Credit card processing fees and charges explained

While we’re still not completely cashless—I still pay for my morning coffee and a barista tip in cash—it’s certainly trending that way. That’s why, as a business, it’s important to think about credit card payment processing and not just how you handle it, but how much it costs.

So whether you’re shopping for a new vendor or reevaluating your current technology stack to see where you can cut costs, it’s critical to look at credit card processing fees and how much it costs your business. to accept payments.

Key recommendations: Credit card processing fees typically range from 2% to 4%. Processing fees include fees set by card networks, card issuing banks and credit card processor markups. Credit card processor markups vary and are where you can shop for lower rates. Processing companies have all different types of fee structures, which adds complexity and makes it difficult to know which is the cheapest. Most companies benefit most from flat rate, exchange or subscription models.

What are the credit card processing fees?

Credit card processing fees are the costs that businesses and/or customers incur in a credit or debit card transaction. Businesses typically pay more fees than consumers, and in some locations it’s illegal to charge consumers a processing fee. New Jersey, for example, only recently legalized the ability for businesses to pass the processing fee on to customers.

In total, credit card processing fees refer to what businesses pay processors for their payment processing service. Most of these fees come from individual transaction fees, which consist of:

• Exchange fees. The client’s issuing financial institution charges businesses an interchange fee. This is usually the largest fee associated with credit card processing. The fee varies depending on the card used and the type of transaction. They can be flat rate or interchange plus, basically a lower flat rate plus a percentage.
• Assessment Fees. The customer’s card network – Visa, MasterCard, American Express, for example – also charges a fee. Each network has its own fees, mostly based on percentages. American Express is known for having high fees compared to many other networks.
• Payment Processing Fees. The payment processor or merchant service provider also charges a fee. This is the technology that enables the card transaction to be processed. Fee structures for payment processing have a much wider variety – they can be subscription-based, percentage-based or fixed fees, for example.

However, some processors also charge flat monthly fees or other fees.

What are the credit card processing rates?

Credit card processing rates refer to the percentage charged by processors per transaction. The higher the rates, the more taxes you pay.

What are the different credit card processing payment structures?

Credit card processing payment structures generally take the following forms:

1. leveled
2. Flat rate
3. Interchange plus
4. Subscription

Let’s take a closer look at each.

	What	Pro	Cons
leveled	Tiered pricing is a percentage of the transaction plus a flat fee. Each level of a transaction has its own associated fee: Qualified (smallest): debit cards; credit cards without rewards Qualified means (Mid-Range): Basic Rewards Cards; manually entered transactions Unskilled (highest): cards with generous rewards; corporate cards; international payments	It could be useful for brick-and-mortar businesses that do a lot of in-person card payments. Common among payment processors.	Expensive, especially compared to other payment processing fee structures. Unpredictable and inconsistent payment processing fees.
Flat rate	Businesses pay a single flat fee for each transaction, regardless of how much the payment is or what payment method or card type is used.	Predictable transaction fees. You can save money if you have a high average order value (AOV).	It can be expensive if you have a low AOV and many transactions.
Interchange plus	Companies pay a flat fee plus a percentage of the transaction amount. This essentially covers interchange and valuation fees, plus the payment processor’s fee.	They tend to be the most cost effective. It provides transparency.	Not available to all businesses, especially smaller businesses with low transaction volume.
Subscription	Businesses pay a monthly subscription fee to a payment processor in exchange for its services. This may or may not include an additional reduced percentage or flat fee per transaction, depending on the provider and plan.	Probably the most predictable way to pay your credit card payments.	It usually comes with limitations on the number of transactions you process in a month. Some processors charge an additional fee for each transaction, which is reduced.

How much do credit card processing companies typically charge?

The average credit card processing fee is hard to pin down because the card networks make it a bit complicated – I’d venture to say they do it on purpose.

Generally, the standard credit card processing fee is somewhere between 1% and 3%, although it can be outside of this range depending on the transaction.

Here’s how the major card networks charge interchange fees:

Network	Exchange fee
Visa	0.05% + 21¢ to 1.9% + 25¢
MasterCard	0.19% + 53¢ to 3.15% + 10¢
American Express	1.1% to 3.5%
Discover	1.35% + 5¢ to 2.5%

Processors then take these interchange fees, add appraisal fees and then their own markup. Finally, total processing fees typically range from 2% to 4%.

