The Complete Guide To Merchant Account & Credit Card Processing Fees
You might be a new business owner thinking about taking credit card payments for the first time. Or you might be an old hand at credit card processing looking to lower your existing rates. Either way, you’d like to understand a little bit more about the ins and outs of the processing business so you’re not swindled by unscrupulous salespeople.
This is the article you need.
You’ll need to set aside some time, though. The article is long, but by the time you finish it, we promise you’ll have a much better idea about how the complicated world of credit card processing works. You’ll also understand how to protect yourself when you set out to look for a credit card processor.
We’ll give you some average rates that you should keep in mind as you look for credit card processors that might be right for your business. We’ll also explain why these average rates probably won’t work because of the complex business models these processors use. We’ll help you pinpoint which business model is likely right for you.
This article links liberally to other articles on our website, so if you wish, you can dive deeper for answers to your specific question. If you are a visual learner, consider checking out our infographic article about credit card processing fees.
Let’s get started.
Table of Contents
- What Are Credit Card Merchant Fees?
- Everything You Need To Know About Merchant Account Fees
- How Interchange Affects All Of Your Credit Card Processing Fees
- Common Merchant Fees For Small Business
- Credit Card Processing Fees FAQ: Answers For Small Businesses
- The Final Word On Finding Credit Card Processing Services
What Are Credit Card Merchant Fees?
When you accept credit cards as payment, you are always charged a fee for processing. This fee is what we generally mean when we say “credit card merchant fee.”
What Are The Average Credit Card Processing Fees For A Small Business?
We all know that having an average number in mind is very useful when comparing rates. From a very general standpoint, and according to Payment Depot (read our review), the average costs for credit card processing range from:
- 1.5% to 2.9% for swiped/dipped cards, and
- 3.5% for keyed-in transactions.
Also according to Payment Depot, a breakdown of average costs for the four major card networks looks like:
- Visa: 1.43% – 2.4%
- Mastercard: 1.55% – 2.6%
- American Express: 2.5% – 3.5%
- Discover: 1.56% – 3.5%
Please keep in mind that this is a rough number. Your actual fees depend on a lot of factors, including the type of transaction you process most often (in-person vs. online), your specific type of business (average risk vs. high risk), and the size of your average transaction. To understand how these factors can affect your rates, keep reading below.
Everything You Need To Know About Merchant Account Fees
The credit card industry is somewhat antiquated and lacks competition. As such, everyone upstream tries to pass their costs downstream, and typically (because of the lack of competition), they’re able to do just that. The best way to see where these upstream costs are being added is to understand how a payment card transaction works, so you can see where a charge might be tacked on to a particular transaction.
When you’re quoted a price by a credit card processor, you’ll usually see a percentage and a flat fee. Let’s start with why you’re being charged this way.
Why Merchants Pay A Percentage & A Flat Fee
When you sign up to take credit card payments, the first thing you might notice is that you are being charged in a somewhat unusual way: your cost for processing a payment card is a combined percentage plus a flat fee. There’s a reason for this, and it has to do with the upstream providers’ fixed business (e.g. equipment) costs and financing risk.
In order to process a transaction, the modern credit card industry uses a lot of computer technology, all connected to form a private computer network. Each player in the industry has costs to maintain their part of this network, including paying for hardware, software, and network connection. This maintenance cost is steady, so the upstream providers pass it down to you as a flat access/usage fee.
In addition to the computer network, there’s a financing aspect to every payment card charge. A credit card is really a mini loan a bank makes to the credit card holder, so there’s always a risk that the bank won’t be paid back. Even a debit card involves a bit of financing risk in the form of an overdrawn bank account. It’s not hard to understand that a bank would lose more money if someone failed to repay the loan on a $1,000 new TV than on a $10 lunch. The banks, therefore, want more money for taking the risk of a greater loss. To do that, you express that risk as a percentage of the total purchase.
So, for every payment card transaction, the merchant pays:
Processing charge = financing risk charge + fixed business (e.g. computer network) costs
The formula makes sense because it takes into account both the fixed costs and the variable costs involved in using a payment card. (Note that there are some payment processing business models that are only percentage-based. The percentage is usually nearer the higher end of normal, and the technology-related charges are typically consolidated into the percent charge.)
Next, let’s take a look at who’s charging what.
Know The Parties Involved In Payment Processing
In order to understand card processing fees, you also need to know about the parties involved in the industry. Consider these the financial “middlemen” between a customer and a merchant. They include:
- Credit Card Associations: These are the companies that create credit cards, like Visa, Mastercard, and American Express. Sometimes, they’re called credit card networks. They set all the rules, determining a fair processing rate for each industry, how to maintain the security and encryption of hardware and software, how and when to advertise to consumers, and so on.
