The Complete Guide to Merchant Account & Credit Card Processing Fees

Perhaps you’re a new business owner who’s thinking about taking credit card payments for the first time. Or maybe you’re an experienced merchant seeking to lower your current rates. Whatever your situation, having a deeper understanding of the payments processing industry can help protect you from unscrupulous salespeople and, ultimately, save you money on your credit card processing costs.

The payments processing industry is notoriously complex and confusing, but you don’t need to develop expert-level knowledge to understand how it works and what your costs should be. We say “should” because many players in the industry are trying to make as much profit as they can from their products and services. These providers will gladly charge you above-market prices if you let them.

In this article, we’ll give you some average credit card merchant rates that you should keep in mind as you look for a suitable credit card processor. We’ll also explain why these average rates are only rough ballpark figures and why you’ll need to determine which type of pricing plan will work best for your particular business.

Between this article and the many other, more in-depth articles we’ve linked to, you should come away with a functional understanding of how processing works and what all those fees on your monthly processing statement are for. If you’re in a hurry, you can also check out our visual guide to credit card processing fees and rates.

What Are Merchant Credit Card Fees?

Merchant fees, or merchant credit card fees, are simply the fees you have to pay to get the proceeds from a credit card transaction. While your merchant account provider determines the total fee, multiple entities will receive a portion of the credit card processing fees you pay for each transaction.

You’ll have to pay a merchant fee (also confusingly referred to as the “discount rate”) on every credit or debit card transaction that you accept. Typically, this fee is a combination of three factors: interchange fees, assessment (or service) fees, and the payment processor’s markup. While your payment processor is the party that sets the merchant fees, the card issuer and the card network each play a starring role in determining the fees that are ultimately taken from the transactions you process.

Merchant fees have always been rather expensive (from the merchant’s point of view), but they’ve risen significantly in recent years and are poised to go even higher in 2022. While there are many reasons for this increase, the primary factor is the dramatic increase in eCommerce sales during the COVID-19 pandemic, which drove an equally steep rise in online credit card fraud. In theory, higher processing fees help protect issuing banks from losses due to fraudulent transactions.

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 merchant fees. However, there is no single definitive set of universally accepted statistics showing the average credit card processing fees of the four major credit card networks.

The table below shows estimates of the big-four card networks’ (i.e., Visa, Mastercard, Discover, American Express) average costs, taken from three different sources:

As you can see, the sources we’ve cited have come up with different numbers, and the ranges they’ve provided are broad enough that relying on a single “average” rate is not going to be very helpful in estimating anticipated costs.

Your actual fees will depend on many factors, including the type of transaction you process most often (in-person vs. online), your specific type of business (low-risk vs. high-risk), and your average transaction size. Once you understand how these factors can affect your rates, you’ll be much better positioned to judge the appropriateness of a quote than you will by merely comparing your quote to a simple “average.”

Take a look at this table showing some sample pricing models and see whether or not you can easily pull out the wholesale fees and markups from the quoted rates:

Sample Quoted Payment Processing Rates

This brings us to the concept of interchange fees. Earlier, we touched on and defined the term, but let’s elaborate further.

Common Merchant Account Fees For Small Business

In addition to credit card transaction fees, merchant accounts usually also come with a number of fees to cover services included as part of your account. There are three types of fees (or charges):

• Credit Card Transaction Fees: These are charged by the banks, the card associations, and your processor for processing your transactions and disbursing the remaining funds to your account.
• Scheduled Merchant Account Fees: These are fees charged by your merchant services provider for maintaining your account. They are typically charged on a monthly or annual basis.
• Miscellaneous & Incidental Credit Card Processing Fees: These fees are only assessed if a defined triggering event occurs (chargebacks are the most common). They are usually a one-time additional charge, although PCI non-compliance fees will be charged every month until your account is brought back into compliance.

Credit Card Transaction Fees

These fees are assessed every time you run a transaction. Your processing fee, for instance, is a transaction fee. Transaction fees usually comprise the biggest cost of accepting payment cards. Credit card transaction fees come in two forms: 1) percentages (e.g., 2.19%, 0.25%), or 2) fixed per-item fees (e.g., $0.20, $0.0195). Often, both forms are charged on a given transaction.

Scheduled Merchant Account Fees

In addition to credit card transaction fees, you may be charged some predictable, flat fees. They vary by name, value, and applicability, but at least some merchant account fees will show up on your monthly statements.

How Much Should You Pay In Credit Card Merchant Account Fees?

A common misconception among new business owners is that the best merchant account provider for their business will simply be the one offering the lowest credit card processing rates. While getting the lowest rates is very important, it’s not always the deciding factor. To minimize your overall processing costs, you’ll want to evaluate your effective rate, which is simply the ratio of all processing costs to your overall sales volume, expressed as a percentage.

With this benchmark in mind, here are the things to look for in a fair merchant account pricing quote:

• Month-to-month billing with no long-term contract
• No early termination fee (ETF) for closing your account early
• 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 that has 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 and are poised to go even higher in 2022. 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 offset their credit card processing fees (or eliminate them) 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 Merchant Account & Credit Card Processing Fees

Every credit card processor has its own schedule of fees and processing charges, although they usually vary quite a bit from one customer to another. While many fees are unavoidable, others can be reduced or eliminated through negotiation. Because costs vary so widely from one merchant to another, “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 at the most affordable price:

• If you’re running a very small or seasonal business, look for a highly-rated provider 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 overall 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.
• In many cases, it will be worth it to choose a slightly more expensive provider that offers superior customer service and support.

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 some sales data from your business and doing some math, but we promise that the time you spend analyzing the numbers will more than pay for itself.

If you’re already in business but think you could find a better deal, analyze your recent processing statements using the guidelines we’ve described above. An excellent tool for comparing multiple quotes is our cost analysis workbook. It walks you through a complete apples-to-apples credit card merchant fees comparison between providers using your specific numbers. While you’ll have to do some math to make a valid comparison, you could end up saving a significant amount of money on your credit card processing costs.

Credit Card Processing Fees FAQs