What to Know About Virtual Terminals and Credit Card Transaction Fees

What to Know About Virtual Terminals and Credit Card Transaction Fees

As a small business owner, you want to provide customers with as many buying options as possible. If you are venturing into e-commerce or conduct business over the phone, you want to make sure you set up a virtual terminal. A virtual terminal is used for payment processing and is required if you plan to accept credit or debit card payments. When comparing pricing models for different credit card processors, you need to be mindful of credit card transaction fees. These fees are required by payment processors to use their services. Being mindful of transaction fees could result in thousands more in your bank account at the end of the year. Here’s what you need to know about implementing the best virtual terminal credit processing system while saving on credit card transaction fees.

What Are Virtual Terminals, and How Do They Process Credit Cards?

Virtual terminals are web applications that give you the ability to process payments without a card reader (aka a card-not-present transaction). The cardholders simply type in their card information and the payment is processed. On a screen, virtual terminal credit card processing looks like this:

A screenshot of a virtual terminal

Source: Bill.com

A variety of businesses can benefit from virtual terminal credit card processing, especially those that do business over the phone and internet. Industries where virtual terminal credit card processing is most used include:

  • Restaurants offering takeout
  • E-commerce stores
  • Delivery services (food, groceries, etc.)
  • Professional agencies and consultants
  • Medical practices
  • Dental practices

No matter what type of business you have, if you plan on accepting credit card payments without having the card present physically, then you'll need to have a virtual terminal.

How Much Does Payment Processing Cost?

Although virtual terminal credit card processing may not cost you much upfront (if anything), you’ll pay a per-transaction fee. Your total fee (or effective rate) comes from the following fees:

  • Merchant services provider (MSP) markup: Your merchant services provider is a necessary entity to process credit card payments, and it has to make money too.
  • Pass-through rate: The MSP pays this to the card-issuing bank.
  • Interchange fee: You pay this to the card-issuing bank.
  • Assessment fee: You pay this to the card-issuing brand.

The average credit card processing fees are around 3.5%. However, the fees for virtual terminal credit card processing may not even end there, as there may be hidden additional fees. You may pay a monthly fee. Many MSPs have complex multi-tiered pricing that is heavily influenced by your transaction volume, so you may also have to pay surcharges if you do not have enough transactions each month. On top of all that, you may have to pay fees even if the sale is voided or refunded. Ask your credit card processing company to waive voided transaction fees and chargebacks. Otherwise, you're paying fees without actually receiving any revenue.

Are Virtual Terminal Credit Card Transaction Fees Higher Than Card-Present Fees?

Usually, businesses pay lower rates on in-person transactions than they do on virtual transactions. Fees can vary depending on the type of card presented at checkout. The amount you pay for in-person processing fees depends on the credit card network the customer uses. Here are some examples:

  • Visa: Ranging from 1.15% + $0.05 to 2.70% + $0.10
  • Mastercard: Ranging from 1.15% + $0.05 to 2.75% + $0.10

However, as seen in the example below, the rates for virtual terminal processing are much higher.MSPAverage Virtual Terminal Credit Card Processing FeesSquare3.5% + 15¢ per transactionPayPal3.1% + $0.30 Shopify2.9% + $0.30As you can see, virtual terminal credit card processing will cost you more than point-of-sale (POS) credit card processing, even if you get a good deal with your MSP. This is because:

  • You don’t need a card physically present to process payments as you would with POS credit card processing. MSPs charge a higher markup for this convenience and functioning.
  • Given that the vast majority of virtual terminal credit card processing isn’t done in person, there’s a higher likelihood of fraud. Higher fees protect against that.

Now, you may think that virtual credit card transaction fees aren't that much, right? It's only around 3.5% of every transaction. While this may seem true, it helps to look at the big picture.

How Much Are Virtual Terminal Credit Card Transaction Fees Costing Your Business?