- Credit Card Issuing Banks: These are financial institutions, like Chase, Citi, and Wells Fargo, that issue credit cards to consumers. Some card associations, like Discover and American Express, take on the role of an issuing bank as well, developing and issuing their own cards. The issuing banks are the ones who assess a consumer’s creditworthiness before deciding whether to issue a card to the consumer. After a consumer makes a purchase, the issuing bank is responsible for checking whether the charges are valid and if the consumer has enough credit on the card to make the purchase. The bank must then approve or decline the purchase, and then front the money to the merchant. At that point, it’s basically a matter of a loan repayment between the issuing bank and the cardholder.
- Credit Card Acquirers: These are also known as acquiring banks, though they don’t all have to be banks in the traditional sense. They could, instead, be financial institutions with bank-like characteristics. They set a merchant up with a merchant account, which is a specialized bank account used solely to receive card payments from issuing banks. Often, a set of pre-approved entities, such as a credit card processor, can also draw from the account. Acquirers act as middlemen, communicating with and receiving money from the issuing banks, credit card associations, and credit card processors. They typically get involved in the transaction process after the issuing bank has paid the money for the transaction but before the merchant receives the money. They share the financial risk with issuing banks when a credit card charge is reversed. They also assess the creditworthiness of a merchant and the stability of the business before approving the business to take credit cards. We have a detailed article about acquirers if you wish to learn more about them.
- Credit Card Processors: These are the one-stop-shop companies a merchant deals with to set up payment card processing. You can work with them directly or you might work with one of their resellers. Processors set up the payment processing for you, helping you get a merchant account and making sure you have the right hardware and software to take payment cards. Sometimes, the acquirer and the processor are the same company, but the merchant deals with only the processor part of the business (which means you won’t be able to negotiate down the acquiring side’s wholesale costs). Processors often contract with other service providers and bundle these services to you in one bill. For instance, once you are set up with a processor (usually for an extra fee), you can get a payment gateway to take online payments, an electronic vault to store your customer’s payment card information so repeat customers can check out faster, hardware and software to allow you to take payment cards with mobile devices, and similar value-added services.
- Payment Gateways: These are special portals that route transactions to an acquirer, usually in the case of an online shopping cart. These days, processors typically include some sort of gateway in their offering, so you may not have to find one separately for your business.
Now that we’re familiar with all the major parties involved in payment card transactions, let’s look at how a transaction takes place.
Follow The Money: The Credit Card Payment Transaction Flow
The transaction process begins with a customer using a payment card (credit or debit), whether at a merchant’s store or online.
- Authorization: Once the information on a card is read into the credit card machine or typed into a gateway, the information is sent over the internet to your processor for the next step. Your processor acts as a traffic cop and sends the card information to the appropriate card network (e.g. Visa, Mastercard, Discover, etc.) with a request to be processed. The card network then forwards the processing request to the issuing bank of the credit card, and the bank checks to see if the cardholder has enough credit to cover the purchase. If there are enough credits, and if the card is registered as valid, the purchase is approved and the approval message is sent back to the merchant. All of this is computerized, so it typically takes place in a matter of seconds.
- Submission: The transaction between the merchant and the consumer takes place (i.e. goods or services are exchanged), and the merchant submits the authorized transaction for actual payment. The submission can take place right away or be held up in a batch somewhere along the process and then submitted at the end of the day or past the weekend. The submission first travels to the processor, who, like before, forwards the request to the appropriate card network. The network then sends the submission to the issuing bank. The issuing bank pays the appropriate amount.
- Settlement: The payout from the issuing bank travels by standard inter-bank money transfer methods until the money reaches the merchant account. The card network, the processor, and the bank(s) take their cut of the transaction fees. Only then can the merchant take the money out of the account. If your processor is a third-party processor (also known as a payment service provider) this step is a little different, but the merchant gets the money in the end.
- Disputes: Sometimes, a payment card charge is reversed days or months after the process described above. It could be that the merchandise was defective, or that the card charge was fraudulent/made without authorization; in either case, the cardholder demands the charge to be dropped. The merchant can either agree to a refund or enter into a dispute process to prove that the charge was not made fraudulently. Here, additional resources between the banks must be devoted to the dispute, so additional costs can be incurred.
Note that the transaction flow described above doesn’t quite describe a PIN/signature/”true” debit card charge. After your machine or gateway accepts the information of a customer’s PIN debit card and transmits the data to your processor, the processor routes the information through a debit card network to the issuing bank of the debit card, skipping the card associations. From there, the issuing bank and the acquiring bank communicate and then transfer the money directly between them once it is confirmed that the customer indeed has enough funds to cover the purchase.
