When businesses look to streamline their financial transactions and operations, they often leverage two critical tools: credit card processing systems and electronic data interchange (EDI) systems. Both play pivotal roles in modern commerce but involve distinctly different technologies, purposes, and fee structures. Understanding the differences between credit card processing fees and EDI processing fees can help businesses make informed decisions about how to manage their costs effectively.
This blog will break down the differences between these technologies, the costs associated, their underlying mechanisms, and how they impact businesses.
Table of Contents
- What are Credit Card Processing Fees?
- What are EDI Processing Fees?
- Key Differences Between Credit Card Processing and EDI Processing
- Cost Management Strategies for Businesses
What Are Credit Card Processing Fees?
Credit card processing fees are the costs businesses incur when customers pay for goods or services using credit cards. These fees are collected by various entities involved in facilitating the transaction, such as the card network (e.g., Visa, MasterCard), the issuing bank, and the payment processor.
How Credit Card Transactions Work
- Customer Pays with Card: A customer swipes, taps, or enters their card information to make a payment.
- Authorization: The payment processor contacts the card network and issuing bank to confirm that the customer has sufficient funds or credit.
- Settlement: Funds are transferred from the customer’s account to the merchant’s account, less the applicable processing fees.
Breakdown of Credit Card Processing Fees
- Interchange Fees: Paid to the bank that issued the customer’s credit card. These fees are typically a percentage of the transaction value (1.5%-3.5%, plus a flat fee).
- Assessment Fees: Charged by the card network for maintaining the payment infrastructure.
- Processor Markups: Fees set by the payment processor for their services.
Factors Influencing Credit Card Processing Fees
- Card Type: Premium cards with rewards programs often have higher fees.
- Transaction Type: In-person transactions usually have lower fees than online transactions due to reduced fraud risk.
- Merchant Industry: High-risk industries (e.g., travel, e-commerce) typically face higher rates.
- Volume: Businesses processing high volumes of transactions may qualify for lower rates.
Typical Cost Range
Credit card processing fees generally range between 1.5% and 3.5% per transaction.
What Are EDI Processing Fees?
Electronic Data Interchange (EDI) is a technology that allows businesses to exchange standardized electronic documents, such as purchase orders, invoices, and shipping notices, directly between their business applications. EDI processing fees are the costs associated with using this technology to facilitate these exchanges.
How EDI Transactions Work
- Document Creation: A business generates a document in its internal business application (e.g. ERP, WMS, etc.)
- Translation: The document is converted into an EDI-compliant format using translation software.
- Transmission: The document is transmitted to the recipient via an agreed-upon communication channel (e.g., AS2, VAN, SFTP).
- Processing: The recipient’s system translates the document into a format that can be ingested and processed.
Breakdown of EDI Processing Fees
- Setup Fees: Initial costs for onboarding, map development, and integration with the trading partner.
- Transaction Fees: Costs per document or per kilo character (KC) of data exchanged.
- Network Fees: Charges for using value-added networks (VANs) to transmit documents.
- Support and Maintenance Fees: Ongoing costs for software updates, troubleshooting, and system maintenance. *Note: only applicable for on-premise EDI.
Factors Influencing EDI Processing Fees
- Volume: Higher document exchange volumes often result in bulk discounts.
- Complexity: Custom integrations like APIs or non-standard document types may incur additional costs.
- Service Provider: Fees vary significantly depending on whether you use a VAN, direct connection, or third-party provider like GraceBlood.
- Infrastructure: Cloud-based solutions may have lower upfront costs compared to on-premises setups but typically include monthly subscription fees.
Typical Cost Range
EDI processing fees can vary widely but often fall between $0.01 and $5.00 per document, depending on the provider and complexity of the exchange.
Key Differences Between Credit Card Processing and EDI Processing
Purpose
- Credit Card Processing: Focused on handling payment transactions between customers and merchants. Although in today’s world, businesses also often use credit cards to pay for products and services.
- EDI Processing: Designed to facilitate the exchange of business documents, often as part of supply chain operations. This is almost always going to be a business to business (B2B) transaction.
Cost Structure
- Credit card processing fees are typically a percentage of the transaction value plus fixed fees.
- EDI fees are usually based on document volume, data size, or flat subscription rates.
Stakeholders
- Credit card processing involves multiple parties: the cardholder, merchant, issuing bank, card network, and payment processor.
- EDI processing typically involves two parties: the sender and receiver of the documents, often with an intermediary like a VAN.
Transaction Speed
- Credit card transactions are nearly instantaneous, settling within minutes to days.
- EDI transactions may take slightly longer as they involve document translation and validation processes. Although with the increasing usage of APIs, transactions happen in near real-time.
Use Cases
- Credit card processing is prevalent in retail, e-commerce, and service-based industries.
- EDI is heavily used in almost every industry but particularly in supply chain management, manufacturing, and large B2B transactions.
Cost Management Strategies for Businesses
Reducing Credit Card Processing Fees
- Negotiate with Providers: Work with your payment processor to secure better rates, especially if you have high transaction volumes.
- Encourage Low-Fee Payment Methods: Promote debit cards or ACH transfers as alternatives to credit cards.
- Optimize Payment Technology: Use secure and up-to-date payment terminals to minimize fraud-related costs.
Reducing EDI Processing Fees
- Choose the Right Provider: Evaluate providers based on your volume and complexity needs; outsourced or cloud-based options can be cost-effective for small to medium sized businesses.
- Standardize Document Types: Minimize customizations and hard coded maps to reduce extra costs associated with one-off requests.
- Consolidate Data Transfers: Batch documents when possible to reduce transaction fees on VANs. Or better yet, using technologies like APIs and AS2 can reduce VAN costs.
Modern Businesses Need Both to Thrive
While both credit card processing and EDI processing play vital roles in modern business operations, they serve very different purposes and have distinct fee structures. Credit card processing fees primarily impact customer-facing transactions, with costs tied to the value of sales. On the other hand, EDI processing fees relate to back-office operations, where costs depend on document volume and complexity.
For businesses, understanding these fees and their drivers is essential to managing operational costs and maximizing profitability. Whether your focus is on streamlining customer payments or optimizing supply chain communications, strategic planning can help you minimize unnecessary expenses and ensure that your systems work seamlessly.
By leveraging the right tools, negotiating with service providers, and aligning your operations with best practices, you can take control of these costs and improve your bottom line. Speak to one of our experts for help in optimizing your EDI investment.
