Updated May 15, 2021

Credit Card Processing Fees

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Accepting credit cards is crucial for the success of your business. But it comes at a cost - one that could put you in over your head if you aren't careful.

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How much are credit card processing fees? The average credit card processing fee for a transaction is 1.5% - 2.9% of the purchase if it is swiped and 3.5% if it is online (due to higher fraud risk).

61.4% of people would use a credit or debit card to pay for a $10 in-store purchase (instead of cash).[1]

It goes without saying that being able to accept cards has become vital for any small retail business. Unfortunately, processing fees are a necessary cost of doing business nowadays.

Read on to learn what business owners should know about credit card processing fees, including some smart tips to reduce them.

Average Credit Card Processing Fees

Credit card processing fees depend on a lot of factors like the credit card network, whether it's a credit or debit card, and the processing method.

Here are the average credit card processing fees for the 4 major credit card networks:

  • Visa: 1.4% - 2.5%
  • Mastercard: 1.5% - 2.6%
  • Discover: 1.55% - 2.5%
  • American Express: 2.3% - 3.5%

Processing fees can be a confusing topic. The above rates represent the common range across networks. Your specific processing rates could vary based on your situation and what process you use. We'll break down all of these factors below so that you know how to avoid overpaying.

What Parties Are Involved in Credit Card Processing?

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When your customers swipe their credit card or insert it into the chip reader, a lot goes on behind the scenes. It's not just a transaction between your store and the credit card company. There are many parties at work, including:

  • Card issuer: This is the credit card company - the one that provides the credit card to consumers, such as Chase or Bank of America (among others).

    The banks work with Visa and Mastercard (the brand) to process the transactions. The interchange fee goes to these banks and credit card companies to cover their operations and risk.

  • Credit card network: This is the brand of the card, such as Visa, Mastercard, Discover, and Amex. The assessment fee is charged by the card networks for using their card brands.

  • Merchant: This is you, the store or business accepting the credit card, either in person or online.

  • Acquiring bank: Also called a "merchant bank", this is the bank that maintains your merchant account. You actually don't get direct access or contact with this bank. Your processing provider is the one who facilitates this relationship.

  • Merchant account provider or payment processor: The third-party that sets you up with a merchant account and processes your transactions. This is the "middle man" that connects you with the banks. This is the only party you directly deal with.

    A few common examples are Square, Stripe, and Payline Data.

    Sometimes, the acquiring bank and the merchant account provider are the same company. For example, Chase has their own processing service and it's also the merchant bank. But you'd only deal with the merchant services part.

  • Payment gateway: This is necessary if you conduct business online. The payment gateway encrypts the data and sends the request for authorization to the card issuer (through the merchant account provider).

    The issuer's bank approves or denies the request and the result is sent back to the merchant. This all happens in the matter of a few seconds (sometimes longer for EMV cards).

I do accept credit cards for my custom furniture painting and pop-up sales. If I didn't, I wouldn't be able stay in business.

It's the reality of the world we live in that people just don't carry cash. I have watched others at pop-up sales lose sales because they don't accept them and suggest people go to a cash machine. So the fee is worth it to me.

Stacy Verdick Case, Owner, Peony Lane Designs

Credit Card Processing Fee Explained

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There are several factors that go into the total credit card processing fee:

  • Transaction fees for each credit/debit card purchase
  • Account and software fees
  • One time incidental fees (such as chargebacks)

Together, the transaction fees, account fees, and incidentals form the total credit card merchant fees. The merchant fee is money charged by a processing provider for taking credit card and debit card payments.

Read on to learn more about these fees.

Credit Card Transaction Fees

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Transaction fees are charged every time there's a credit or debit card purchase. This will be the largest part of your payment costs. There are 2 basic types of transactions:

  • In-person (1.5% - 2.9% average):
    Includes swipe, chip, and contactless payments (such as Apple Pay and Google Pay). These have the lowest processing rates because they have a lower risk of fraud and/or chargebacks.

  • Card-not-present (2.9% - 3.5% average):
    Includes online purchases, invoices, and manually keyed-in transactions. These have higher average credit card processing fees since there's a higher risk of fraud.

Credit card transaction fees are made up of 3 parts: interchange fee, assessment fee, and processor markup. You'll learn more about those below.

The interchange fee is non-negotiable and goes to the credit card company. The assessment fee is non-negotiable and goes to the card association. The markup fee is negotiable and goes to the card processing company.

