If you're running your own business in Singapore, you're undoubtedly familiar with the convenience of accepting credit card payments. However, each time a customer chooses to pay with a card, your business incurs a fee – these are credit card processing fees.

But do you fully understand how these fees are calculated, where they go, and what alternatives exist to potentially minimise their impact? This guide aims to demystify credit card processing fees for Singaporean small business owners, as well as find out the best credit card processing company for your business.

Credit card processing fees in Singapore can vary significantly, making it essential to compare options. The final cost depends on a combination of factors, including the type of card used, the transaction method (e.g., online vs. in-person), and the pricing structure employed by your chosen payment processor. A key component of these fees is the interchange fee, which is set by the card network and varies based on the card type.

To help you understand the potential cost differences, here's a comparison of typical fee ranges and structures offered by various providers:

Credit card processing fees in Singapore generally fall into several categories, each with varying levels of complexity and cost implications.

1. Flat-Rate Pricing

Flat-rate pricing, arguably the most common and seemingly straightforward fee structure, involves paying a fixed percentage of each transaction, plus a small per-transaction fee. For instance, a processor might charge 2.6% of the transaction amount plus S$0.10 for every sale. Companies like Square and PayPal often use this model.

While this structure offers predictability, allowing you to easily estimate costs, it can sometimes prove more expensive than other options, especially for businesses with higher transaction volumes.

2. Tiered Pricing Structure

Tiered pricing is based on categorising transactions into different tiers, reflecting the perceived risk and cost of processing. This structure aims to differentiate fees based on the card type and transaction details.

The three common tiers are:

• Qualified: This tier typically includes standard debit cards and basic credit cards without rewards programs, representing the lowest processing costs.

• Mid-Qualified: Cards with some reward programs or business cards might fall into this category, with slightly higher processing rates.

• Non-Qualified: Corporate cards, premium rewards cards, and international cards often fall into this tier, incurring the highest processing fees.

Tiered pricing, like flat-rate pricing, involves a percentage of the transaction plus a per-transaction fee. While generally less expensive than flat-rate, the actual cost can fluctuate depending on the mix of card types accepted.

3. Interchange-Plus Pricing

Interchange-plus pricing is often considered the most transparent and potentially cost-effective option, particularly for businesses with higher transaction volumes. This structure separates the interchange rate, set by the card network (Visa, Mastercard, etc.), from the processor's markup.

Interchange rates vary based on the card network, the type of card (e.g., rewards vs. non-rewards), and the transaction method (e.g., online vs. in-person). The processor then adds a fixed percentage or per-transaction fee on top of the interchange rate.

4. Subscription-Based Pricing

Subscription-based pricing, also known as membership-based pricing, can be the most cost-efficient option for some high-volume businesses. This model eliminates per-transaction percentage fees.

Instead of a percentage of each sale, processors using this model primarily generate revenue through fixed monthly or annual subscription fees. You might also encounter fixed per-transaction fees, but these are typically small. This model can be advantageous for businesses with predictable sales volumes, as it provides more consistent and predictable processing costs.

Many small business owners find themselves unsure how to accurately calculate their monthly credit card processing fees. This uncertainty stems from the various pricing structures and transaction variables that influence the final cost.

Estimate your monthly processing expenses by inputting your payment processor's rates into a calculator. If you're comparing processors, use estimated average rates for interchange-plus pricing to get a clearer picture of potential costs.

1. Reroute credit card fees to consumers

While it might sound unappealing, passing on a portion of the processing costs to customers can be a viable strategy.

This can be achieved through a credit card surcharge, where a small fee is added to purchases made with credit cards. This fee partially or fully covers the processing costs incurred by the business. However, it's crucial to implement this transparently and comply with any relevant regulations.

Using a credit card surcharge can help businesses recoup some processing expenses, especially for transactions with lower profit margins. Whether this is sustainable depends on your business model and customer sensitivity to price increases.

2. Opt for more affordable providers

If your current payment processor charges high fees, a straightforward solution is to switch to a more affordable provider.

Singapore offers a competitive market with numerous payment processors, including GrabPay, NETS, and various online payment gateways. However, remember that fees often reflect the level of service and features provided. Conduct thorough research to ensure the new provider meets your business needs.

3. Manage a lower chargeback rate

Your chargeback rate represents the percentage of transactions disputed by customers, often due to fraud, errors, or dissatisfaction with the product or service.

A high chargeback rate can result in significant financial losses and potentially lead to higher processing fees or even account termination. Reducing chargebacks through robust fraud prevention measures, clear return policies, and excellent customer service is essential for long-term cost savings.