Credit card processing fees are unavoidable. However, understanding how credit card processing fees work can help you manage the cost of accepting card payments for your business.
Credit Card Processing Fees Explained (+ Cost Calculator)
This article is part of a larger series on Payments.
What Are Credit Card Processing Fees?
Credit card processing fees are the combination of service fees imposed by the credit card network, the card issuing bank, and your merchant services or payment processing provider. Businesses typically pay an average credit card transaction rate of 1.9% to 3.75%, depending on a variety of factors such as card type, business type, industry, and business size.
What’s Included in Credit Card Processing Fees?
Credit card processing fees = Interchange fees + assessment fees + merchant services markup, monthly, and incidental fees
A credit card processing fee is made up of the transaction rate plus any monthly and incidental fees imposed by the payment processor or merchant services provider.
The transaction rate is made up of three parts—interchange, assessment, and merchant services markup fees. These are assessed by the different financial institutions that process credit card transactions:
- The card networks: Also called “card brands;” Visa, Mastercard, Discover, and Amex
- The card-issuing bank: The “issuer” banks that provide credit cards to the customer
- The payment processor: Provides merchants with a merchant account and payment services
Interchange Fee | Assessment Fee | Merchant Markup | |
|---|---|---|---|
Fee Set By | Card network | Card network | Payment processor |
Fee Paid To | Card-issuing bank | Card network | Payment processor |
Fee Based On | Percentage of monthly transactions | Total monthly sales per card brand | Percentage of monthly transactions |
Of the three, markups are the only fees you can negotiate to lower the cost of payment processing.
Interchange fees are transaction fees merchants must pay to the customer’s card-issuing bank to cover handling costs and risks associated with approving the transaction. This fee is set by your card network and is based on a percentage of your monthly transactions.
While the card associations set the default interchange fees, they are paid out to the bank that actually issues the credit card. For example, if your customer uses a Chase Visa credit card, you will be charged interchange rates set by Visa that are then paid out to Chase for handling the transaction.
Interchange fees typically range from 1.29% to 3.5% per transaction and make up 70% to 90% of the total transaction fee.
Average Interchange Cost By Credit Card Companies
The following are the average interchange rates for common transaction and card types. Higher fees are imposed on business, reward, and international credit cards while high-volume, B2Bs, and enterprise-level businesses can qualify for lower rates.
Card Network | From | To |
|---|---|---|
1.15% + 10 cents | 2.50% + 10 cents | |
1.15% + 10 cents | 2.60% + 10 cents | |
1.56% + 10 cents | 2.30% + 10 cents | |
American Express (Opt Blue) | 0.99% + 15 cents | 1.99% + 10 cents |
Assessment fees are set, charged, and collected by credit card networks for the use of their credit card brand. These are added into individual transactions along with the interchange fees and are based on your total monthly sales per card brand.
Assessment fees are also known as Card Brand Fees, Card Association Fees, or Network Access and Brand Usage Fees (NABU). Unlike interchange fees, which go to the banks, these fees stay with the credit card associations. These typically range from 0.13% to 0.16% per transaction.
Merchant services markups are the fees merchant services providers or payment processors collect from businesses to process card payments. These fees are based on a percentage of your total monthly transactions and are the most variable part of credit card processing fees.
Payment processors that businesses use to accept credit cards, such as Square or PayPal, charge a fee for their services. However, unlike interchange and assessment fees, which are fairly standardized, payment processors use different fee structures, which can make it hard to compare.
Types of Credit Card Processing Fee Structures
As a merchant, you get your credit card processing fee from your payment processor when you sign up for a merchant account. Every payment processor has its own credit card processing fee structure but in general, falls under one of these types:
Best for: New and small businesses
Merchants pay a set amount for every transaction they process, regardless of card type. The flat rate pricing is a combination of the card network’s interchange rate and the payment processor markup. Both are made up of per-transaction rate (expressed in %) + flat-fee (expressed in cents).
This fee structure is easy to budget for and offers a lot of transparency—however, because the structure does not separate the interchange fees, it does not show you exactly how much you pay for in markup. You also end up paying the same even if the interchange fee goes down for certain transactions.
