Whether you’ve had a merchant account for a year or a decade, you may not completely understand each and every rate and fee that’s listed on your merchant statement. From PCI compliance and chargeback fees to interchange and batch fees, there’s a lot to learn, and trying to do so on your own may leave you scratching your head. One thing’s for sure, however: Authorization and/or transaction fees will almost always appear on your monthly credit card processing statements, so knowing what they refer to is imperative.
An Authorization occurs each time your customers' debit or credit cards are submitted for payment.
When a consumer uses a credit card to make a purchase, the terminal or POS system will dial out to the processing platform—the organization authorizing the transaction—to confirm the card with the issuing bank and verify the funds are available. This process, which you pay for through an authorization fee, essentially facilitates the transaction.
Once the processing platform ensures the card is in good standing and the funds are accessible, it sends the approved authorization to the merchant service provider, who then completes the sale. Doing so transforms the authorization into an actual transaction. Consequently, your merchant service provider charges you a transaction fee to cover the cost of this process.
Occasionally, however, a card does not get authorized for a transaction, and the card is “declined,” at which point the customer needs to either pay with cash or another card that is able to receive an authorization.
So it is quite common for merchants to have more authorizations than transactions. It is NEVER possible to have a transaction without an authorization.
Most credit card processors charge merchants a fee per Authorization or Transaction.
Because every transaction requires an authorization, many processors simply charge merchants a handful of pennies for each authorization. Other processors simply charge for every transaction. But merchants should look carefully to make sure they’re not getting charged for both authorizations AND transactions. Some processors charge merchants both of these fees as a way of padding their profits.
The average authorization or transaction fee is anywhere from $0.00 to $0.30. But since credit card processing fees vary depending on your merchant service provider, authorization and transaction fees do, too. To find out what your cost per transaction is, take the total amount of fees paid and divide by the number of transactions.
If you’re unhappy with the amount you’re paying, consider contacting other merchant service providers to see if they can offer you a better deal.