Here, because a slightly different path with a simplified computer network is used and because of certain US government regulations (if you’re in the US), PIN debit charges usually cost less to process than typical credit card transactions. You can only take PIN debit if you have the right kind of machine (and a merchant account), but the hassle might be worth it if your customers like to pay with debit cards than credit cards.
Looking at the process above, each party that touches a payment card transaction will charge you a fee. So the card associations will charge you a fee, the issuing bank and the acquiring bank will share a fee, and your processor will take a fee. You may even be charged by parties you didn’t even know were involved! For instance, the computer networks (and the security and encryption that run on these networks) are often run by third parties contracted by the banks, card associations, or your processor. That cost is tacked onto the full processing cost as a set fee (such as a PCI compliance fee). If a repeat customer has ordered merchandise online, and you have stored previous card payment information, you might be charged another per transaction (or per month/quarter/year) fee for secure, PCI-complaint storage of that customer information.
As you can see, all the fees can add up. So how can you negotiate them down?
How Interchange Affects All Of Your Credit Card Processing Fees
We’ve gone over a typical payment card transaction flow and you understand that every time an entity touches that transaction, there will probably be a fee (which means sometimes an entity will charge you twice because they touched the transaction twice). Now, let’s look a little closer at these fees and talk about which ones you can do something about and which ones you cannot change.
Wholesale Fees VS Markup Fees
The terms wholesale and markup get thrown around a lot in the processing industry, so it’s easy to become confused about which fees really fall into which category. At its core, however, the distinction isn’t too difficult to grasp. The two main considerations are 1) which of the parties we’ve discussed ultimately collects the fee, and 2) how fixed the cost is across the industry. Here’s all you really need to know:
- Go to the issuing banks (interchange fees) and the credit card associations (card association fees)
- Are fixed amounts regardless of which processor you use
- Are non-negotiable
- Go to your payment card processor, plus any other add-on equipment or software providers such as a payment gateway provider
- Are different amounts from processor to processor
- Are negotiable
As the merchant, you’re the “lucky” one who ultimately covers all these costs. Meanwhile, your credit card processor sits right in the middle of the fee collecting-and-directing process. They decide how to pay the necessary wholesale costs for running your account—while also adding markups to cover their own costs, paying other third-party service providers associated with your account, and turning a profit.
With the right processor, markup fees will be modest. With the wrong processor, you’re in trouble. What’s worse is that some processors make it as difficult as possible to know how much markup you’re paying by using bewildering terms and pricing models that would baffle even the most experienced business owner. For now, just remember that markup fees are different from processor to processor; these are what you should be comparing when preparing to open a new merchant account. Meanwhile, don’t try to shop around for lower wholesale fees or rates from various credit card processors. These rates are consistent throughout the industry and are not negotiable.
There is one more thing you should know about wholesale costs: they tend to differ from industry to industry and from card association to card association. They also tend to differ by the way the card is used—whether it’s an in-person purchase or over the internet. The reason for the difference has to do with risk.
Some industries, such as the gambling industry, are simply more prone to instances of impulsive purchases/chargebacks/fraud than, say, fast-food restaurants. It’s also easier to use a stolen card for an online purchase (aka a card-not-present or keyed-in transaction) than dipping a card in person (aka a card-present transaction). Everyone along the transaction chain wants to be paid more for taking a higher risk, so your costs will change depending on your industry and how your customers typically pay. In other words, if you compare your flower shop rates (low risk) with your buddy’s CBD shop rates (high risk)—even if you use the same processor charging the same markup—you’ll find that your buddy is paying more.
(Your processing cost also varies by type of card—credit, debit, rewards, corporate—but that has more to do with maintaining profit margins by passing costs down to you than with risk.)
Here’s a table showing some sample pricing models and whether or not you can easily pull out the wholesale fees and markups from the quoted rates:
Sample Quoted Payment Processing Rates
|Pricing Model||Wholesale Rate|
0.25% + $0.10
$0.10 (+ $99/mo membership)
Qualified: 1.79% + $0.10
(Mid-Qualified: 2.19% + $0.15)
(Non-Qualified: 2.99% + $0.20)
2.90% + $0.30 online
This brings us to the concept of interchange. We’ve briefly touched and defined the term above, but let’s elaborate on this fee a little bit more.
Where Does Interchange Come Into Play?
While we’ve already seen that there are quite a few parties and places in the process flow that can charge fees, most pricing discussions hinge on one particular category of cost: interchange. This is mostly due to the fact that this wholesale fee makes up the majority of the cost of processing cards. Card association fees, also known as assessments—the other main wholesale cost—make up a non-trivial chunk as well, but it’s not nearly as large as the interchange chunk.