Interchange Fees

Interchange fees are also known as "wholesale fees." These are fees charged by the issuing bank to cover risk.

These fees are non-negotiable and are set by the credit card networks (Visa, Mastercard, etc.) The processing provider gets no part of these.

See list of current interchange rates for Visa, Mastercard, Discover, and Amex.

The rates vary depending on many factors, including:

  • Type of card used
    Debit cards with PIN have lower rates than credit cards. Premium rewards cards and business credit cards have higher rates since credit card companies use that to make up for the rewards.

    For example, Visa categorizes cards by retail, rewards, corporate, and business. Each type has its own interchange rate. Right now, Visa Rewards Signature cards cost merchants 2.3% + $0.10 of a transaction. So a $100 transaction would cost you $2.40.

  • Card brand
    Each card brand sets their own rates. They may differ even for the same business. American Express cards have higher processing fees than Visa, Mastercard, and Discover.

  • Processing method
    As mentioned before, in-person swiped cards have lower rates, while online purchases have higher interchange fees.

  • Type of business
    All businesses have a Merchant Category Code. Each code has their own interchange rates. Lower-risk industries have lower interchange rates, while higher-risk industries have higher interchange rates.

    For example, grocery stores have lower interchange rates than airlines.

Interchange rates are the largest part of the total credit card transaction fees. But you don't really need to worry about them since there's nothing you can do about it.

Accepting American Express cards: Traditionally, credit card processing fees were higher for American Express cards, so lots of merchants chose not to accept Amex.

However, Amex's OptBlue program offers a more affordable way for small businesses to process Amex cards. With this program, the processing provider sets the Amex processing rates. They are usually in line with that of Visa and Mastercard. This is eligible for merchants who process less than $1 million in Amex transactions per year.

For large businesses processing over $1 million in Amex transactions per year, you must enter a direct processing agreement with Amex. In this case, you'll pay the standard Amex interchange rates.

Assessment Fees

Assessment fees are charged by the card networks (Visa, Mastercard, Discover) to cover operation costs. These are also fixed non-negotiable fees.

These fees aren't as high as interchange fees, but they still take away a small percentage. The current assessment fees[2] are:

  • Visa: 0.14% (credit), 0.13% (debit)
  • Mastercard: 0.1375% (0.1475% for transactions over $1,000)
  • Discover: 0.13%

Processor Markup Fees

On top of the interchange fees, credit card processors charge their own markup. This is the commission they get for each purchase.

The cost will vary depending on the credit card processing company. This is the fee you should be comparing when shopping around for a provider.

Often, the markup fee can be negotiated. Especially higher volume businesses may be able to get discount rates.

For example, the processor may charge 0.25% + $0.10 per transaction. On a $100 transaction, this would cost you $0.35

The lower your average ticket size amount, the more you'll pay in processing fees. A hundred $5 transactions costs a lot more than five $100 transactions.

Let's say the payment processing provider charges 2% plus $0.15 per transaction, you'd pay $0.15 one hundred times for the lower transaction. Compare that to the five times you'd pay it for the $100 transactions and you'll see the difference.

Next, learn about the different pricing structures you will encounter.

4 Types of Pricing Models

Credit card processing providers have four main pricing models. We go over them below, as well as what kind of business each is best for.

Interchange-PlusFlat RateSubscriptionTiered
Interchange & markup are separateInterchange & markup are blendedInterchange & markup are separateInterchange & markup are blended
Markup is a % and per-transaction feeAll transactions cost the same, regardless of type and processorMembership fee for the service, plus each transaction has a small markup Rates vary according to whether the transaction meets certain qualifications
Best for: Most businessesBest for: Low-volume businessesBest for: High-volume businessesBest for: Not recommended

All the fees will be charged through your card processing provider.

1. Interchange-Plus

This is the most common and transparent model. The interchange fee and markup fee are clearly separated.

Some examples of this pricing structure are:

The 0.2% + $0.10 is the processor markup over standard interchange rates. It's easy to compare this price against other providers.

The Interchange-Plus pricing model works for most businesses. It can potentially come out to be the lowest cost.

Let's say the non-negotiable interchange fee is 1.15% plus $0.10, and the merchant provider markup is 0.5% plus $0.15 on each transaction. On a $100 sale, it would cost you $1.25 + $0.65, for a total of $1.90.

2. Flat Rate

Some companies charge a flat fee per transaction. All cards - Visa, Mastercard, Discover, and Amex - get the same processing rate. This structure is usually used by third party PSPs.