And if you’re curious what payment processors charge, here’s a look at some of the fees from top providers:

Payment processor	Taxes
Chase	2.6% + 10¢ tap, dip or swipe 3.5% + 10¢ manually entered or payment links 2.9% + 25¢ eCommerce plus monthly fee starting at $9.95
Dharma	$20/month 0.20% + 11¢ Visa, Mastercard and Discover 0.30% + 11¢ American Express 0.10% + 11¢ high volume discount (>$100,000/month) $25/refund $49 closing fee
Helcim	1.83% + 8¢ Visa, Mastercard and Discover 2.61% + 8¢ American Express 1.00% + 8¢ debit 2.27% + 25¢ Visa, Mastercard and Discover online 3.01% + 25¢ American Express online Tap 10¢ to pay iPhone $0 ACH $15/refund (free if successful) $5/ACH declined $30/month Smart Terminal $99 card reader
PayPal	3.49% + 49¢ PayPal Checkout 2.29% + 9¢ QR code payments 2.99% + 49¢ bill payments 2.59% + 49¢ credit and debit card payments 7¢ fraud protection 0.4%–0.6% chargeback fee
Shopify	Beginner: $5/month, 5% transaction fee. Basic: $29/month, 2.9% + 30¢ online, 2.6% + 10¢ in person, 2% third-party payment providers Shopify: $79/mo, 2.7% + 30¢ online, 2.5% + 10¢ in-person, 1% third-party payment providers Advanced: $299/month; 2.5% + 30¢ online; 2.4% + 10¢ per person 0.6% third party payment providers
Square	2.6% + 10¢ on most transactions 3.5% + 15¢ card-on-file, payment links and introduction 2.9% + 30¢ e-commerce and Cash app 3.3% + 30¢ subscriptions
Stax	Less than $150,000 in annual processing: $99/month $150,000–$250,000 in annual processing: $139/month $250,000+ in annual processing: $199+/month 8¢ per payment in person 15¢ for each manually entered payment
Streak	2.9% + 30¢ per transaction additional 0.5% entered manually additional 1.5% international additional 1% currency conversion. 2.6% + 30¢ Instant Bank Payments 0.8% ACH direct debit 5.99% + 30¢ Klarna 25¢ per card account update for custom pricing accounts 1.5% instant payouts. $15/refund

Learn more about these processors in our guides to the best payment processing companies and the the best payment processors for e-commerce.

How credit card processing fees are calculated

Credit card processing fees are the sum of all costs associated with processing these types of transactions. So it usually looks like this:

Credit Card Processing Fee = Interchange Fee + Evaluation Fee + Payment Processing Fee

We can break this down further by fee structures.

However, instead of looking at the credit card processing fee per transaction, it’s more beneficial to take a step back and look at it monthly.

I would pull my average monthly transaction volume for credit card payments and then plug that figure into the appropriate formulas. It’s difficult to calculate for tiered structures, but the other payment structures might work as follows for a business that processes $25,000 per month in card payments for about 300 transactions:

• 2.5% fixed rate
• Exchange plus at 2% + 25¢
  • (2% * 25,000) + (300 * 0.25) = (500) + (75) = $575
• $139/month subscription + 12¢ per transaction
  • (139) + (0.12 * 300) = (139) + (36) = $175

In the hypothetical scenario above, the subscription payment processor seems to be the most affordable option.

How to lower your credit card fees

Unfortunately, you can’t process credit card payments for free. But there are steps you can take to reduce your expenses. To get the lowest credit card processing fees, do the following:

• Go shopping. Compare different options to see which is the most cost-effective for your business.
• Negotiate. You don’t have to accept the first pricing structure offered to you. See if there is any margin for change in fees. At the very least, negotiate for extra features or free add-ons.
• Reduce risk. Fraudulent payments and chargebacks are expensive and can even increase your rates.
• Charge your customers. In some locations, businesses may legally pass on credit card processing fees to customers.
• Embrace a switch. What works for you now may not work for you in the future. Don’t be afraid to reassess your needs and reconsider your options in the future.