The interchange fee is strictly a wholesale fee. It uses the formula financial risk charge + fixed business costs. Because the formula relates to risk, the interchange fee can be different depending on your industry—again, lower-risk industries get a lower interchange fee while higher-risk industries get a higher interchange fee.
To complicate matters further, the interchange fee is decided by the card associations, and each card association can assign a different risk number, even to the same industry. In other words, the interchange rate for, say, a bookstore might be different if a customer uses a Visa card instead of a Mastercard card if Visa and Mastercard have simply decided differently on how much risk they wish to take for the bookselling industry. So, bear in mind as we discuss interchange fees below that this number can be different depending on both your industry and the card your customer decides to use for the purchase.
(This industry-dependent risk assessment takes the form of something called a merchant category code or MCC. Businesses that use merchant accounts are assigned an MCC from the list of pre-existing codes provided by the card associations to broadly identify the type of product or service their business offers.)
Despite the card association’s involvement, the interchange fee is ultimately collected by the card-issuing bank. The table below summarizes just a few examples, but there are hundreds of interchange classifications across the card brands. Visit the Visa and Mastercard websites for full lists, but note Discover and American Express do not publish their interchange fees. Interchange fees are reviewed and adjusted on an as-needed basis twice a year by the card associations, in April and October—so yes, your interchange rates can change over time.
Common Interchange Rate Examples
1.51% + $0.10
1.80% + $0.10
Signature/Traditional Rewards Credit
1.65% + $0.10
1.95% + $0.10
Preferred Rewards Credit
2.10% + $0.10
2.10% + $0.10 / 2.40% + $0.10
Small Bank (Exempt) Debit
0.80% + $0.15
1.65% + $0.15
Big Bank (Regulated) Debit
0.05% + $0.22
0.05% + $0.22
Due to the central role interchange fees play in the processing industry, the pricing models used by card processors are primarily based on how interchange fees are handled. Before we go any further, take a moment to compare those big bank debit interchange rates in the table above to the rate of 2.9% + $0.30 or even the 2.75% charged by some flat-rate processors. You can start to see the pitfalls of a pricing model that lumps multiple (or all) card and transaction types together and then slaps on one blanket rate to cover them all. Of course, there are pros and cons to each pricing model for different business types, but you should definitely be aware of the wide variety of base costs behind the different card and transaction types.
Now, let’s take a look at the four main pricing models in more detail.
Understanding & Identifying Payment Processing Pricing Models
When it comes to selling merchant accounts, there are four popular methods of pricing: interchange-plus, subscription/membership, tiered pricing, and flat-rate. If you already have an account but don’t know your pricing model, you can identify which one you have by looking for key indicators on your statements.
Remember that the main distinction to be aware of in pricing models is what happens to interchange fees—are they itemized and charged completely separately from the processor’s markup (“pass-through” or “cost-plus” pricing), or are they blended in with the rate markup (blended pricing)? Take a look:
Pricing Model Overview
|Interchange Fees||Model Type||Generally Best For|
Separate from markup
Separate from markup
Blended with markup
Blended with markup
For most merchants, we recommend signing up for one of the pass-through models. Otherwise, you won’t be able to see the true difference between wholesale rates and processor markups.
With the above in mind, let’s look at the various pricing models currently being used by credit card processors.
This is the most transparent pricing model with the most understandable terms and fees. Interchange-plus itemizes wholesale fees and markups and clearly lists them on your monthly statement. This may make your statement a bit more difficult to read overall, but it’s worth it since you’ll know the precise difference between your wholesale fees and rate markups. Interchange-plus rate markups typically consist of both a percentage markup and a per-transaction fee markup, both of which are applied to all your transactions.
This is a newer pricing system, but it’s catching on. It’s similar to interchange-plus in that the wholesale cost of each transaction is charged separately from the markup. The difference is that you do not pay any percentage markup on transactions, but instead pay just a small per-transaction fee. Then, an additional markup is charged as a flat monthly subscription fee. For merchants with large transactions especially, this kind of pricing can save a lot of money without decreasing transparency. Check out Payment Depot (see our review) for a great example of this kind of pricing.
If you aren’t lucky enough to be on interchange-plus or subscription pricing, chances are you’re tied up in a tiered or ‘bundled’ pricing model. Even with the increased popularity of the above “cost-plus” models, the majority of business owners are on a tiered plan. Tiered statements may appear simpler at first, but in reality, this model makes it difficult to thoroughly understand your rates and fees.