In this model, the interchange and markup fees are blended together. This is the most simple pricing and the most predictable. You can estimate what each transaction will cost ahead of time.

Flat-rate providers usually don't have any extra monthly fees, as it's all mixed into the processing rate.

Some examples of providers with flat rate are:

The downside is that the transaction cost could be quite high. This option is best for very small business owners with small ticket sizes or lower volume (up to $5,000 in card transactions per month).

Using the above $100 transaction and hypothetical fees, let's see how this works.

With a flat rate of 2.7%, a $100 sale would cost you $2.70. This is more than the Interchange-Plus fee transaction.

On a $10 purchase, however, the flat fee transaction would cost $0.27, while the Interchange-Plus fee would cost $0.42.

3. Subscription/Membership

With this model, you pay a monthly membership fee for using the service.

Just like interchange-plus, the processor markup is clearly spelled out. But it's just one small fixed per-transaction fee (instead of also a percentage markup).

You may see the pricing laid out like: Interchange + $0.15 per transaction, plus a $50 monthly subscription fee.

Some merchant account providers with subscription pricing model include:

This pricing model could be good for businesses with high sales volume ($10,000 or more in monthly transactions). The processor markup is very low, so your savings would justify the membership fees.

4. Tiered

The tiered model was designed to simplify interchange-plus pricing, but it actually ends up being more confusing.

The concept is simple. Instead of the literally hundreds of different interchange rates, you get just 3 flat rates depending on the type of card used:

  • Qualified rates for debit cards and non-rewards cards
  • Mid-qualified rates for standard rewards cards
  • Non-qualified rates for premium cards and card-not-present transactions

But the problem is that most transactions will fall under the mid-qualified and non-qualified tiers, which have much higher rates. In general, your processing fees will end up being a lot more expensive, so we don't recommend this model.

Are Interchange fees negotiable? Credit card issuers set the interchange fees on a twice-yearly basis. You cannot negotiate them. What you can negotiate are the markup rates charged by the merchant service provider.

Credit Card Processing Comparison Chart

Here is a quick comparison of the credit card processing rates charged by the top payment processing services.

CompanyPricing ModelProcessing Rates
SquareFlat rate2.6% + $0.10 (retail)
2.9% + $0.30 (online)
StripeFlat rate2.9% + $0.30 (online)
PayPalFlat rate2.7% (retail)
2.9% + $0.30 (online)
Payline DataInterchange-plusInterchange + 0.2% + $0.10 (retail)
Interchange + 0.4% + $0.20 (online)
DharmaInterchange-plusInterchange + 0.15% + $0.08 (retail)
Interchange + 0.2% + $0.10 (online)
StaxSubscriptionInterchange + $0.08 (retail)
Interchange + $0.15 (online)
Starts at $99/month
Payment DepotSubscriptionInterchange + $0.15
Starts at $49/month

Merchant Account vs. Payment Service Provider

First, you need to decide what kind of credit card processor you want for your business. There are two types of payment processors:

  1. Merchant account provider
    This is a full service credit card processor. The main thing is that you get a unique merchant ID number just for your business. You'll also get other services such as PCI compliance assistance and tax reporting assistance.

    Typically, merchant accounts require underwriting to approve you as a client. So it's best for larger, established businesses with high processing volume.

    Stax, Payline Data and Payment Depot are examples of merchant account providers.

  2. Payment service provider (PSP)
    This is a more simplified option that only offers credit card processing. You don't receive your own unique merchant account ID. Your transactions are processed in a batch along with those of many other businesses, so therefore costs less.

    This is a good, cheaper option for micro businesses. PSPs don't require underwriting, so you can get started accepting credit card payments almost right away.

    Square and Stripe are examples of payment service providers.

Credit Card Merchant Fees Comparison Chart

To illustrate the difference in credit card processing fees in the models, let's take a look at a sample scenario.

Suppose your retail store has the following transactions monthly:

  • 100 x $10 transactions
  • 100 x $50 transactions
  • 100 x $100 transactions
  • 100 x $200 transactions

Now let's see what your processing fee would be under the different pricing models.

