Credit Card Processing Fees

negotiating with your payment gatewayIf you’re selling online or selling in your store or farmer’s market stall you know about credit cards. But do you know all about the fees that credit card processing can cost you? We’ll break this down and make it simple to understand. Here are the basic fees.

Pass Through and Bundled Pricing

Your merchant services provider or payment gateway will charge you pass through or bundled pricing. What’s the difference? Pass through means that you have complete transparency into the detailed fees that you are being charged. Bundled means that you generally pay one price and you don’t see the details. Which is better? In most cases you will want pass through pricing.

Authorization, Capture, Refund and Void Fees

There are four basic components of a credit card transaction. We’ll explain each one of them below.


When you send the customer’s payment to your merchant services provider you are sending an authorization. This is to check the credit card and see if a payment can be made. This stops bad credit cards or expired credit cards from being used. The authorization request also sets aside money on the customer’s credit card. Credit cards have dollar limits so this reserve needs to be booked.


When you receive an OK from the payment gateway on your authorization you are ready to ship the product to your customer. Before you ship the product you will send a capture request to the payment gateway. This capture request does the actual charging on the customer’s credit card. Some payment processors will do an automatic capture for you. Generally you will want to capture the authorization within 48 hours or less.


Customers will be dissatisfied and ask for their money back. You will investigate the refund to be sure a purchase was made and then send the refund to the payment gateway.


A Void is used to cancel an authorization. Suppose you are out of stock of the product that your customer purchased. You have no product so you need to void the authorization request.You should ask the payment gateway to give you a quote on each one of these items.

Interchange Fees

Interchange is the name of the fee paid to the credit card network. It’s a standard fee that is publicly available. Most payment gateways will want to pay this for you on your behalf. By doing this the payment gateway has more control over the money they make from you. You need to ask for a “pass through” rate. This is where you pay the interchange fees directly to the credit card companies and your fees to the payment gateway are separate. This can get difficult as the payment gateway will tell you that you’re not big enough to make this worthwhile. That can sometimes be true. But try asking all three of your payment gateways.

Gateway Fees

Gateway fees are monthly fees for using the gateway. These are not important fees and you normally can request that they be removed. Gateways will often charge a monthly maintenance fee. This fee goes straight into the payment gateway’s pocket and there is little value. You can negotiate removing this fee by telling the payment gateway provider that you believe in paying for work. Therefore, you want to pay them when there is a transaction.

Implementation Fees

Implementation can have a cost for the payment gateway. Most payment gateways will have people and processes ready to help you. So this is a fee that you should remove. In some cases you won’t be able to if you have a low volume or complicated integration that needs testing. However, there should not be much of a fee here as the payment gateway provider should make money from a steady flow of transactions and not one time fees.

Chargeback Fees

Chargeback fees have three components. Reciepts, representment one and representment two.
Receipts are when you the merchant request prove that the customer authorized the transaction. The payment processor pulls an electronic receipt for you. Representments are when you collect compelling evidence that the customer has made a purchase from you. There are two representments. These are known as representment 1 and representment 2. (Thank goodness the naming here is not complicated.) The payment gateway provider will charge you for each item.

Receipt: You request and receive a transaction record from your payment gateway provider. You will typically have your own records. But its good to get a price on this in case you need it.
Representment 1

Representment 1 is when the evidence you collected that shows you made a sale to the customer is passed to the customer’s bank. Why the bank? The bank is who sold or issued the credit card to the customer. There is a fee here for the payment gateway to help you through this process.

Representment 2

Representment 2 happens when the bank tells your payment gateway that they agree with their customer. In Representment 2 you have more opportunity to present your case. There is a fee for this service.

Other Fees

There are other fees that we will cover in the next installment of this series. But let’s first do a quick recap of the steps to negotiate with a payment processor.

Here is more information on merchant accounts, merchant services and payment gateways.