Guide to Credit Card Processing Fees

To get the best possible pricing for your credit card processing service, you need to understand the different pricing models that processors use and how they work. Credit card processing companies charge various fees, including some you should never have to pay. Understanding these costs will help you choose a processor with the best rates and lowest fees.

What are credit card processing fees?

In order to accept credit cards, you will need to get several different services. These services work together on different parts of the transaction, and each of them charge some kind of fee. You will need one of the best credit card processors, a top merchant account provider and, if you have an e-commerce business or accept payment by phone, a payment gateway.

Some of these fees depend on the total dollar amount of the purchases, and some are based on the number of transactions. Other types of fees only apply in the event of a particular action, such as a chargeback. Fees vary by provider, so it pays to inquire about all of the fees and to shop around to ensure you are not overpaying.

There are three main types of fees: the transaction rate, the flat fee and incidental fees.

• Transaction rate: This is the fee you pay every time a customer buys from you with a credit card. It is a percentage of the purchase amount, called the discount rate, and sometimes also a flat per-transaction amount. It includes the interchange rate, assessment fee and payment processor markup.
• Flat fee: This is a set amount you will pay, usually monthly, to the merchant account provider and, if applicable, the payment gateway.
• Incidental fees: These are fees that the payment processor or merchant account provider only charges in response to specific actions, such as chargebacks.

FYI: Credit card transaction rates usually total 2% to 4% of the purchase amount.

What's the difference between rates and fees?

When you contract with a credit card processor, you typically pay two sets of costs: rates and fees. Rates are what you pay every time a customer makes a purchase from you with a credit card. Fees are what you pay the processor to maintain your account, including flat fees and incidental fees. 

The rate breaks down as follows: 

Editor's note: Looking for the right credit card processing service for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.

Who determines credit card processing fees?

The card networks set the interchange rates and assessment fees, and the credit card processing companies determine their markups. All processors pay the same interchange rates and assessment fees. The only negotiable part of a credit card processing fee is the processor's markup. 

How to get the lowest credit card processing fees

Many of the best processors post their rates and fees on their websites, and charge all their merchants the same rates. Processors that provide custom rates consider several factors when determining the rates and fees they'll quote you. Companies that meet these criteria will qualify for the lowest rates:

• High monthly processing volume
• High average ticket size
• Fixed retail location where you accept credit cards in person
• Good processing history
• Excellent business and personal credit

The type of card you accept and how you accept those cards also influence your processing fees. Here are the different types of cards, from cheapest to most expensive:

• Regular debit card
• Regular credit cards
• Rewards credit cards

As for how you accept card payments, cards that you accept in person have the lowest risk of fraud and are therefore the cheapest to accept. Cards accepted online or over the phone are more expensive to process because they have a greater risk of fraud – it's more difficult to verify the authenticity of the cardholder and the card. 

"The processing method, meaning how you use the card, can also spike or reduce those fees," said John Davis, founder and education ambassador at ScoreSense. 

Merchants with a high volume of transactions are better able to negotiate low rates. 

"Merchants with more transactions have more value to the processor because they collect more in fees through volume than rate," Tom Scarda, CEO and founder of The Franchise Academy, told business.com. 

Credit cards with low processing fees

Finding a processor with low fees is critical for small businesses looking to maximize every dollar. In our review of credit card processors, we selected Square as the best credit card processor for growing businesses because it only charges a flat transaction fee – no monthly or annual statement fees, payment gateway fees, PCI compliance fees, or chargeback fees. You can read our full review of Square to learn more.

As you can see in our review of Helcim and our Payment Depot review, they are also good processors. All of Helcim's merchants receive interchange-plus pricing, and the company has a rate-lock guarantee, which keeps its markup from increasing during the life of your account.

Comparative rates for fixed-location, in-person sales

Credit card processing pricing models

It may be tempting to pass on the cost of processing fees to your customers in the form of a surcharge, but it's not recommended. Surcharging isn't a best practice for accepting credit cards and is illegal in some states.

Most credit card processing companies offer one or more of the following pricing models to calculate your transaction rates: interchange-plus, flat-rate and tiered pricing. The best pricing model for your company depends on your monthly volume of card transactions, the average ticket size of your transactions, and which type of cards you accept most. 

Interchange-plus pricing

Also called cost-plus pricing, interchange-plus pricing adds a markup of a set percentage above the interchange rate to each transaction. The processor takes that markup as its payment. This pricing model shows you exactly what percentage of your costs are going to the processor, no matter what type of card you accept or how the transaction is processed. Industry experts recommend this pricing model as the most cost-effective option, and it's the best pricing model for most small businesses. 

Even though most credit card processing companies offer interchange-plus pricing (the best processors offer it to all of their customers), you may have to ask for it when you call for quotes, as many companies prefer to set you up with tiered pricing.

Additionally, some companies impose certain requirements before you can process cards with interchange-plus pricing. For example, you may have to process a certain dollar amount of sales each month, or you may have to be a customer of that processor for a certain period of time. 

Flat-rate pricing

This pricing model is common with mobile credit card processors but often isn't offered by traditional credit card processors. You pay a flat percentage of each transaction, regardless of the type of card used. This means that while there's a smaller markup for a premium card, such as a rewards credit card, there's a higher markup for other cards, such as regular debit cards. If you're looking for simplicity, your sales tickets are small, or you process a low volume of sales each month, look for a processor with flat-rate pricing. 

As a variation of flat-rate pricing, some processors charge a flat rate plus a per-transaction fee. Usually, the percentage rate for these plans is lower than the costs of the services that charge a flat percentage only.