Flat Rate Example: 2.6% + 10 cents
Where:
2.6% | + 10 cents |
Per-transaction rate (including interchange) | Per-transaction fee (including interchange) |
If you have a small business or a startup, we recommend flat-rate credit card processing fees because it is the most transparent, so it’s easy to anticipate and budget for the expense. Also, most small business-friendly payment processors that offer flat rates do not charge a monthly fee.
Examples:
Best for: Growing and established businesses
In this model, the payment processor simply passes along the card network’s interchange fee to the merchant, and indicates separately its own cost (payment processor markup). Unlike flat rate pricing, the fees are not combined so it clearly shows which fee is imposed by the payment processor (markup). The interchange fee is left as a variable.
It is important for growing businesses to know how much they are paying the payment processor as this is the only portion of the credit card processing fees that can be negotiated.
Interchange-plus Example: Interchange plus 0.10% + 5 cents
Where:
Interchange | 0.10% | 5 cents |
Percentage markup | Flat-fee markup | |
Card network fee | Payment processor markup | |
Similar to interchange-plus, in the membership pricing model, card network fee and payment processor fees/markup are indicated separately. The only difference is that the payment processor now replaces the percentage markup with a monthly fee and a very small flat fee markup (usually in cents) for each transaction.
Membership pricing example: $59 per month, Interchange + 8 cents
Where:
$59 per month | Interchange | 8 cents |
Monthly membership | Card network fee | Flat-fee markup |
For growing businesses with increasing sales volume, interchange plus rates are the most cost-effective. Most providers combine interchange-plus rates with a monthly fee (membership model) where merchants can make the most of wholesale rates with large ticket and low-ticket, high-volume transactions. Others like Helcim combine interchange plus rates with their own percentage and flat-fee markup instead of a monthly fee.
Examples:
Monthly fee | Card-present transactions | Card-not-present transactions | |
|---|---|---|---|
$0 | Interchange plus 0.15% + 6 cents to 0.4% + 8 cents | Interchange plus 0.15% + 15 cents to 0.5% + 25 cents | |
$79 | Interchange plus 8 cents | Interchange plus 18 cents | |
$20–$25 | Interchange plus 0.15% + 8 cents | Interchange plus 0.2% + 11 cents |
Best for: Large enterprises; not recommended for SMBs
Also known as bundled pricing, this model separates transactions into three tiers: qualified, mid-qualified, and non-qualified.
- Qualified payments are typically debit cards and non-reward credit cards that customers swipe or insert at the point of purchase. These are low-cost and low-risk payments, so in a tiered model, the merchant service provider would add on the lowest markup.
- Mid-qualified payments are usually a rewards card that’s swiped, or a debit or non-reward credit card used online, and one typical caveat is the billing address must be verified at checkout (for ecommerce purchases).
- Non-qualified payments are riskier or higher-cost, like card-not-present (keyed-in) transactions and corporate or high-reward credit cards. Merchant account providers would apply higher fees to these types of transactions in a tiered model, sometimes as high as 4%.
Tiered Pricing Example: Non-qualified: 3.35% plus 31 cents
Where:
2.10% + 21 cents | 1.25% + 10 cents | 3.35% + 31 cents |
Interchange Fee | + Processor Markup | = Tiered Pricing |
Why Small Businesses Should Avoid Tiered Pricing Models
The fees merchants pay in a tiered pricing model can vary widely depending on the type of card your customer uses. This can result in paying higher fees than you would under a different model. For this reason, we recommend businesses stay away from tiered pricing models and instead choose a flat-rate, interchange-plus, or membership model merchant service account.
The Federal Trade Commission cautions small business owners, “Scammers know that small businesses are looking for ways to reduce costs. Some deceptively promise lower rates for processing credit card transactions.” Merchant service providers offering tiered pricing models will typically advertise “Rates as low as X%.” The advertised rate will be the qualified tier, which may not be the price you actually pay on most transactions.
Pricing structure should be one of your primary considerations for choosing a payment services provider. It’s important that you consider your business type and sales profile, so you can match it with the right payment processor to get most out of your payment processing fees.
