Pass Through Fees and Everything You Need to Know About Them

Pass through fees are one way that payment processors bundle distinct fees and charge their customers. Learn more about pass through fees and how they impact each credit card transaction here.

In payment processing, cost structures and the options related to them can be especially complex. There’s no single model that’s used by all service providers to charge businesses for processing card payments.

Instead, a variety of pricing models are in play. Flat-rate, interchange, and tiered pricing models are the most common. Each takes a different approach to determining the specific cost of each transaction.

That’s not necessarily a bad —or good— thing. With so many ways to approach the costs of payment processing, some providers tack on additional fees and charges. However, this varied landscape also offers potential opportunities to save money on payment processing.

Today, we’ll review pass through fees, also known as pass through fees. These fees aren’t specific to a single part of the payment processing workflow. Instead, they represent a variety of costs charged by payment processors and the bank that issued the card used.

Does it seem like your payment processing costs are too high? Swipesum is here to help your business streamline card processing with effective solutions tailored to your needs.

Crucially, our independent payments consultants will negotiate with providers on your behalf. That means reduced merchant fees and more money for your company. Book your free consultation to learn more!

Now, let’s take a closer look at what pass through fees are and why they’re important to your business.

Understanding Pass Through Fees

Pass through fees are a crucial component of credit card payment processing. These fees encompass a variety of costs charged by payment processors and the bank that issued the card used in a transaction. Unlike standalone charges, pass through fees are not confined to a single part of the payment processing workflow. Instead, they represent the cumulative costs that are “passed through” to your business. Understanding these fees is essential for merchants aiming to manage their costs and optimize their payment processing solutions. By gaining a clear grasp of pass through fees, you can better negotiate with service providers and ensure that your business is not overpaying for credit card payment processing.

What are Credit Card Pass Through Fees?

It’s relatively easy to define and understand specific merchant fees and similar credit card processing fees.

For example, authorization fees are a foundational cost. An authorization fee is incurred every time a card is swiped. It represents the cost of communication and data transfer between your business’s bank (the acquiring bank) and the bank that issued the card used.

Pass through fees are not an example of a single, standalone charge. Instead, these fees represent the total costs “passed through” to your business. These are the costs of payment processing for which your business is responsible, based on your contracts and agreements with providers.

Address verification is one of the details used in transactions that can affect the costs associated with processing payments.

That includes fees charged by the bank that issued the card used in a given transaction. Interchange fees charged by issuing banks are just one example. There are also assessments, the cost charged by card networks, and many others to keep in mind.

These fees can appear as part of any pricing model. They may be combined into a single or small number of line items in flat-rate pricing. Or, they can be broken out and detailed (although often in abbreviated and sometimes unclear language).

What can be included when it comes to pass through fees? While it’s not practical to provide a truly complete and authoritative list, pass through fees can commonly include:

Interchange Fees

Interchange fees are a foundational and unavoidable cost when it comes to credit card processing. Pass through charges are fees incurred by energy suppliers in the wholesale market that are transferred to consumers, emphasizing the variability and potential for unexpected additional costs even in fixed-rate contracts. As Bigcommerce explains, this is a fee paid by the merchant — your business — to the bank that issued the card.

It’s also important to note that a single interchange fee on a statement can represent many smaller costs that fall under the interchange category. It’s not entirely wrong to think of interchange fees as similar to pass through fees: a single charge on a statement that represents several smaller costs.

Merchant Service Provider Fees

“Merchant services fees” is another umbrella term. It represents a wide variety of costs charged by merchant account and service providers. These range from the foundational monthly or annual fee to potential payment gateway fees. Many payment service providers use a flat fee pricing model to simplify transaction costs for businesses.

Merchant services fees help to compensate service providers for the support and capabilities they provide. However, some service providers may charge unnecessary fees or mark up legitimate fees. The good news is that merchant services fees are not set in stone.

Many of these fees are often negotiable if you don’t use a flat-rate pricing model. Merchant services fees, whether bundled together as pass through fees or not, can be negotiated.

Assessment Fees

Assessment fees represent money that goes to credit card networks. Pass through charge is a term used to describe various fees, including assessment fees, that merchants need to be aware of. These entities are distinct from the card-issuing bank, even though those banks and card companies work together.

Card networks, also called cardmember associations, have to operate those networks efficiently and reliably. They also need to maintain a high standard of security. Assessment fees help to address those needs.

How Credit Card Payment Processing Works

Credit card payment processing involves three main types of costs: interchange fees, assessments, and processing service fees. Interchange fees are non-negotiable charges imposed by credit card companies to settle a transaction. These fees are paid by the merchant to the bank that issued the card. Assessments are another set of non-negotiable fees charged by each credit card company to maintain and secure their networks. Lastly, processing service fees are the charges levied by the payment processing service for handling transactions, authorizations, reporting, customer support, and account management. Understanding how these costs work together is vital for merchants to manage their pass through fees effectively and ensure they are not paying more than necessary for credit card payment processing.

Managing Pass Through Fees for Merchants

Effectively managing pass through fees requires a thorough understanding of your pricing model and the costs associated with each transaction. Merchants can negotiate with their service providers to reduce their pass through fees, especially if they are not using a flat-rate pricing model. Switching to a different pricing model, such as interchange-plus pricing, can offer more transparency and flexibility, making it easier to identify and manage individual costs. Additionally, regularly reviewing your monthly statements and line items can help you spot areas where you can cut costs. By staying informed and proactive, merchants can optimize their payment processing solutions and reduce unnecessary expenses.

Avoiding Surprise Fees and Rate Hikes

To avoid surprise fees and rate hikes, it’s crucial for merchants to carefully review their contracts and agreements with service providers. Look for clauses that allow the service provider to change processing rates or fees without notice. Opting for service providers that offer transparent and predictable pricing models, such as flat-rate pricing or interchange-plus pricing, can also help mitigate unexpected costs. By understanding your pass through fees and managing your costs effectively, you can avoid surprise fees and rate hikes, ensuring a more stable and predictable expense structure for your credit card payment processing.

The Big Takeaway for Credit Card Pass Through Fees

The most important thing to remember about pass through fees is that they are a catch-all. In other words, pass through fees represent a variety of costs connected to the many participants in payment processing, paid by your business.  

In the big picture, pass through fees are a simple way to represent the costs of credit card payment processing to your company.

Pass through fees won't be the same for every business. The total pass through fees for each merchant can and will vary to a significant degree.  

Some components of pass through fees, like interchange fees, can't be negotiated. However, it's possible to negotiate others, like merchant services fees. In these cases, it's crucial to carefully review each individual charge to determine if it's necessary and/or negotiable.

Additionally, the pricing model and merchant service provider you choose will influence pass through fees and how they're displayed on your monthly statement.

Optimizing Service and Cost for Credit Card Payment Processing

Your business deserves an effective payment processing solution at a reasonable and sustainable cost. However, navigating payment processing can be especially difficult without deep knowledge and experience in this complex field. That's where Swipesum can help.

Our independent consultants will review potential solutions for your business from the perspectives of performance and cost. They'll provide a shortlist of suggestions that make sense for your business. Then, they'll negotiate with providers to reduce costs, cutting down on total pass through fees and saving your business money.

Best of all, our services come at no additional cost to your company. Ready to revolutionize your approach to payment processing? Book your free consultation now!