Tiered pricing plans categorize credit card transactions into three categories:
- Mid-qualified, and
Generally, qualified rates are the lowest. The transaction rates increase for mid-qualified and are highest for non-qualified transactions. Qualified transactions must meet all of the processor’s criteria for processing, such as a swipe/dip in-person with a batch settlement the same day. Failure to meet one or more standards may result in a ‘downgrade’ to mid-qualified or non-qualified tiers.
Some dubious processors take advantage of this more opaque pricing plan to charge merchants excessive markups. You may end up paying a lot more than you want to with little way to determine exactly what you are paying for. This is because processors often fail to disclose which tiers the merchant’s transactions are falling into, making it nearly impossible to determine the true markup rates over interchange.
This is like tiered pricing, but without the tiers. Instead, all transactions cost the exact same percentage and transaction fee, regardless of the wholesale cost. All costs are blended together to create one consistent rate and fee. This tends to make the transaction cost very high, especially for debit transactions. But since processors using flat-rate pricing (like Stripe and PayPal) usually do not charge a monthly fee, this pricing model often makes sense for low-volume businesses.
Putting it all together, below is a comparison table using a couple of types of business models together with numbers plugged in, so you can better see the charges:
|Test Case #1||Test Case #2||Test Case #3|
|Pricing Structure||Subscription||Interchange-Plus||Flat-Rate (Blended)|
|POS & Other Features Included||Yes||No||Yes|
|Sample Interchange Rate*||1.51% + $0.10||1.51% + %0.10||N/A|
|Retail Processing Rate||interchange + 0.0% + $0.10||interchange + 0.2% + $0.08||2.6% + $0.10|
|Fees paid on 100 x $50 transactions||$145.50||$118.50||$135|
|Fees paid on 200 X $50 transactions||$241||$222||$280|
|Fees paid on 200 x $100 transactions||$392||$393||$540|
|Fees paid on 200 x $200 transactions||$694||$735||$1,060|
|* Sample interchange based on Visa non-grocery retail rate for standard cards. Rewards cards incur a higher interchange rate and a merchants’ overall interchange rate will vary, affecting total processing costs. While not every merchant can predict their interchange costs, they can use an estimated number of transactions and average transaction size to calculate markup. Flat-rate processing markup determinations were made using the same assumed interchange rate, but companies that offer flat-rate pricing (such as third-party processors) don’t always disclose how much of their costs are markup, and so the numbers are an approximation.|
Keep in mind that these are estimated numbers using a single interchange rate. Real-world numbers will vary because you will encounter many different cards with different rates, and some transactions may be keyed instead of swiped, incurring a higher interchange as well. However, you can draw some conclusions here. For example, at a high volume, a subscription pricing model is often the best deal—especially if it includes any software subscription fees as well. An interchange-plus model might get the lowest rates but may not include all the extra software, meaning you’ll need to pay extra for it. And a flat-rate blended model is often a good deal for low-volume merchants, but as a business grows it becomes more costly.
Common Merchant Fees For Small Business
Now that you have an understanding of the business models typically used by the payment card industry, let’s look at your processing statement and see how we can generalize and categorize these charges. There are three types of charges, and they are:
We will elaborate on each below. For now, know that each of these fees can be charged by any entity in the transaction flow. The bulk of your fees, though, will tend to be what are called transactional fees, which can be charged by the banks, by the card associations, and by your processor.
Below we’ve compiled a list of the most common fees in the processing world, along with their typical price ranges, for your general reference. Your pricing model and your specific processor dictate which of the individual fees come through to you on your account. If you’ve got every single one, there’s a problem!
As we dive into the details, don’t lose sight of these big picture concepts regarding wholesale and markup costs:
- A markup is anything beyond the established wholesale fees from either the card associations or the card-issuing banks.
- Wholesale fees from the card-issuing banks come in only one form: interchange fees—all of which are transactional. Card association fees (assessments), on the other hand, can be transactional, scheduled, or incidental.
- Many markup fees are negotiable, while wholesale fees are not.
- A wholesale fee can be passed through to you by your processor “at cost,” marked up by your processor, or absorbed into the overall cost of running your account in another way. The same goes for costs associated with other add-on service providers — passing the fee straight through, marking it up, or absorbing the cost into another blanket fee are all possibilities.
- Don’t get too hung up on your processing rates or any one particular fee. You must consider the entire markup amount by looking at all the rates and fees on your account in order to accurately assess your cost.