There are ways to get essentially free credit card processing, often referred to as “zero-cost” processing. However, it involves passing the cost of processing on to customers. Learn more about the types of “free processing” and credit card surcharging.
How Much Do Credit Card Transaction Fees Usually Cost?
Credit card transaction fees typically range from 1.9% to 3.75% per transaction. The cost varies based on the types of payments you process, the items you sell, the industry you operate in, and the fee structure you have with your payment processor (which we discussed above).
But remember that the total cost of credit card processing does not only refer to the transaction rates; you also need to consider monthly fees and other incidental costs when trying to find out the real cost of accepting credit card payments for your business.
How to Calculate Your Overall Credit Card Processing Fees
For those using interchange plus rates or continuously incurring incidental monthly fees, it can be difficult to determine your exact credit card processing cost. So instead of straightforwardly multiplying your total sales and number of transactions against a flat rate, you can use the effective rate to get a handle on what you are paying (and whether it’s too much).
The effective rate represents the real rate you pay for each transaction, taking into consideration all transaction, monthly, interchange fees, and incidental fees and markups based on your actual sales volume. You can use this regardless of the pricing structure that you use, and is the most accurate way to measure your actual monthly credit card processing fees.
Most small businesses can expect an effective rate of around 3% when starting out; once a business is processing more than $20,000 monthly, the rate should decrease to closer to 2% (perhaps as low as 1.7%). However, high-risk businesses will always pay higher rates—as high as 5%.
Effective Rate Calculator
Want to find out how much it costs you every month to accept credit card payments?
Enter your total monthly sales and current processing fee for both card-present (in-person) and card-not-present (online and remote) transactions in the calculator below.
How to Manage Your Credit Card Processing Cost
While there is no way to avoid paying credit card processing fees, as merchants, there are steps you can take to manage the cost you pay.
Negotiate with payment processors for better rates
Interchange fees from card networks are non-negotiable but you can negotiate with your payment processor for lower markup. This is especially useful for businesses with large and fast-growing sales volumes.
Encourage card-present payments
By default, card-present or in-person payments have lower transaction rates than card-not-present or online payments. Consider incentivizing customers to visit your physical store instead of purchasing online.
Accept alternative payment methods
You can minimize credit card processing fees if you offer payment methods other than credit cards. Most customers carry a certain amount of cash so encourage cash payments if you sell low-ticket items. ACH payments (bank-to-bank payments) is another alternative that’s growing in popularity especially since real-time and same-day ACH methods are becoming available. Read more about the latest payment trends.
Looking for the lowest rates? See our guide to the cheapest credit card processing companies.
Frequently Asked Questions (FAQs)
Here are some of the most common questions we get about credit card processing fees.
Typical credit card processing fees offered by payment processors range from 1.9% to 3.75% per transaction. However, actual processing fees you get, considering all other monthly fees, will range from 1.7% to 5% depending on your business profile
For flat-rate fees, first, multiply the % rate by your total monthly sales per transaction type (in-person and online or card-present and card-not-present). Then, multiply the $ rate by your total number of transactions per month per transaction type. Finally, add your monthly account maintenance fee.
For merchants with interchange plus rates or with various incidental monthly fees, use the effective rate.
This is because American Express is both a card network and a card-issuing bank, resulting in higher processing fees if compared side-by-side against other card networks. However, American Express recently introduced a new program called OptBlue, which will allow small merchants that process less than $1 million annually to accept payments with a similar pricing structure as Visa and Mastercard.
The best way to lower your credit card processing fees is by negotiating your merchant services/ payment services provider’s markup. You can also encourage customers to pay in-person with their credit card or accept debit card payments. If you accept online credit card payments, make sure to have fraud protection measures in place to avoid chargebacks.
Bottom Line
As we move into the age of a cashless economy, credit card processing fees are becoming a necessary and unavoidable cost of doing business. Unfortunately, credit card transaction rates continue to increase, and because every processor operates differently, it can be hard to tell what kind of rate you are getting. Knowing all the key players and where the different fees come from makes it easier to ensure you are choosing a fair provider.
