Credit Card Processing Fees Explained (+ Rate Calculator)
This article is part of a larger series on Payments.
Credit card processing fees are a necessary cost of doing business. Small businesses accepting credit card payments in person typically pay around 2% per transaction in processing fees, while the average cost of accepting online and card-not-present payments is closer to 3%.
New businesses and occasional sellers will typically pay higher fees, whereas large businesses can negotiate lower fees through volume discounts.
Indicate your total monthly sales and how much you pay in processing fees each month in the calculator below to find out your current effective rate.
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%.
How to Calculate Credit Card Processing Fees & Your Effective Rate
The best way to get a handle on what you are paying (and whether it’s too much) is by calculating your effective rate. This represents the real rate you pay for each transaction, taking into consideration all transaction, monthly, and incidental fees and markups based on your actual sales volume.
What’s Included in Credit Card Processing Fees
There are typically three parts that make up your credit card processing fees—interchange, assessment, and merchant services markup fees. They go to either the card network (Visa, Mastercard, Discover, and Amex), the card-issuing bank ( Chase, Fiserv, Bank of America, etc.) or the payment processor (Square Payments, PayPal, Stripe, etc.).
Fee Set By
Fee Paid To
Fee Based On
Percentage of monthly transactions
Total monthly sales per card brand
Percentage of monthly transactions
1. Interchange Fees
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. These typically range from 1.29% to 3.5% per transaction.
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 make up 70% to 90% of the total transaction fee.
In the news:
Earlier this year, Visa and Mastercard made adjustments to their card processing fees. In March, Mastercard announced that it was lowering payment processing fees for merchant transactions lower than $5. Meanwhile, Visa is implementing a 10% decrease from its current 1.5% to 2.4% charge per transaction for merchants with $250,000 or less credit sales volumes. American Express launched its OptBlue program that offers small merchants lower processing rates.
2. Assessment Fees
Assessment fees are set, charged, and collected by credit card associations 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.
3. Merchant Services Markups
Merchant services markups are the fees merchant account providers and payment processors collect from businesses to process card payments. These fees are based on a percentage of your total monthly transactions and the only type of fees that you can negotiate to lower the cost of payment processing.
Merchant services markups are the most variable part of credit card processing fees. Processing services, such as Square or PayPal, that businesses use to accept credit cards also charge a fee for their services. However, unlike interchange and assessment fees, which are fairly standardized, payment processors use a whole mix of different fee structures, which can make it hard to compare options and find an affordable solution.
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.
See our recommended merchant service providers for a selection of processors that offer competitive markups.
Types of Merchant Service Markups
In general, merchant service providers fall under one of four fee structures:
Merchants pay a set amount for every transaction they process, regardless of card type. This fee structure is easy to budget for and offers a lot of transparency—however, because the structure includes interchange fees, it does not show you exactly how much you pay for in markup.
Flat Rate Example: 2.6% + 10 cents
2.6% + 10 cents
Interchange and mark up fee
Who should use it? New and small businesses
In this model, merchant service providers pass along the direct interchange and assessment fees along with a percent and/or flat-fee markup. Companies that charge a flat-fee markup instead of a percentage are usually a better option.
Interchange-plus Example: Interchange plus 0.10% + 5 cents
Card network rate
Payment processor markup
Who should use it? Growing businesses
Similar to interchange-plus, in this pricing model, businesses pay a flat monthly fee, direct interchange and assessment fees, and typically a small flat fee (such as $0.05 to $0.10) for each transaction.
Membership pricing example: $59 per month, Interchange + 8 cents
$59 per month
Card network rate
Who should use it? Growing and established businesses
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
2.10% + 21 cents
1.25% + 10 cents
3.35% + 31 cents
+ Processor Markup
= Tiered Pricing
Interchange-plus vs Flat-rate Pricing Models
Let’s assume you’ve made a bunch of sales of a $100 item at your brick-and-mortar shop and online. Here’s how much you might pay in fees, based on typical processing fees (and in different payment methods).
Typical flat pricing model
Interchange-plus pricing model*
2.6% + 10 cents = $2.70
1.65% + 10 cents = $1.75
Swiped American Express
2.6% + 10 cents = $2.70
3.20% + 10 cents = $3.30
2.6% + 10 cents = $2.70
1.5% + 10 cents = $1.60
2.6% + 10 cents = $2.70
2.1% + 10 cents = $2.20
3.5% + 15 cents = $3.65
1.95% + 10 cents = $2.05
Online CC payment
2.9% + 30 cents = $3.20
1.8% + 10 cents = $1.90
*We used an average percentage based on typical rates for merchant accounts offering interchange-plus pricing for each type of card.
At first glance at that chart of averages, it seems that choosing a merchant account that offers interchange-plus pricing for your credit card processing is far less expensive than with Square, for example, which offers flat-rate fees. You’re not wrong. However, there are many rules, exceptions, and other fees that go into the total amount you pay with interchange-plus pricing.
What you pay as a merchant varies greatly depending on the type of transaction, your customer’s card type, and your type of business. Square’s flat fee may be a better choice for small businesses because the fees are transparent and more stable. Plus, many merchant accounts that offer interchange-plus pricing have strict application processes, and often, monthly fees or minimums that would disqualify or not be practical for small businesses.