Instead of looking at the individual transaction amount, it helps to look at the big picture and see the total dollar amount you stand to lose from credit card processing fees. First, as a TSYS U.S. Consumer Payment Study found, credit cards are the most popular form of payment at businesses that typically use virtual terminal credit card processing, like e-commerce stores and travel sites:

A chart showing payment type preference by online category

If you run an online clothing store or a boutique hotel, you could use virtual terminal credit card processing for nearly half of your transactions. As data from the U.S. Federal Reserve shows, non-cash transactions have a value of $112 per transaction, versus just $22 for cash transactions.

A bar graph showing average transaction amounts by payment method

Given the numbers, 60-70% of your revenue could come from virtual terminal credit card processing, especially if you don’t do many in-person transactions. Now, let’s figure out how much you could be paying in fees. As an example, let’s say you run a small motel and your revenue is $2 million per year, among which:

  • Virtual terminal credit card processing accounts for 65% of revenue, or $1.3 million.
  • You process 6,500 virtual terminal transactions for an average transaction value of $200.
  • You pay 3.15% plus $0.30 per transaction in fees, which equals a 3.3% average fee per transaction (if the sale is $200).

So, that means you pay 3.3% on $1.3 million per year. That’s $42,900 per year in virtual terminal credit card processing fees!If your net margin is on par with hotel industry averages of around 17% (according to New York University), then you make $340,000 per year from the motel. That may be good enough. But if you eliminated virtual terminal credit card processing fees, you could make $42,900 more per year. That’s a profit increase of 12.6%! You definitely want that, right? All you have to do is figure out how to eliminate credit card processing fees.

Enter the Surcharge Program

If you have a virtual terminal and POS credit card processing system, you can greatly reduce fees with a surcharge program. Here’s how it works:

  • Your customer goes to complete payment.
  • You give them an option to pay with a debit card or a credit card.
  • The customer chooses based on what is most convenient and affordable.

So, how do you avoid credit card processing fees? Well, the price structure incentivizes the use of a debit card.With a surcharge program, which is 100% compliant and legal thanks to a 2011 FTC ruling, you can take home 100% of your revenue whenever a customer pays with a credit card. If the customer pays with a debit card, you’ll only pay 1% + $0.25, which is much less than what most processors charge. With a surcharge program, you can boost profits by double digits.

Nadapayments Offers Virtual Terminals and Low Transaction Fees

Credit card transaction fees: A woman uses a credit card to make an online purchase

If you are looking for an all-encompassing payment solution, be sure to look no further than Nadapayments. With Nadapayments, you receive everything you need to start processing credit card payments. Not only do you receive a Wi-Fi-enabled EMV Quick Chip machine, but you also receive a virtual terminal to process payments online or over the phone. There is also a mobile app, allowing you to process payments on the go.The system can accept major credit card brands and other payment methods including:

  • Visa
  • Mastercard
  • American Express
  • Discover
  • Apple Pay
  • Google Pay
  • Contactless payments

Perhaps best of all, business owners receive flat-rate pricing. The cost of using Nadapayments is a flat fee of $35 per month — there are no hidden service fees or surprises. The reason costs are so low is because of the company's surcharge program. With the surcharge program, credit card transaction fees are passed to the consumer. The consumer can avoid the fees by paying with cash or a debit card. Nadapayments even provides merchants with the signage required to convey this information to customers.

Be Mindful of Credit Card Transaction Fees

Incorporating a virtual terminal into your business could be a wise decision, allowing you to reach new customers online or over the phone.When comparing virtual terminals, you should be particularly mindful of credit card transaction fees. These fees can be higher on virtual terminals than for in-store transactions. Fortunately, there are payment processors like Nadapayments who not only provide the virtual terminal but offer a surcharge program. So you can say goodbye to fees and hello to higher revenues. If you're looking for a unified payment experience that will save you money, be sure to get started with Nadapayments today.

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Aleksey Nugid
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