Transactional Card Payment Fees: What You Pay For Every Transaction
These fees are assessed every time you run a transaction. Your processing fee, for instance, is a transactional fee. Transactional fees usually represent the biggest cost of accepting payment cards. Transactional fees come in two forms: 1) percentages (e.g., 2.19%, 0.25%), or 2) per-item dollar amounts (e.g., $0.20, $0.0195). Often, both forms are charged on a given transaction.
|Typical Price Range||Wholesale||Markup|
varies, tables are published
varies, see our list
Processor's Rate Markup
varies, may be blended w/interchange
Wholesale Transaction Fees
- Interchange Fees: These are the fees the card-issuing banks charge for each transaction, and they represent the largest expense merchants (should) pay per sale and per month. Interchange fees typically consist of a percentage of each transaction accompanied by a flat per-transaction fee (e.g., 2.10% + $0.10). The exact cost per transaction depends primarily on the type of card (e.g., rewards, corporate, personal, etc.) and the way it’s processed (e.g, swiped/dipped, keyed). The card associations set these fees for the banks, and Visa and Mastercard publish the interchange fees online. Discover and American Express require permission from your acquirer to access their equivalent fees.
- Assessments: These are the fees the card associations collect for each transaction, and they make up a smaller portion of your total card processing costs than interchange fees. Assessments are based on a percentage of the total transaction volume for the month. Depending on the card association, the main assessments currently range between 0.12%-0.15%, while an additional assessment percentage is charged on international transaction volume. Meanwhile, one or more small, flat per-transaction fees are also charged across your whole processing volume. These have different names depending on the association—APF (Visa), NABU (Mastercard), and Data Usage Fees (Discover) are the main ones. Visa & Mastercard don’t publish assessment fees at all (but some processors do publish), Amex publishes a few, and Discover restricts access. Therefore, we recommend using our full list for reference.
Markup Transaction Fees
- Processor’s Rate Markup: All processors add some type of markup to the wholesale interchange rates of processing transactions. The markup may be blended with interchange, or be kept separate. With interchange-plus, for example, your processor will quote you something like 0.25% + $0.10. That is their markup over interchange—the amount they will add to the wholesale interchange rates. But, if you’re on a tiered pricing plan, you’ll get a quote with Qualified, Mid-Qualified, and Non-Qualified rates. Those quotes have the markup baked right into the rate, thus making it more difficult to tell what the processor’s true margin is. See the Understanding & Identifying Payment Processing Pricing Models section for more information.
Scheduled Card Payment Fees: Regularly Occurring Costs
In addition to transactional fees, you may be charged some predictable, flat fees as well. They vary by name, value, and applicability, but at least some of them will show up on your monthly statements.
|Typical Price Range||Wholesale||Markup|
Fixed Acquirer Network Fee (FANF)
varies, published by Visa
MasterCard Merchant Location Fee
$15/yr or $1.25/month
PIN Debit Network Fee
Online Reporting Fee
Monthly Minimum Fee
POS Software Fee
Payment Gateway Fee
$5-25/mo (+ trans. fee)
PCI Compliance Fee
IRS Reporting Fee
Wholesale Scheduled Fees
- Fixed Acquirer Network Fee: Otherwise known as the FANF, this is a card association fee from Visa. While the exact amount varies widely based on your business type and monthly volume, it’s still is a predictable, flat fee. Your processor decides how to pass this along to you, but it’s typically assessed once per quarter.
- Merchant Location Fee: Mastercard charges $15 per merchant location annually if you’re using a traditional processor. This is the wholesale amount, but how and when your processor charges you will vary. You will often see this fee as a $1.25 per month fee. The fee is waived for merchant locations with less than $200 in Mastercard gross monthly volume, charitable organizations (MCC 8398), or religious organizations (MCC 8661).
- PIN Debit Network Fee: PIN debit, which not all businesses accept, operates on separate (but associated) networks to Visa and Mastercard (e.g., Maestro, Accel). Some of the main networks currently charge an annual network access fee of $12-$14/year to the processor for each merchant using the network. Depending on exactly how many networks are at play, this typically totals between $50-$62/year. If you accept PIN debit, you may see this fee passed through to you.
Markup Scheduled Fees
- Monthly Fee: These are service fees charged each month, usually for the purpose of covering call center costs. Ironically, most of the phone calls that come in are the result of mistakes made by the merchant account providers, making them the cause of their own fees. If you’re looking for the lowest monthly fee possible (a good idea if you have a low volume), take a look at Payline Data. Also, note that if you’re on a subscription pricing plan, your monthly fee will be much higher. This is to help cover the markup over interchange that you’d otherwise be paying with an interchange-plus or blended plan.
- Annual Fee: These are fees charged every year to cover the basic use of a provider’s services. This is generally a bogus fee unless you are paying it instead of a monthly fee, not in addition to.
