A merchant’s profitability is determined largely by the costs of doing business, and one of the most common costs merchants in the digital age run into is the fees associated with processing card payments. Many merchants just assume that all payment processors and all fee structures are alike, but that couldn’t be more untrue. Merchant services providers use a variety of pricing models, the most common of which is the fixed-fee structure used by major third-party providers like PayPal. But that pricing model is actually extremely wasteful for all but a small subset of merchants, and the majority of businesses will bleed profits unnecessarily by utilizing it.
Merchants are all painfully aware of the fact they’re charged fees on the card transaction they put through, but many don’t understand what those fees are made up of. While those fees contain a number of different components, the largest portion is made up of the interchange fee. Interchange fees are charged on every single credit card transaction regardless of who a merchant partners with for their payment processing, so it’s important to understand at least the basics of what they are and how they’re calculated.