Credit Card Processing Fees and Costs

Credit card processing fees can typically range from 2.87% to 4.35% of each transaction, not including merchant service provider fees. As a small business owner, these fees can add up and take a bite out of your profits. This guide explains how credit card fees work and shows ways you can use to lower your rates.

Types of credit card processing fees

This section outlines some common practices by payment processors, which you’ll need to be aware of before beginning to shop around.

Discount rate

The discount rate is the percentage of a sale that goes towards paying credit card processing fees. A discount rate consists of interchange fees, assessment or service fees and markups from payment processors.

Interchange rate

The biggest piece of the fee and rate pie is eaten up by interchange fees, which are collected by credit card issuers. These fees are often presented as some percentage plus an additional fixed amount. Interchange fees vary widely based on a number of factors, including the credt card network (such as Visa or Mastercard), whether the card is a debit or credit card, how the payment is processed and the merchant category code.

Below is a list of the ranges of interchange rates charged by the major credit card networks. These ranges are based on publicly available information for credit cards; fees for debit cards are often lower. In addition to the card network, your fees will vary based on the type of card, method of payment and MCC.

Assessment fees

The assessment fee is a much smaller credit card processing fee, one that you pay directly to the card network (Visa, MasterCard, Discover or American Express). These fees will also depend on a number of factors that differ from network to network: Some networks will charge higher rates for credit card versus debit card usage, while others may charge higher rates when the transaction volume is greater. Other incidental fees may arise from specific transactions being unique, such as foreign transaction fees.

The table below lists the minimum assessment fees for credit cards by network. These figures are based on limited publicly available information, so your rates may vary. Be prepared for rates to be higher if the card is manually keyed in or an international transaction.

Pricing structures

In addition to the credit card network, payment processors also charge fees. Processors generally charge fees in one of the pricing structures discussed below.

Flat-rate pricing

Flat rate pricing is exactly what it sounds like: The processor charges a flat fee, consisting of the interchange fee, the card brand fee and its own margin fee. This has the advantage of predictability every month, which can make estimating your costs of doing business easier.

Because interchange fees vary by a number of factors, a potential drawback of flat-rate pricing is that your interchange fee will always be the same, even if some variables could have made it lower. Let’s say your volume expands enough to place you in a cheaper tier for the interchange rate: as long as you’re in a flat-rate structure, you won’t realize the benefit of less expensive interchange fees, because you’re locked into one rate.

Tiered pricing

With tiered pricing, the rate structure is divided into tiers — most often a lower-priced tier, called "qualified," and rate tiers that are higher, known as "mid" or "non-qualified." Merchants are often attracted to this type of pricing by the low qualified rate — in reality, though, it applies to a few transactions, while most end up in higher tiers. Tiered pricing is the most common pricing structure in the U.S.

Businesses should be aware of the potential disadvantages. One such disadvantage is that your lower qualified rate may only apply to certain types of cards or certain types of transactions. If your customers use cards or transactions that aren’t covered, you can end up paying the higher fees (for example, qualified rates may not cover rewards cards). You’ll need to assess whether the qualified rates in your plan will cover likely credit card use for your business.

Interchange-plus pricing

In interchange-plus pricing, the processor will use the lowest applicable interchange fee and charge you a fixed fee in addition. The advantage is that you’ll receive the lowest possible interchange fees, while always knowing what the fixed fee will be.

However, interchange-plus processor fees can vary by multiple factors, such as volume, sector and number of monthly transactions. Be sure to shop around to get the best fee for your business.

Membership or subscription pricing

Membership or subscription pricing charges a monthly fee and a fixed charge for every transaction. The processor doesn’t add on a fixed percentage fee in this pricing structure — as a result, the overall charges can be lower.

However, while the charges may be lower, whether they actually end up lower or not depends very much on factors including the number of transactions and business volume. While you won’t be paying a fixed mark-up to the processor, you’ll be paying the membership fee; as such, you’ll need to crunch the numbers to see if this pricing arrangement is advantageous for you.

Payment processing fees or merchant service provider (MSP) fees

Merchant service provider (MSP) fees can vary widely, depending on sector, transaction volume, processing volume and even the processing fees you pay. The fees are also affected by the kinds of services you choose: Some charge transaction costs, others charge monthly fees and many charge both, depending on the services provided. We recommend you take your time to really shop around and understand the benefits you receive from doing business with a particular MSP.

MSPs can be a bank or another financial institution, a processor or a provider of hardware or software that will determine your business’s methods of how to accept credit card payments. Note that although some processing companies are also MSPs, these terms are not interchangeable. Some MSPs, for example, are companies that provide necessary hardware, such as credit card readers, while others offer data security and payment card industry (PCI) compliance or a host of other potential services.

Below are some of the representative ways in which costs can vary among MSPs:

How to compare MSPs

You’ll want to comparison shop to understand the costs and what you’re getting, but price points shouldn’t be the only way of comparing MSPs. Because MSPs may bundle various services and products with their plans, you also need to evaluate the qualitative differences between plans. We recommend looking into what you’ll get with one provider versus another.

Consider the price of equipment when evaluating MSP plans too. If you want to process credit card payments in person, your business will need at least one credit card reader. The equipment your business needs will govern how much of a cost you’ll have to bear here; at the same time, some MSPs, like Square, will offer one free credit card reader. We recommend that you not base your decision on a payment processor based on this feature, however, as all costs need to be factored in to make sure you’re getting a good deal.

Below is a sample of various card reading products and their prices:

These card readers vary in price because they also vary in capability. Some use EMV technology, a new and more secure method of authenticating card transactions and other uses (EMV is an acronym for the founders of the technology — Europay, Mastercard and Visa — although more providers use it now). Others use near-field communication (NFC) technology, which can enable payments via mobile devices or smartphones rather than swiping a card.

How to lower your credit card processing fees

As you can see, these rates can add up. But there are ways to minimize them in order to have the most cost-effective solution for your business.