Credit card processing fees are fees charged by credit card processing companies to process a credit card transaction. These fees are per transaction; that is each time a credit card is swiped to pay for a product or service.
The transaction fee is usually made up of 2 components, a percentage of the cost of the product about 1-3% or more and a flat fee for each transaction for example $0.25 per transaction.
Credit card processing fees are paid by the retailer, small business or business owner and the fees cannot be passed on to the consumer.
These fees do add up in the long run and eat into the profits of the merchant. In the light of this, many merchants that accept credit cards and debit cards are looking for ways to pass some of this fees to the consumer.
Even though this practice of passing credit card processing fees to the customer is against the rules, some merchant do it anyway and pass on some of the fees to the customer as surcharges. If and when this practice is discovered, the merchant will lose his or her privileges of accepting credit cards and might not get it back in the future.
Instead of passing the fees to the customer and risking losing their ability to accept credit cards for payment, merchants have devised a way to encourage customers to pay by cash or check for small ticket items instead of plastic by offering discounts for check or cash payment. For a $10 product the merchant could offer a 5% discount if the consumer pays by cask or check. This will then drop the price by $0.50 to $9.50 and the customer sees an immediate savings of $0.50.
This price difference is clearly made available to the customer and he or she then decides which way to go. People love to get a discount and will happily jump at the chance to save some money. For the merchant it clearly side steps the issue of credit card processing fees and slightly reduces his profits.
This would work more for retail stores or brick and mortar business where the customer is physically there with his or her credit card. For an online store or virtual payment gateway, most times the merchant has no choice but to accept credit cards for payment no matter how small the cost of the product is.