Flat Rate (Square)Interchange Plus (Payline Data)Subscription (Payment Depot)
Sample interchange rateN/A (included)1.81%1.81%
Processor markup (retail)2.6% + $0.10Interchange +
0.2% + $0.10
Interchange + $0.15
Monthly service fee$0$10$49
Total processing fee on $10 transaction (100x)$0.36
Total processing fee on $50 transaction (100x)$1.40
Total processing fee on $100 transaction (100x)$2.70
Total processing fee on $200 transaction (100x)$5.30
Total monthly processing fee$976$774$760

As you can see, flat-rate pricing will cost significantly more for larger transactions. It's a good choice for very small businesses. But medium to large businesses will find better processing rates with interchange-plus or subscription pricing.

Provider Account Fees

Besides the processing fees for each transaction, your merchant account provider may also charge other account fees for using the service. These could include:

  • Hardware fees: If you have a physical store, you'll need a card reader, terminal, or register to swipe cards. Some companies charge a one-time purchase fee, while others lock you into a lease and potentially charge cancellation fees.

  • Payment gateway: This is necessary for e-commerce stores to process online orders. Some providers charge a separate monthly fee for the service. Some, like Square, include this for free.

  • Virtual terminal: If you get phone orders, a virtual terminal lets you manually key-in card info. Again, some companies charge extra for this feature.

  • PCI fees: Some providers offer PCI compliance services and some leave the responsibility up to you. Make sure you understand what's provided and if there's a fee charged.

Other Miscellaneous One-Time Fees

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Finally, you may also encounter these one-time fees:

  • Set-up fees: Some merchant account providers charge a fee to set you up on their network. This could be for a technician to come out and set up the hardware or even for over-the-phone support.

  • Early cancellation fee: Some providers may require a contract and charge a fee if you cancel early. Payline Data and Payment Depot are month-to-month with no cancellation fees.

  • Chargeback fee: This is a fee charged if credit card charge is disputed. Square is one processor that does not charge any chargeback fees.

  • Monthly minimum fee: This is a fee that's charged if you don't meet a monthly processing dollar amount. But there are a lot of providers that don't have a minimum requirement.

  • Statement fees: Your merchant provider may charge you for statements, whether paper or online. They may call it a processing fee or even a miscellaneous fee.

  • IRS reporting fee: Some merchant providers charge a fee to report your transactions to the IRS and provide you with the required 1099-K. This practice isn't widely accepted and the fee should be disputed if you see it on your statement.

How Credit Card Processing Works

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In-store transactions and e-commerce transactions have slight variations in their processes. We'll cover both below:

Retail Transactions

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For a physical retail business, here's what happens. The consumer makes a credit card payment. You run it through the hardware provided (card reader, terminal, or register).

1. Authorization
The information is then sent to the payment processor, which forwards it to the issuing bank for approval. The bank approves or denies the transaction in real-time based on the availability of the consumer's funds.

2. Settlement
Throughout the day, your merchant account collects the approved authorizations. Typically, you'd submit it all together in a batch for processing at the end of each day.

Your provider will forward the batch to the issuing banks, and they'll settle the funds for the approved transactions into your merchant account (minus interchange fees).

3. Funding
From your merchant account, your provider will transfer the funds to your business bank account in 1-2 days.

In-person purchases done over POS transactions have a lower processing rate than online transactions.

Can businesses charge a fee for using a credit card?
Some businesses may charge a convenience fee or surcharge for paying with credit card instead of cash. This is to help cover processing costs. Currently, eleven states (including California and New York) have laws that prohibit merchants from charging a credit card convenience fee.

Online Transactions

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Online transactions go through one more step.

Once the consumer enters the credit card information, it enters the payment gateway, which then sends the info to the payment processor.

At this point, the process is the same. The payment processor contacts the issuing bank for approval of the transaction. Upon approval, the issuing bank alerts the payment processor which then alerts the payment gateway.

Finally, the information reaches your website, where you are able to see that the transaction went through.

Once the transaction is complete, you receive the funds in a few days.

Are Flat Rate or Interchange-Plus Fees Better?

These are the two most popular pricing models. Wondering whether you should choose a flat rate or interchange plus provider?

Unfortunately, the answer is different for each business. It depends on your total monthly transactions as well as the individual transaction amount. That's not all, though. You also have to figure in any monthly merchant service fee or other add-on fees merchant services provider charge.

In general, interchange plus works for most businesses. Flat fee pricing is usually better for low-volume businesses or those with smaller average ticket size.

Don't forget: You may also have special pricing for certain types of cards. For example, processing AMEX could cost you as much as 0.5% more than any other credit card.

Choosing the Right Interchange-Plus Provider

If your transactions are too high for a flat fee provider to make sense, you'll need to shop around for the right interchange-plus provider.