- Statement Fee: These are fees charged to cover printing and mailing costs for credit card statements. Some merchants bypass these costs by using electronic bill statements, but others charge as much as $15 a month for miscellaneous processing costs.
- Online Reporting Fee: These are alternatives to statement fees, charged to merchants who choose to view their statements online. Most providers will not charge this kind of fee, and those that do often lump it together with others.
- Monthly Minimum Fee: These are fees charged to merchants who do not reach a certain transaction total for the month or year. The minimums will vary by provider, but most of them are around $50,000 a year of volume and a $25/month minimum fee. This is another fee that is not charged by some of the better providers, such as Dharma Merchant Services.
- Terminal Fee: These are charged to merchants who have physical stores, where cards are directly swiped/dipped. If you run a business online, you will not have to worry about this. Some providers try to lock merchants into terminal leases, but as we’ve mentioned before, don’t lease a terminal. Most of our favorite providers will encourage you to buy your machine outright for a low one-time fee. This can save literally thousands of dollars in the long-run. For an example of this, check out Fattmerchant.
- POS Software Fee: If you purchase or subscribe to point-of-sale (POS) software through your processor, this fee will cover that. In some cases, basic POS software is included with retail merchant accounts at no additional charge beyond the main monthly service fee.
- Payment Gateway Fee: These are similar to terminal fees, but they are applied to eCommerce businesses instead. Some processors have in-house payment gateways that are free of charge (CDGcommerce). Otherwise, gateways usually come with a monthly fee (and occasionally a per-transaction fee as well).
- PCI Compliance Fees: These are fees paid to your processor for compliance with standards set by the Payment Card Industry. In the case of compliance, you have to pay the merchant account provider (monthly or annually) to make sure you remain in line with the regulations at all times. Unfortunately, some providers charge for this service without actually providing it, so you need to make sure you are being cared for at all times. PCI noncompliance fees, on the other hand, are incidental fees that you incur when you don’t follow your processor’s requirements to maintain your PCI compliance.
- IRS Reporting Fee: These are fees that merchant account providers charge in exchange for reporting transaction information to the IRS (1099-K).
Incidental Fees: Occasional & Per-Occurrence Costs
Scheduled fees are always charged, but incidental fees only appear per occurrence. When a chargeback occurs, for instance, you are charged a chargeback fee. Some months you will (hopefully!) not have any chargebacks, so you won’t have to pay the fee at all.
|Typical Price Range||Wholesale||Markup|
Processing Integrity Fees
varies, see our list
Early Termination Fee (ETF)
Account Closure Fee
Address Verification Service (AVS)
Voice Authorization Fee
Retrieval Request Fee
Non-Sufficient Funds Fee (NSF)
PCI Non-Compliance Fee
Wholesale Incidental Fees
- Processing Integrity Fees: Whereas the main fees from the card associations are assessed on all your transactions, some are only charged as a penalty when you have not met the requirements for authorizing and/or settling transactions properly. These card brand fees typically include “integrity” or “misuse” as part of the fee’s name. They resemble transactional fees, because they are just a few cents per instance (Amex’s is a percentage), and are often grouped together on a statement with the rest of the more regular transactional fees. It’s common to incur a handful of these charges each month, but watch out if they become excessive. Again, see our full card brand fee list for assistance in identifying these fees.
Markup Incidental Fees
- Application/Setup Fee: Most good providers don’t charge a setup or application fee, with the exception of certain high-risk account providers. Look for a provider that doesn’t charge this fee, or negotiate its removal.
- Early Termination Fee (ETF): This is pretty self-explanatory. It is a fee that is charged if you cancel your contract early, and one you definitely want to avoid.
- Account Closure Fee: Different and much lower than an ETF, this is charged no matter when your account is closed.
- Address Verification Service (AVS): If you have an eCommerce or telephone order business, beware of the AVS fee. It will be charged on every single transaction. For retail businesses that occasionally key-in card information, you don’t need to worry about it as much. However, AVS is an important fraud-fighting tool, so keep that in mind.
- Voice Authorization Fee (VAF): Rarely, you may be required to call a toll-free number in order to verify certain information before a transaction is authorized. This doesn’t occur often, so don’t worry about it too much.
- Retrieval Request Fee: Every time a customer initiates a dispute on a charge from your business, it sets into motion the chargeback protocol. This retrieval request is the first step. The fee covers any expense related to the retrieval request.
- Chargeback Fee: After the retrieval request, the actual chargeback may occur depending on the circumstances. If it does, expect another fee on top of losing the money from the sale.
- Batch Fee: Every time you submit a batch of transactions, a batch fee (or batch header) is charged. It only happens once or twice a day, so don’t worry too much about an extra dime or two.
