Global e-commerce sales are expected to near $4.1 trillion USD in 2020, making up 14.6% of total retail spending (up from 7.4% in 2015). As an e-commerce business owner, you’re clearly on the right side of the trend. Yet with massive companies like Amazon and Alibaba in the space, competition is tough and margins are thin, which is exactly why e-commerce credit card processing is so important.

To benefit from the continued internet shopping boom, you have to execute properly. That begins with taking care of your customers, which includes making payment seamless. 

However, you can’t just choose any merchant service provider (MSP) and integrate the solution with your platform. You have to partner with an e-commerce credit card processing provider that works to ensure your bottom line. 

As experts note, turning a profit in e-commerce is hard. And you can’t afford to let money slip away to expensive payment processing services. 

Here’s how you can make the right decisions about accepting payments at your online store. 

How does e-commerce credit card processing work?

For e-commerce credit card processing, many companies get a merchant accounta type of bank account that enables you to accept online payments. You have to apply for a merchant account with a bank or processing company. 

Most merchant account providers allow you to accept debit and credit cards. They also support most card networks, such as Visa, MasterCard, and American Express. Fees usually include application fees, monthly minimums, transaction fees, chargeback fees, and more. It can get expensive. 

Additionally, a merchant account uses a payment gateway—a service that connects your e-commerce store with your payment processor. It ensures a secure financial network for the customer. A payment gateway checks the validity of cards, determines the customer’s issuing bank, encrypts numbers, and authorizes (or declines) transactions.

Ecommerce credit card processing can get complex. Third-party payment processors, such as PayPal and Stripe, have become more popular because they aggregate the whole process into one platform. It makes life easier for you and your clients. 

Third-party MSPs streamline e-commerce credit card processing by:

  • Removing the need for an individual merchant account: Third-party e-commerce credit card processing providers use one merchant account to represent different merchants.
  • Removing the need to set up a payment gateway: Their service includes this. 
  • Only paying as you use the processor: Note you still have to pay e-commerce credit card processing fees, which can eat into your profits

How are e-commerce credit card processing fees calculated? 

Since third-party payment processors have become increasingly preferred with e-commerce merchants, you should learn about how their fees work. While these solutions simplify the task of accepting payments, a lot still goes on to make sure funds transfer securely and efficiently. 

This means fee structures can get complex. And you can easily lose out on money if you’re not careful. 

First, know your effective rate (your total fee). This rate takes into account everything and includes all fees, including the markup you pay your payment processor (they have to make money to operate too). 

Next, learn about all the individual e-commerce credit card processing fees

  • You pay an interchange fee to the card-issuing bank.
  • You pay an assessment fee to the card brand
    • Note: You could simply pay a pass-through rate, a pricing model that combines interchange and assessment fees. If your MSP charges a pass-through rate, make sure they don’t mark up the price unnecessarily. 
  • You may also pay cancellation fees when a transaction is voided. 
  • You could still pay fees even if the customer returns the item and/or asks for a refund. 
  • You could even face rate increases, which you shouldn’t allow since fees are a percentage of each transaction and naturally rise with your prices. 
  • You may pay monthly fees, hidden surcharges, and other fees if you have a complex multi-tiered plan. 

As you can see, it literally pays to pay attention to e-commerce credit card processing fees. 

Note: While interchange and assessment fees aren’t really that negotiable, ask about voided transaction fees and about reducing fees when you have to refund a customer. Payment processing companies typically don’t need to charge fees in such instances. But they do so because they know e-commerce merchants are busy and may not notice. Absolutely negotiate these fees. Your bottom line is at stake. 

How much are e-commerce credit card processing fees? 

It varies. 

But e-commerce credit card processing fees usually exceed in-person card processing fees. MSPs charge more because of the higher risk of fraud with online payment. 

Here are the fees charged by some major e-commerce credit card processing services: 

Payment ProcessorAverage Ecommerce Credit Card Processing Fees
Square2.9% + $0.30¢ per transaction
PayPal2.9% + $0.30 
Shopify2.9% + $0.30

Third-party e-commerce credit card processing services often apply an additional monthly subscription cost. These can add up to an extra $300-$600+ per year. 

While these transaction fees may not seem like much, they can cut into your profits considerably. Because most of your revenue probably comes from credit cards.

How much are you paying for e-commerce credit card processing? 

Probably a lot.

According to a TSYS consumer study, nearly half of online shoppers prefer making purchases with a credit card: 

Payment Type Preference By Online Category

Furthermore, customers who do use a credit card tend to spend more. The average value of a cash transaction is $22, according to the Federal Reserve. Compare that to the average value of various credit card transactions: 

Average value of transaction per credit card worldwide in 2016, by brand (in U.S. dollars)

Source: Statista

Considering the numbers, it’s possible 75% of your revenue comes from credit card transactions. Therefore, as an online merchant, lowering your e-commerce credit card processing fees is crucial to greater success. 

Consider this example: 

  • Your e-commerce store achieves $1 million in revenue, with 75% ($750K) coming from credit card purchases. 
  • On that $1 million in revenue, your net margin is 10%. You have $100,000 in profits
  • However, you pay an average of 3.3% per transaction in e-commerce credit card processing fees. On $750K in purchases, that equates to $24,750 per year

Now, imagine you could reduce those fees by 50%. Your profits would go increase $12,375 per year. That’s an increase of 12.375%!

You certainly want that, right? 

Propel your e-commerce business with smarter credit card processing

The good news is you can lower e-commerce credit card processing fees. By partnering with a better provider and utilizing smarter strategies, like a cash discount program, you’ll have more money for your business and yourself. 

At NadaPayments, we work with e-commerce merchants to ensure they’re taking as much of their revenue home as possible. Contact us +1 (929) 293-1800 or click the link below.

I Want to Pay LESS for Credit Card Processing