Credit Card Processing Fees: How Much Will They Cost & How Can You Lower Them?
How do credit card transaction fees work? We break down the types of fees, common pricing models, and everything else you need to know.
If you’re going to accept credit cards in your business (and you definitely should), you’ll need to have a solid working knowledge of how much credit card processing fees will cost you. These fees can be a burdensome expense for your business, and most merchants pay too much for them because they don’t understand how they work.
Having a sense of what the “industry average” is for certain fees can save you from paying too much for credit card processing. This will be helpful as you research the best credit card processing companies for your business.
This article explains what credit card processing fees are, how they’re assessed, and what you should expect to pay for them. If you’re in a hurry, you can also check out our visual guide to credit card processing costs.
Table of Contents
- What Are Credit Card Processing Fees?
- What Are The Average Credit Card Processing Fees For Small Businesses?
- Types Of Credit Card Processing Fees
- Credit Card Processing Fees Comparison
- Credit Card Processing Rate Pricing Models
- How Much Should You Pay In Credit Card Transaction Fees As A Small Business?
- How To Lower Or Offset Your Credit Card Processing Fees
- The Final Word On Credit Card Processing Rates
- FAQs: Credit Card Processing Fees
What Are Credit Card Processing Fees?
Credit card processing fees are the fees a business pays to process the transaction whenever a customer pays using a credit or debit card. Most credit card processing fees go to the customer’s issuing bank, with small portions going to the credit card association and the merchant’s credit card processor.
What Are The Average Credit Card Processing Fees For Small Businesses?
Credit card processing fees (specifically, the interchange fees paid to the card-issuing bank) typically range from 1.46% + $0.05 to 2.96% + $0.10 per transaction. Remember that these are rough averages. Most users will fall somewhere in between the two numbers, but in some cases, your rates can be higher or lower.
Your overall credit card processing fees will also include assessment fees, which are small fees paid to the card associations themselves. While these fees are quite low, they add up quickly, especially if you have a high monthly processing volume.
Finally, your fees will include a processor markup, which is paid to your credit card processor. Processor markups are extremely variable and may be difficult to break out from the rest of your processing fees, depending on why type of processing rate plan you’re using.
For 2023, these are the average interchange fees charged by the four biggest card networks in the United States (Visa, Mastercard, Discover, and American Express), according to three different sources:
|Business News Daily||
Note that processor markup is not included in this table, as it is too variable to establish reliable average figures. Since your processor will always take at least a small markup on each transaction, your total credit card processing costs will be higher than the figures shown here.
When reviewing the “average credit card processing fees” provided by experts, it’s important to note that the numbers can vary significantly, even for the same card brand. The takeaway from the table should be that even experts struggle to provide exact numbers for credit card payment processing.
Types Of Credit Card Processing Fees
Your overall cost to process a credit or debit card transaction consists of three separate elements, although you often won’t be able to break them out individually by looking at your processing statement.
These three elements are (1) interchange fees, (2) assessment fees, and (3) processor markup.
Here’s a brief explanation of each of these elements and how much each one will usually cost you:
See whether or not you can easily pull out the wholesale fees and markups from the quoted rates in this table:
Sample Quoted Payment Processing Rates
|Sample Rate||Pricing Model||Wholesale Rate|
|INT + 0.25% + $0.10||Interchange-Plus (AKA Cost-Plus)||Not included|
|INT + $0.10 (+ $99/Month Membership)||Membership (AKA Subscription)||Not included|
|Qualified: 1.79% + $0.10
(Mid-Qualified: 2.19% + $0.15)
(Non-Qualified: 2.99% + $0.20)
|2.90% + $0.30 Online
Credit Card Processing Fees Comparison
Credit card processors base their processing rate plans on one of two approaches: pass-through or blended. Here’s how they work:
Identifying The Best Approach For Your Business
To get the best deal possible and minimize your overall costs, it’s important to analyze the rate quotes you receive from processors by calculating how much they’ll cost you based on your current monthly processing volume and average ticket size. Be sure to factor in all monthly and annual account fees as well. With a complete rate quote, you should be able to come up with a fairly accurate comparison between competing offers. However, don’t forget to consider intangible factors, such as the quality of a provider’s customer service and software/hardware compatibility as well.