- NSF Fee: If you don’t have enough funds in your bank account to cover your merchant account expenses, you will be assessed an NSF (non-sufficient funds) fee.
- PCI-Non Compliance Fee: This fee will start kicking in monthly if you don’t meet PCI standards. It is possible to be required to pay a PCI compliance fee and a non-compliance fee at the same time.
Credit Card Processing Fees FAQ: Answers For Small Businesses
Below we’ve compiled some questions we frequently see on our website. We hope our answers anticipate some of the questions forming in your mind as you read through this article.
Can I charge my customers for my credit card processing fees?
Yes and no. Shifting credit card processing fees onto your customers is called surcharging. There are strict rules governing surcharges, and these rules are different for each state. Check out our article on surcharging, where we discuss the general pros and cons of this strategy. A convenience fee is another way to recoup your costs under certain conditions, so we recommend you read that article too.
I have ( business type ) with ( $ processing volume ). Which credit card processor is the cheapest for my small business?
We recommend you first look through our test case examples in the Understanding & Identifying Payment Processing Pricing Models section of this article to get you into the right ballpark of processors that are best suited to your needs. Total volume and business type (risk level) are important considerations, but other factors include your average transaction size, method of processing (card-present vs. not present), and any add-on services you might need. Our post on how much you should be paying helps break down these considerations, and our cost analysis workbook walks you through a complete apples-to-apples comparison between providers using your specific numbers. In the end, there’s no getting around the fact that you have to do the math for your own situation.
I process ( monthly volume ) and my processing rates are ( % ). Am I paying too much?
First, make sure to calculate your effective rate, which includes all the total fees you pay in a given month, divided by your total sales volume. This is the most important percentage you need to know, since every processor’s rates and fees work differently. Once you know this overall percentage, check out our complete guide to analyzing your processing statement to discern if you’re paying too much for your specific situation (and if so, why!).
A processor offered me direct/better wholesale rates. Is this possible?
The short answer is: no, this isn’t possible.
Wholesale rates are fixed and non-negotiable across the industry, and there will always be some kind of markup involved. However, many processors play with the terminology to their own marketing advantage. When processors tout “direct” wholesale rates or say they can “eliminate the middlemen,” they’re often just obscuring the way their own markup is charged. All processors add a markup in some form — it just depends on the pricing model and the individual processor’s method of implementing fees. Sometimes, all the processor is saying is that some form of “pass-through” pricing (like interchange-plus or membership) is offered, in which pure wholesale costs are passed directly on to you. That’s great! But, it’s nothing extra special — there’s still a markup coming.
“Better” wholesale rates is a slightly more nuanced topic. While wholesale costs themselves are indeed totally fixed, certain businesses (especially B2B) can refine their processing procedures to ensure their transactions fall into target interchange categories. This is referred to as “interchange optimization” and is beyond the scope of this guide, but you can talk to individual processors to learn how they handle this issue. Do note that there is little motivation for a processor to help you optimize interchange if you’re on a tiered pricing plan.
Will I have to pay more for taking Apple Pay, Google Pay, Samsung Pay, and other mobile payments? What about contactless cards?
No. You should not be paying more for taking these forms of payments. Depending on whether the payment is made in-store or online, you should be paying your regular card-present or card-not-present rates. If a processor is charging you more, then they’re trying to make additional money off you, and maybe you start looking for a new processor.
The Final Word On Finding Credit Card Processing Services
Every credit card processor has a different set of costs associated with its services. Some of them are unavoidable, but others can be negotiated. We recommend pass-through pricing (interchange-plus or subscription) to most merchants. Remember that many of the typical scheduled and incidental fees—not just your processing rates—are negotiable. If you process a lot of transactions, don’t be afraid to bargain with your processor. With that in mind, there are several processors out there that are very transparent with their fees and are more than happy to give you interchange-plus credit card processing fees. The majority of our highest rated processors do just that.
We hope this article has given you a place to start to find the best payment card processor for your business. Remember: there’s no overall “best” or “cheapest” processor—only a best or cheapest processor for your particular business. Making that final determination takes some sales data from your business and some math, but we promise that the time you spent analyzing the numbers won’t be wasted.
If this article has helped you in any way, please give us some feedback and let us know. Or, if you have more questions about the payment card processing business, let us know as well—maybe we’ll add your question the next time we update this article!
Compare rates and negotiate like a pro!
Our Cost Analysis Workbook will ensure that you never overpay for credit card processing again by giving you access to the insider resources and knowledge used by every credit card processing company in the industry. Don't sign up for a merchant account without this resource!