Breadcrumb

4 High Fee Payment Methods to Avoid

Written by

The GoCardless content team comprises a group of subject-matter experts in multiple fields from across GoCardless. The authors and reviewers work in the sales, marketing, legal, and finance departments. All have in-depth knowledge and experience in various aspects of payment scheme technology and the operating rules applicable to each. The team holds expertise in the well-established payment schemes such as UK Direct Debit, the European SEPA scheme, and the US ACH scheme, as well as in schemes operating in Scandinavia, Australia, and New Zealand. See full bio

Last editedOct 20212 min read

When small businesses are ready to start accepting payments from customers, they’re faced with a dizzying selection of payment methods, from ACH transfers to digital wallets. Not all types of payment methods are created alike, particularly when it comes to cost. If you’re just starting out, here are a few extra costly payment methods to be aware of.

1. Wire transfers

If your business needs to send and receive larger sums of money, you might be tempted to use wire transfers as a payment method. However, this is by far one of the most expensive options. Each transfer can cost between $15 and $50 depending on the banks involved and transfer amount. Domestic transfers will cost less, while international transfers will be the most expensive option. Even receiving wire transfers from clients will cost your business, as recipients must pay a fee to access the money once it arrives. By contrast, ACH transfers let you send money from one bank account to another without the high costs of a wire transfer.

2. PayPal

PayPal is top of the list for the best types of payment methods due to its ubiquity and user-friendliness. It’s easy for small business owners to set up and start receiving payments from around the world. However, its high business fees can be a shock for small business owners. To accept cards online using PayPal, the payment fee is 2.59% plus an added $0.49 per transaction. This may not seem like a lot at first glance, but as your number of daily transactions grows, so will the cost of this per-transaction rate (not to mention the percentage cut taken from your sales).

For online payment methods like Venmo and PayPal, the payment fee is even higher – 3.49% plus the $0.49 per transaction. While PayPal enables payments in foreign currencies, it charges an additional fee which is usually higher than the going market rate. This makes it one of the more costly payment processing apps, though it does offer plenty of benefits in return.

3. American Express

Credit card payment fees are unavoidable, but they do vary depending on several factors. One is your choice of payment processor, but the card provider also makes a difference. MasterCard and Visa typically cost between 1% and 2%, but American Express easily types these with credit card payment fees around 3.5%. AmEx is also notoriously consumer-friendly and will typically side with the buyer whenever there’s a dispute or chargeback. While this is great for cardholders, it can add to the total costs for merchants when a customer disputes a charge.

4. Point of sale rentals

Many small businesses maintain both an online and in-person presence, meaning they’ll need the appropriate hardware and software to accept payments. There are many types of payment methods offering a solution to this problem, including Square and Shopify. However, one thing to be aware of is that some of these businesses – like Square – offer their POS services for free. Others – like Shopify – charge an additional fee for POS hardware rental. When you tally together the cost of payment processing, use of the software, and hardware rental fees, it can be a significant cut of your monthly sales. Look for POS systems that offer an all-in-one service to keep costs low.

The bottom line

Although the payment methods mentioned above do incur higher fees than some others, it’s important to remember that price points aren’t the only thing to look at when choosing a processor. You should also think about the convenience offered to your customer base. PayPal is convenient for international users, for example, while certain customer segments prefer to use their American Express cards. These are just a few factors to consider when choosing a tailored payment solution for your business.

We can help

GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.