It will take some shopping around to find the cheapest credit card processing for your business.
Why Businesses Should Avoid Tiered Pricing Models
The fees merchants pay in a tiered pricing model can vary wildly 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.
Factors That Impact Transaction Fees
The main consideration for every factor that determines the transaction fees is the risk involved in accepting different types of payments. Credit card associations, card-issuing banks, and merchant service providers impose higher rates when the risk of fraud and chargebacks are more likely for a payment method.
- Transaction type: Card-present (swipe, chip, and NFC) payment types are low-risk and are assessed lower interchange rates. Keyed-in, online, and card-not-present transactions including international payments have higher interchange rates because there is more risk involved for accepting payments without using the secure EMV feature.
- Card type: Each card brand has a unique set of interchange rates which is further broken down to a variety of categories according to risk. For example, accepting payments with a debit card is considered low-risk compared to processing credit card transactions. Meanwhile, there are also numerous credit card and debit card types carrying different rates. Visa and Mastercard have over 100 categories including card-present or card-not-present, debit or credit cards, product or service type, business size, and business volume to name a few.
- Business type: Card networks classify businesses based on type and are then assigned a 4-digit Merchant Category Code (MCC). The interchange rates vary depending on which MCC your business is identified. For example, retail, supermarket, fuel, and travel businesses all have different rates.
- Business risk: Every payment processing application goes through an underwriting process. This will assess the level of risk a card-issuing bank will take on based on the business model and financial stability. If your business qualifies as high-risk, either because of the products or services you sell, a history of high chargebacks, or personal credit, you may need to open a dedicated high-risk merchant account. This will likely increase your credit card transaction fees.
- Business size: Small retail businesses are usually assessed higher transaction fees compared to larger businesses like B2Bs. Large-volume business-to-business companies such as suppliers and businesses processing a lot of business-to-government transactions can qualify and set up Level 2 and Level 3 processing, to enjoy lower interchanges rates. These discounts are not available to businesses that use physical terminals or traditional ecommerce. Some of the most popular payment processors are also the best B2B payment solutions.
Credit cards are the most popular payment method for point-of-sale transactions (40%) and ecommerce (30%). After credit cards, debit cards are the second most popular payment method for in-store (34%) and online (32%) purchases. WorldPay Global predicts credit, debit, and digital wallets will be the primary payment method online—84.5% by 2024.
Tips To Lower Credit Card Processing Fees
- Accept debit card payments: Transaction fees typically cost less on debit card payments simply because the interchange rate is lower for debit cards due to their lower risk. With a debit card, funds come directly out of a customer’s bank account, instead of credit that they need to repay.
- Encourage in-person payments: While expanding your sales to online platforms is a good sign for business growth, accepting in-person payments is less expensive than card-not-present transactions because it poses less risk. Consider adding omnichannel solutions such as Buy-Online-Pay-In-Store (BOPIS) and mobile point of sale (POS) to provide more in-person payment options.
- Negotiate for a lower fixed-fee markup: High-volume businesses with a small average ticket size should negotiate for a lower fixed-fee markup (in cents). This type of fee is imposed each time you process a payment so the higher your sales volume is, the bigger the savings.
- Negotiate for a lower percentage markup: Low-volume businesses with a large average ticket size should negotiate for a lower percentage markup. This type of fee is imposed per transaction based on the ticket size so the larger your ticket size is, regardless of volume, the bigger the savings.
- Minimize chargebacks: Your chargeback rate is one of the major factors that card issuers consider when assessing you a payment processing fee. To minimize this, make sure that your business is PCI-compliant, which includes (but is not limited to) having security measures in place for accepting in-person credit card payments and requiring a credit card authorization form when accepting payments remotely.
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. Laws on this vary by state. Cash discounting is legal in all US states; however, credit surcharging is not legal in some. While more and more merchant services providers (including Stax) are offering zero-cost processing, it’s important to carefully consider your options and the effects of each alternative before signing up for this program.
Credit Card Processing Fees Frequently Asked Questions (FAQs)
Not all credit card processing fees are the same because a business’ requirement for accepting payments and remaining operational depends on its size.
- A small business or startup that relies heavily on available cash flow would benefit more from a flat-rate pricing model because it is more transparent and easy to budget.
- Meanwhile midsize or large-volume businesses will find interchange-plus pricing more ideal for the savings they get as their sales volume increases.
- Large businesses and enterprises will find membership-based payment processing that offers wholesale transaction rates is more cost-effective than simple flat-rate or interchange plus.
Card networks have a long list of processing fees that vary depending on payment method, card type, product or service type, and merchant type among others. Considerable updates to fees have been made in April of this year. While you can find the list for Visa, Mastercard and American Express on their website, you can check out updates for Discover on Chase Payments Solutions website.
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 most popular methods of passing credit card fees to customers are cash discounting and credit surcharging. Unlike cash discounting that is acceptable in all 50 states, credit surcharging is not acceptable in certain locations. Any merchant looking to sign up for a credit surcharging program will have to make sure that this method is legal in both their state and that of their customer. Read more about free credit card processing here.
Credit card processing fees or transaction fees are a significant expense for any small business. Because every processor operates slightly 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.
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