Credit Card Processing Fees [2023 Updated]
In today’s world, the majority of businesses accept credit cards in order to stay competitive. However, these payments come with associated costs that are often difficult to understand. This guide will provide an overview of credit card processing fees and help you determine which option is best for your business.
What Are Credit Card Processing Fees?
Credit card processing fees are the charges that merchants must pay to process transactions made with a credit or debit card. These fees are typically a percentage of the transaction value, plus a fixed fee per transaction. The percentage fee is known as the “interchange rate” and it varies depending on the type of card used and the processing method.
The exact cost of credit card processing fees can vary widely depending on the merchant’s industry, location, and processing volume, among other factors. However, merchants can typically expect to pay between 1.5% and 3.5% of the transaction value in processing fees.
Types of Credit Card Processing Fees
There are several types of credit card processing fees that merchants may encounter:
This is the fee set by the card-issuing bank and is a percentage of the transaction value. Interchange fees vary based on the type of card used and the processing method.
These are set by the card networks and may include annual fees, setup and activation fees.
Payment Processor Fees
These are charged by the payment processor and may include monthly fees, transaction fees or gateway access charges.
These fees can add up quickly, so it is important to understand all costs associated with credit card processing before signing a contract.
There are several pricing structures used by credit card processors, including:
This is the most transparent pricing structure, where the merchant is charged a fixed markup over the interchange fee set by the card-issuing bank. The markup is a percentage of the transaction value, plus a small transaction fee.
This is a less transparent pricing structure, where transactions are placed into different tiers based on factors such as card type and processing method. The merchant is then charged a different rate for each tier. The problem with tiered pricing is that it can be difficult to determine the actual cost of processing a transaction, as the rates are not based on the actual interchange fees.
This is a simple pricing structure where the merchant pays a fixed rate for each transaction, regardless of the card type or processing method. Flat-rate pricing can be a good option for small businesses with low transaction volumes, as it is easy to understand and there are no surprises.
This is a monthly fee-based pricing structure where the merchant pays a recurring fee for access to the payment processor’s services. Subscription pricing may include additional fees for features such as a payment gateway, virtual terminal, or mobile card reader.
It’s important for merchants to understand the pricing structure offered by their payment processor and to compare offers from different processors to find the best rates and terms for their business. Merchants should also consider the level of support and customer service provided by each processor, as well as the features and capabilities offered by the processor’s platform.
Credit Card Processing Fees From Major Payment network
The credit card processing fees charged by major payment networks, such as Visa, Mastercard, and American Express, can vary depending on several factors, including the type of card used, the processing method, and the merchant’s processing volume.
|Credit Card||Interchange Fees||Assessment Fees|
|Visa||1.15% + $0.05 to 2.40% + $0.10||0.14%|
|Mastercard||1.15% + $0.05 to 2.50% + $0.10||0.1375% (transactions under $1,000); 0.01% (transactions $1,000 or more)|
|American Express||1.43% + $0.10 to 3.30% + $0.10||0.15%|
|Discover||1.35% + $0.05 to 2.40% + $0.10||0.13%|
What Determines Interchange Fees?
Interchange fees are determined by the card-issuing bank and the payment network (such as Visa or Mastercard) and are set based on several factors, including:
- Card type: Different card types, such as debit cards, credit cards, rewards cards, or corporate cards, are assigned different interchange fees based on the level of risk and cost associated with processing transactions for each type of card.
- Processing method: Interchange fees can also vary based on how the transaction is processed, such as whether it’s processed as a card-present transaction (when the card is physically present at the time of sale) or a card-not-present transaction (when the card information is entered manually). Card-present transactions typically have lower interchange fees as they are considered less risky.
- Transaction size: Larger transactions generally have lower interchange fees as a percentage of the transaction value, as the cost of processing the transaction is spread over a larger amount.
- Industry type: Interchange fees can also vary based on the merchant’s industry type, as certain industries, such as travel or online merchants, are considered higher risk and therefore have higher interchange fees.
It’s important to note that these are rough estimates and that the actual interchange fees can vary widely. Merchants should review their processing agreements carefully to understand the interchange fees they’ll be charged and to ensure that they are getting the best deal for their business.
What are the Restrictions on Credit Card Processing Fees for Merchants?
Merchants are not allowed to charge customers more than 4% above the cost of their goods or services for credit card processing fees.
How to calculate credit card fees?
Credit card processing fees are typically calculated based on a combination of factors, including the payment processor’s rate, the type of card being used (e.g., debit card, credit card, rewards card), and the type of transaction (e.g., card-present, card-not-present).
How to lower your credit card processing fees?
There are several steps that merchants can take to lower their credit card processing fees, including:
- Shop around for the best processing rate: Different payment processors offer different processing fees, so it’s important for merchants to compare offers from multiple processors to find the best deal for their business.
- Negotiate with your processor: Merchants who process a high volume of transactions may be able to negotiate lower processing fees with their payment processor.
- Use card-present processing: Card-present transactions, where the card is physically present at the time of sale, typically have lower processing fees than card-not-present transactions, where the card information is entered manually.
- Accept only necessary card types: Merchants can minimize their processing fees by only accepting the card types that are necessary for their business. For example, if a merchant primarily sells low-value items, they may choose to only accept debit cards, which have lower processing fees than credit cards.
- Batch transactions: Some payment processors charge lower fees for transactions that are batched and processed together, rather than processed one by one.
- Implement a surcharge program: In some countries, merchants are allowed to implement a surcharge program, where they can pass along a portion of the processing fees to their customers.
- Use a flat-rate processing model: Some payment processors offer a flat-rate processing model, where merchants pay a single, fixed fee per transaction, regardless of the transaction value. This can be a good option for merchants who process a low volume of transactions or have a high average transaction value.
It’s important for merchants to understand the restrictions that apply to their business and to ensure that they are not being charged excessive or unfair processing fees. Merchants should review their processing agreements carefully and consult with their payment processor or a financial advisor if they have any questions or concerns.
Additional Fees Charged by Payment Processors
In addition to the discount rate or interchange fee, payment processors may also charge additional fees such as monthly maintenance fees, setup fees, and gateway access charges. Be sure to read all of the paperwork carefully before signing a contract so you know exactly what you will be charged for each transaction.