The Basics of Passthrough in Small Business Credit Card Processing

The Basics of Passthrough in Small Business Credit Card Processing

Learn about the concept of passthrough in credit card processing for small businesses and how it affects transaction fees and rates.

29/07/2023
Rachel Nguyen
Rachel Nguyen
Web Developer and Technology Writer
Rachel is a software engineer who focuses on web development. She has experience building custom web applications for businesses of all sizes. Sarah is also a skilled writer and enjoys sharing her knowledge of web development with others.

Understanding Passthrough in Small Business Credit Card Processing

As a small business owner, understanding the intricacies of credit card processing is essential for the success of your business. One important concept to grasp is the concept of passthrough. In this article, we will explore what passthrough means in the context of credit card processing and how it can impact your business.

What is Passthrough?

Passthrough refers to the practice of passing the interchange fees charged by credit card networks directly to the merchant. Interchange fees are fees that credit card networks, such as Visa and Mastercard, charge for each transaction. These fees are set by the networks and are typically a small percentage of the transaction amount plus a flat fee.

Traditionally, credit card processors would bundle the interchange fees with their own markup and charge merchants a single rate for credit card processing. However, with passthrough pricing, the interchange fees are passed through to the merchant separately from the processor's markup. This allows merchants to see the exact cost of the interchange fees and provides transparency in credit card processing.

Benefits of Passthrough Pricing

There are several benefits to choosing passthrough pricing for your small business credit card processing:

1. Cost Transparency:
With passthrough pricing, you can see the exact interchange fees charged by credit card networks. This transparency allows you to understand the true cost of credit card processing and make informed decisions about your pricing strategies.

2. Cost Control:
Passthrough pricing gives you more control over your credit card processing costs. Since you can see the interchange fees separately, you can negotiate lower rates with your processor and potentially save money on credit card processing.

3. Fair Pricing:
Passthrough pricing ensures that you only pay for the actual cost of credit card processing. By separating the interchange fees from the processor's markup, you can be confident that you are not overpaying for credit card processing services.

Considerations for Passthrough Pricing

While passthrough pricing offers many advantages, there are a few considerations to keep in mind:

1. Complexity:
Passthrough pricing can be more complex to understand compared to bundled pricing. It requires you to analyze the interchange fees separately from the processor's markup. However, with the right tools and knowledge, you can easily navigate through the complexity.

2. Processor's Markup:
Although passthrough pricing separates the interchange fees, it is important to consider the processor's markup as well. Make sure you understand the processor's pricing structure and negotiate competitive rates to ensure you are getting a fair deal.

In Conclusion

Passthrough pricing is an important concept to understand in small business credit card processing. By opting for passthrough pricing, you can gain transparency, control, and fair pricing in your credit card processing. However, it is crucial to consider the complexity of passthrough pricing and negotiate competitive rates with your processor. With the right knowledge and approach, you can optimize your credit card processing and contribute to the success of your small business.

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