Credit Card Processing Rate Pricing Models
Credit card processors have come up with a variety of ways to charge you for processing your transactions in a way that covers their costs while ensuring a profit. Almost all pricing plans today fall into one of four models: interchange-plus, subscription, flat-rate, or tiered pricing.
Here’s how these plans work:
How Much Should You Pay In Credit Card Transaction Fees As A Small Business?
In trying to minimize their credit card transaction fees, many business owners mistakenly assume that they should sign up with the provider that offers the lowest credit card processing rates. However, low rates are only one of several factors to consider. To get the best deal, you’ll want to estimate your effective rate. This is simply the ratio of all processing costs (including account fees) to your overall sales volume, expressed as a percentage. Especially for smaller businesses, a provider charging higher processing rates — but no recurring account fees — will often be more affordable overall.
With this benchmark in mind, here are the other important factors to look for in selecting a merchant services provider:
- Month-to-month billing with no long-term contract
- No early termination fee (ETF) for closing your account
- Low recurring fees that are clearly disclosed before you sign up
- Flat-rate, interchange-plus, or membership pricing, depending on your sales volume
- No equipment leasing fees
For a regular, low-risk business, your effective rate should be about 3-4% — and no higher. High-risk merchants, unfortunately, can expect to pay much more in rates and fees — often nearly two times more than a comparable low-risk business. If you’re already accepting credit cards, you can quickly determine your actual effective rate by analyzing your most recent credit card processing statements.
One final point: Having reliable access to high-quality customer support is critically important when working with a merchant services provider. Providers that try to win your business by offering the cheapest rates often cut corners in this area, leading to frustration and headaches on your part when a problem inevitably arises. It’s usually worth paying a little extra to sign up with a provider with a solid reputation for offering top-notch customer support.
How To Lower Or Offset Your Credit Card Processing Fees
If the thought of sending 3-4% of your gross credit card sales off to your merchant services provider doesn’t sit well with you, you’re not alone. Interchange rates have risen dramatically in recent years. Providers have no choice but to pass these price increases onto their account holders, but most aren’t above raising their own markup in the process.
The ever-increasing cost of accepting credit and debit cards has led many businesses to look for ways to lower or offset their credit card processing fees as much as possible. Besides signing up with the cheapest credit card processor you can find, here are several alternative methods that business owners are using to lower their credit card processing fees:
The Final Word On Credit Card Processing Rates
Every credit card processor has its own schedule of fees and processing charges, although they might vary quite a bit from one business to another. While some fees are unavoidable, others can be reduced or eliminated through negotiation. Because costs vary so widely among merchants, “average” figures don’t tell you much about what your costs will be.
With that in mind, here are some recommendations to help you get the best service for a reasonable price:
- If you’re running a very small or seasonal business, look for a highly-rated credit card processor with flat-rate pricing, no monthly fees, and no long-term contracts.
- If you have a medium-sized business with a stable month-to-month processing volume, interchange-plus pricing will usually be your most cost-effective option.
- Large, established businesses can save even more money with a membership pricing plan. Be sure to compare quotes against what you’re currently paying to confirm your estimated savings before switching to this type of plan.
- Regardless of the size of your business, avoid providers that will lock you into a long-term contract with an early termination fee (ETF).
- Avoid leasing your processing equipment under all circumstances.
- Read your proposed contract thoroughly before you sign up to gain a complete understanding of your fee structure.
- Choosing a slightly more expensive provider that offers superior customer service and support will be a worthwhile tradeoff.
We hope this article has given you a place to start to find the best payment card processor for your business.
Remember that there’s no overall “best” or “cheapest” payment processor, only the best/cheapest processor for your particular business. Making that final determination takes using sales data from your business and doing some math, but the time you spend analyzing the numbers will more than pay for itself in savings on credit card processing fees. Good luck!