In the Trenches: The Agony of Credit Card Fees

Once I decided to start looking beyond Paypal, I found myself in a world of pain. The credit card processing industry seems to be built on confusion, and that has made me want to rip my hair out every time I delve into this area.

First, I had to learn the terminology. You need a merchant account with a bank in order to be able to collect the money. But you also need a payment gateway to be able to accept payments online. Some places offer both merchant accounts and gateways. Others partner with multiple providers, and some leave you to your own devices. This may seem confusing, and it is, but it’s nothing compared to when you start looking at credit card rates.

In general, you’ll see a combination of a flat authorization fee (maybe 20 or 30 cents) plus a percentage taken out of every transaction you process. The “simple” plans have three absurd tiers available. These are called Qualified (aka Qual), Mid-Qualified (aka Mid-Qual), and Non-Qualified (aka Non-Qual).

When you’re looking for credit card processing, the big cheap rate they flash in front of you is the Qual rate. Unfortunately, a lot of transactions don’t fall under the Qual rate, and I quickly found I had to know exactly what I was taking in order to see what plan was best. For example, rewards cards or business credit cards often don’t fall into this category. They’re usually Mid-Qual. And then there are a variety of reasons why something could be Non-Qual, including not having collected enough info from the credit card holder when you made the sale.

But here’s the kicker: You can’t really know in advance what category something falls into, at least not that I’ve found. You just have to cross your fingers and hope for the best.

On top of that, the rate that you get charged at the time of the transaction might not even be the right one. At the end of the month, there can be settlement charges where they adjust the amount you pay depending on whether the rate was charged correctly for the type of card used.

There can also be monthly minimum fees, “batch” fees, annual fees, and fees for pretty much anything else you can think of. Oh, and don’t forget that this applies to Visa and MasterCard. If you take Amex, it’s a whole different story. It’s mind-numbing. And you can see why it becomes just about impossible to compare between providers.

In the end, I’m still using Paypal for online purchases because I simply had too much trouble justifying a switch without actually knowing how my costs would shake out.

About Brett Snyder

Brett is the Founder and President of Cranky Concierge air travel assistance. He also writes the consumer air travel blog, The Cranky Flier.
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7 comments
Brett Snyder
Brett Snyder

@Nicholas Barnard - Yeah, I could do that, but at that point part of the reason for going with Paypal in the first place (the ease of installation) disappears. I might as well just look at everyone else at that point.@Matt Matheny - As Hunter says, you don't have to log in to Paypal. We also take credit cards over the phone, so there are plenty of ways to sign up.@Hajime Sano - I did look at them early on, but I haven't gone back since. Now that I'm a little more savvy on what's involved, I should probably go talk to them again.

Hajime Sano
Hajime Sano

I'm curious if you checked out Costco's credit card processing service. I see that one of the respondents used it for their business.

Hunter
Hunter

@Matt Matheny...you don't have to log into PayPal to use it. You can complete the transaction as a "guest" even if you have an account. You get an extra screen saying you have a PayPal account associated with this credit card or email, and using it will protect you, but you aren't forced to log in.

Matt Matheny
Matt Matheny

You also are loosing business by doing this; I was considering utilizing your service in planning a retirement trip for my boss but didn't feel like going through the hassle of logging in to PayPal. It's the American way; we don't have (or think we have) time for the extra 3 minutes it would have taken. Stupid, I know, but the retailer is the only one who misses out.

Cacinda Maloney
Cacinda Maloney

I own a small business (a clinic) and I know exactly what you are talking about. I started out with COSTO's merchant services. I tried to switch a few times, I just never could get my finger on the prices, so I just stayed with COSTCO merchant services.Then there is the game with the banks. Apparently when you have you fees "batched" at midnight and deposited into your business account, that counts as a line item, and with my small business checking account, we get charged for more than a certain number of line items done within the month, so I think that is scam too!

Bill
Bill

PayPal is not the end-all. I have had my account broken into twice and I'll never use them again.

Nicholas Barnard
Nicholas Barnard

What about integrating PayPal into your website, so people aren't taken away from it to the PayPal website?

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