Card processing for a small business in Israel: costs and prepayment
What a card-processing fee is made of, what the Bank of Israel changed, what to check in a quote, and when to take full payment in advance.
In short
- A card-processing fee is a percentage of every transaction plus fixed costs (a terminal, service fees, a monthly minimum). In a small business the fixed costs matter more than the percentage, so you compare quotes on your own turnover, not on a single percentage.
- The Bank of Israel cut the interchange fee, the part the acquirer pays the card issuer, in 2024 in three steps; that is what is meant to lower the fee for small businesses, which pay more than large ones.
- Charging at the checkout is collection after the service; full payment in advance is collection at booking. The first is convenience; the second is a tool against cancellations for expensive treatments. You do not have to choose, but you need to know when each applies.
What a processing fee is made of
When an acquirer says "one and a half percent", it means one part of the picture. The fee you pay on a card payment is made of several layers:
| Component | What it is | Who sets it |
|---|---|---|
| The interchange fee | What the acquirer passes to the issuer of the client's card | The Bank of Israel (regulated) |
| The acquirer's margin | The acquirer's profit, above the interchange fee | The acquirer, by negotiation |
| Surcharges by card type | A foreign card, a business card, a remote transaction (card not present) | The acquirer |
| Fixed costs | A terminal or an app, monthly service fees, a minimum fee | The acquirer |
| Instalments | A transaction in instalments: sometimes an extra fee or interest | The acquirer |
In a small business the component that matters most is usually the fixed costs: a terminal at X a month and a monthly minimum fee can cost more than the difference between one percent and one and a half, when the turnover is small. So you compare quotes on your own month, not on a single percentage.
What the Bank of Israel changed
The interchange fee is the base of the processing fee, and a business cannot negotiate it; that is why the Bank of Israel intervenes in it specifically. In 2024 the Bank announced a cut of the interchange fee on deferred-debit transactions of about 30%, from 0.7% to 0.5%, in three steps, a move the Bank estimated would reduce the fees businesses in Israel pay by about half a billion shekels a year, and in particular lower them for small businesses, which pay a higher processing fee than large ones because of lower bargaining power (the Bank of Israel's announcement). Other countries regulate interchange in their own way; the EU caps it, the US regulates debit cards.
What it means for you: a cut in the interchange fee does not reach your fee automatically, unless you asked. After every such cut it is worth asking your acquirer for an updated quote, and comparing.
What to check in a quote
Checklist
Charging at the checkout versus full payment in advance
Two different things that use the same infrastructure:
| Charging at the checkout | Full payment in advance | |
|---|---|---|
| When the client pays | After the service | When booking the appointment, online |
| Why | Convenience: no cash, an automatic receipt | Security: a paid appointment is not cancelled at the last minute |
| For which services | All | Expensive or long treatments, new clients |
| How the client feels | Ordinary | Committed, and sometimes suspicious if it is not explained |
| Risk for the business | None | A client who gives up the booking because of the payment |
| Cancellation | Nothing to refund | A refund by the policy and by the law |
The common mistake is to require payment in advance for everything: a twenty-minute haircut with prepayment loses more clients than it saves. The right logic: payment in advance for what hurts when cancelled (a two-hour treatment, a service with expensive materials, a client who cancels again and again), and charging at the checkout for everything else. And you explain the prepayment: in one line on the booking site, before booking.
What the law says about prepayment and cancellation
A payment in advance for a service is a transaction, and the rules on cancelling a transaction apply: in a remote transaction (on the booking site) the client has a right to cancel within a set period and on condition that the cancellation comes a number of business days before the service, and then the business may charge a limited cancellation fee; the details for Israel are at Kol Zchut, and other countries have their own versions. Beyond the statutory right your cancellation policy applies, if it was shown before booking. And for every receipt of money, by card or in cash, you issue a document under the bookkeeping rules of the tax authority: a receipt, a tax invoice-receipt, or whatever fits the kind of business.
How it works in Torly
In Torly the payments are the business's own: a business in Israel connects its card acquirer, and the card charge goes through it, on the terms you agreed with it, with no Torly fee on a transaction. At the checkout you charge the card after the treatment, and the document (a receipt or a tax invoice-receipt, as configured) is issued automatically and kept on the appointment. On the booking site you can require full payment in advance for selected services, and the client pays at booking; an appointment not paid within the time window frees itself. You can also send a client a payment link for an amount, an appointment or a debt, and they pay on the acquirer's page and receive the document. A debt recorded on the client card is collected at the checkout next time. Payments are an add-on by plan; what is included is on the pricing page.
Questions and answers
How much does card processing cost a small business?
A percentage of every transaction, which depends on the card type, the kind of transaction (card present or remote) and your bargaining power, plus fixed costs: a terminal or an app, monthly service fees, sometimes a minimum. Compare quotes on your real month: the number of transactions × the average, plus the fixed costs. A low percentage with a high minimum can cost more.
What is the interchange fee?
The part of the processing fee the acquirer passes to the issuer of the client's card. In Israel the Bank of Israel sets it, and cut it for deferred-debit transactions in 2024. It is not the whole fee you pay, but it is its base, so a cut in it should reach you too.
What is the difference between charging at the checkout and prepayment?
At the checkout: the client pays after the service, by card, on a terminal or in an app. Prepayment: the client pays when booking the appointment, online, and the appointment is secured. The first is a way of collecting; the second is a policy against cancellations.
May I require payment in advance for an appointment?
Yes, when the client knows about it before booking and agrees. Consumer law gives the client a right to cancel on certain conditions and within certain periods, and then you refund by the law; beyond that your cancellation policy applies, if it was shown in advance. We wrote about it in the guide on cancellation policies.
Must I issue a receipt or an invoice for a card payment?
Yes. Every receipt of money needs a document under the tax authority's bookkeeping rules, even when it is by card. A system that issues the document automatically with the charge saves the manual work and the forgetting.
What about payment apps?
A convenient payment method for the client, with its own fees for the business and sometimes amount limits. For a business that also takes payments remotely, card processing is the infrastructure: it works on the booking site, at the checkout, and for a remote charge.
Sources
Updated · By Moti Hanukah
Builds Torly, an appointment scheduling system for small businesses, and works every day with owners who want a full calendar and fewer phone calls. Writes here about what we learn along the way.