per month being made with credit (32%) and debit cards (30%).”
Benefits of Accepting Credit Cards for Your Business
- Faster transactions – Accepting credit cards speeds up the payment process for both you and your customers. Unlike cash or checks, which require counting, verification, or bank visits, card payments are processed electronically within seconds.
- Broader customer reach – Today, many customers prefer card payments over cash or checks for their convenience and rewards programs. This flexibility also makes your business more appealing to younger generations, who rely heavily on cashless transactions.
- Enhanced credibility and trust – Businesses that accept credit cards are often perceived as more professional and trustworthy. Credit card payment options signal to customers that your business is legitimate, established, and customer-focused.
By incorporating credit card payments into your business model, you not only meet customer expectations but also position your business for growth and success in a digital-first economy.
Compliance and Security
PCI Compliance: What It Is and Why It Matters
PCI compliance, or payment card industry compliance, refers to the technical and operational standards businesses follow to secure and protect credit card data provided by cardholders and transmitted through card processing transactions.
Any business taking card payments needs to adhere to these requirements, and most card payment processors are already PCI compliant—you shouldn’t have to go through additional forms and testing to prove it. However, there are things that you should be doing as a business owner to ensure that all your customers’ data is secure.
Customer Data Privacy: Best Practices to Protect Sensitive Information
- Do not collect credit and debit card information anywhere other than encrypted, secure software. Once the information is collected, all you should see are the last four digits of the account and the expiration date.
- Educate yourself and those who have access to customer data on the latest fraud tactics to ensure no passwords or logins are being shared.
- Keep all software up to date and limit access to data.
Accepting credit card payments is a vital part of running a successful business in today’s economy. While the associated fees and compliance requirements may seem daunting, they’re a small price to pay for the convenience, credibility, and increased customer reach they bring. By understanding credit card fees, exploring the pros and cons of surcharging, and implementing secure payment practices, you can make informed decisions that benefit both your business and your customers.
Resources:
- Project 2 Payment: Is It Possible to Accept Credit Cards without Fees?
- Business.com: Pros and Cons of Surcharging Credit Cards
- LawPay: Credit Card Surcharge Rules
- The Federal Reserve: 2024 Diary of Consumer Payment Choice
- PCI Security Standards Council: https://www.pcisecuritystandards.org/
Tools:
- Project 2 Payment: With tools like Project 2 Payment, simplifying payment processing while staying compliant has never been easier. Ready to take the next step? Start streamlining your credit card payment process today!