Obviously, you'll want to find the lowest upcharge. But don't focus on the percentage alone. Look at the merchant provider's requirements. Some have volume minimums you must meet.

If you don't meet the minimum quota, you'll pay the difference in fees. In other words, don't jump at the first merchant services provider with the lowest add-on fees. If you can't meet the minimum requirements, you won't enjoy the low percentages.

Tip: Reading the fine print and asking as many questions as possible will help you decide on the best provider for your needs.

Some payment processors charge a monthly or annual fee in addition to their add-on fees. They may also charge miscellaneous fees for things like customer support, training, statements, or PCI compliance.

If you need to integrate your payment processor with your POS or eCommerce, they may charge for that as well.

Ways to Reduce Credit Card Processing Fees

Processing fees can really eat into your bottom line. While you can't avoid them altogether, there are some ways to reduce processing fees so you keep more profits.

  • Encourage debit card payments
    Debit cards have much lower interchange rates. For example, a standard Visa rewards credit card has an interchange fee of 1.65% + 10¢, while a Visa debit card is 0.05% + 22¢. On a $25 purchase, a debit card will cost you $0.23, compared to $0.51 for credit cards.

  • Set a credit card minimum
    You are allowed to set a credit card minimum purchase amount up to $10. This helps you avoid paying high per-transaction fees for small purchases.

  • Add fraud protection tools
    For online stores, use credit card fraud detection tools such as CVV and AVS match. Visa and Mastercard offer lower interchange rates if you use an AVS tool.

  • Add a credit card surcharge
    Finally, you can pass the processing fee to your customers by way of a surcharge. This is an additional fee added to the customer's purchase for using a credit card instead of cash. But this practice is not legal in some states. Read more here.

  • Offer cash discounts
    If you don't want to add a surcharge (and it's not even legal in certain states), you can offer a cash discount to encourage cash payments. Just make sure that the listed price is the regular price.

Read more in our guide on how to lower credit card processing fees.

How to Negotiate Credit Card Processing Fees

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Remember, you can negotiate markup fees charged by credit card processors and merchant account providers. You cannot negotiate the wholesale credit card processing fee.

In general, merchants with high transaction volume usually have better luck getting a discount rate. What you negotiate should depend on the type of sales you make.

Large transactions are more affected by the percentage add-on than the per-transaction fixed fee. If the markup is 0.5% + $0.15, let's see the difference on two transactions:

  • $10 transaction: $0.05 + $0.15
  • $100 transaction: $0.50 + $0.15

The lower the transaction amount, the more sense it makes to negotiate the per transaction fee. If you were to negotiate a lower percentage, you would save a penny or two.

But if you negotiate the per transaction fee, you could save as much as $.05 to $.10 per transaction. That might not sound like a lot, but after 1,000 transactions, you'd save $50 - $100.

Higher transactions, on the other hand, would save you more with a lower percentage fee. If you were able to negotiate a 0.4% fee rather than 0.5%, you'd save $0.10 per transaction.

After 1,000 transactions, you'd save $100. Of course, the higher your transaction amount, the more you save. Read our in-depth guide to learn how you can negotiate credit card processing fees.

Does wholesale credit card processing exist?
You may see a merchant provider advertising wholesale processing fees. In short, this does not exist. Wholesale pricing is the rates charged by the credit card networks. Processing providers need to charge their own markup on top of that to make money. In order to get true wholesale processing, you need to work directly with Visa, Mastercard, etc., and that is not possible.

What Experts Say

CreditDonkey assembled a panel of experts to answer readers' most pressing questions:

  • How do sellers benefit from allowing customers to use credit cards?
  • Why don't more small businesses accept credit cards?

Here's what they said:

Bottom Line

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To be a successful business owner, it's necessary to be able to accept credit card purchases. However, you should choose your merchant account provider wisely. If you don't understand their fee structure, ask questions.

Compare the flat fee companies to the interchange plus companies on a per transaction as well as monthly basis. Only then will you be able to make the decision that works best for your company's bottom line.

And don't forget to inquire about early termination fees or equipment rental fees.


Write to Kim P at feedback@creditdonkey.com. Follow us on Twitter and Facebook for our latest posts.

Note: This website is made possible through financial relationships with some of the products and services mentioned on this site. We may receive compensation if you shop through links in our content. You do not have to use our links, but you help support CreditDonkey if you do.

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