Tip: Before you choose a payment plan, calculate which option is most cost-effective for your business. If you process a high volume of small sales tickets, the pricing model with the per-transaction fee may be more expensive, even if the discount rate is lower.

Tiered pricing

Tiered pricing, also known as bucket pricing, arranges rates on the interchange tables into tiers, with a different price for each tier. Processors typically have two to six tiers, often with separate tiers for debit and credit cards.

The most common structure has three tiers each for credit and debit cards, usually categorized as "qualified," "midqualified" and "nonqualified." These terms don't imply whether a card is or is not valid for processing; instead, it refers to the type of card and how the card is processed and verified. 

• Qualified: A transaction is qualified if the customer swipes or dips the card and either signs or enters a PIN to authorize the transaction. It is typically a credit or debit card with no rewards attached to it.
  
  
• Midqualified: If you manually key in a transaction and use an address verification service (AVS) for the cardholder, it may be considered midqualified. This tier may include rewards credit or debit cards, although some processors categorize rewards cards as nonqualified transactions, particularly those with premium rewards.
  
  
• Nonqualified: Transactions that you manually key in without using an AVS are nonqualified, as are transactions made with international, corporate, and government-issued credit and debit cards. Some processors also categorize rewards credit and debit cards as nonqualified transactions, especially premium rewards cards. 

Qualified rates are temptingly low, particularly for debit cards, and if your business accepts a high percentage of regular debit cards, this pricing model could be a good choice for your business.

However, if your clientele tends to use high-end rewards credit cards or if you key in a lot of sales, such as for phoned-in orders, you may pay expensive nonqualified rates. For this reason, it's important to understand what kind of cards your customers use and how your processor categorizes them.

Recurring credit card processing fees

In addition to the processing rates you pay for each sales transaction, most companies charge fees for account maintenance. The best processors charge very few fees, and the best mobile credit card processors don't charge any additional fees. Typical fees include a monthly fee, a PCI compliance fee and, if you accept credit cards online, a monthly gateway fee. 

Here are the most common recurring credit card processing fees. 

Monthly fee

Processors charge monthly fees, sometimes called statement fees, to prepare your statements and provide customer service. Some processors include the cost of printed statements in the monthly fee; others charge an additional fee if you opt to receive printed, mailed statements. 

Gateway fee

A payment gateway is the online equivalent of a credit card terminal. A processor may have its own proprietary system or work with a third-party provider such as Authorize.Net to keep online payments secure. If you sell your products through your company's website, you need payment gateway access. Most companies charge a separate monthly fee for this service, though some include it in the monthly fee. 

Monthly minimum fee

Many card processors expect you to process a certain dollar amount of credit card transactions each month. Some companies require a monthly minimum to keep your account active, such as $25, applying the full dollar amount of your transactions to the monthly minimum. However, most processors use it to guarantee that they generate at least a certain dollar amount of transaction fees from your account each month and apply only the processing costs to the monthly minimum. 

Especially if your business is small or seasonal, verify the dollar amount you have to process in order to meet the minimum. If you fail to meet the monthly minimum, processors charge you the difference rather than the full fee, so ask your processor in advance about this fee to avoid surprises on your bill. 

PCI compliance fee

All merchants must adhere to the Payment Card Industry Data Security Standard (PCI DSS) in order to process credit cards. These regulations help prevent fraud and protect you, your customers, and the credit card company from costly security breaches. To certify as compliant, you must complete a self-assessment questionnaire, and you may need to meet additional requirements, depending on your business.

Most traditional credit card processors charge a fee to ensure your PCI compliance. (Most aggregators, or mobile credit card processing companies, don't charge PCI-related fees.) This fee may be charged monthly, quarterly or annually. Processors don't always disclose it when you call for quotes, so ask if there is a PCI compliance fee, how much it is, how often it's charged, and what services the processor provides to help you comply with PCI DSS. If you are already PCI compliant or handle your compliance in-house, ask to have this fee waived. 

PCI noncompliance fee

When you sign up with a processor, you usually have a few months to establish PCI compliance. However, if you fail to comply or don't reestablish compliance annually, you may incur a monthly fine. The amount of the fine varies by processor and can be quite high, so check your monthly statements for new fees and for notices that your compliance renewal is coming due. 

Batch fee

This is a nominal fee charged whenever you post a batch of transactions, which is usually once or twice a day. It's normally the same amount as the per-transaction fee, which ranges from 10 to 25 cents.

Incidental credit card processing fees

You may occasionally encounter incidental fees for qualifying transactions. These are some specific incidental fees.

Address Verification Service fee

You're charged this fee when you use AVS to verify the cardholder's billing address. AVS is a common fraud-prevention tool for e-commerce credit card processing, but you may also use this service when you manually key in a card. This fee varies by processor but is typically lower if you use the automated touch-tone service and higher if you require operator assistance. 

Voice authorization fee

As a fraud-prevention measure, your terminal may instruct you to call the voice authorization center to provide additional information to the cardholder's bank before it authorizes a transaction. Voice authorization is rarely required, but you're charged for each occurrence. This fee varies by processor and may be charged as either a flat fee or a percentage of the transaction.

Retrieval request fee

If a customer questions a charge, their bank may ask for a copy of the sales draft to verify the authenticity of a purchase. You may also receive this request if a customer needs a copy of a sales draft for their records or if purchase documentation is needed for legal proceedings, such as bankruptcies or divorce settlements. The cost of this fee varies by processor. 

Chargeback fee

Every business aspires to 100% customer satisfaction, but there are times when customers want their money back and ask their bank to cancel the transaction and return the funds. When this happens, you pay a fee to cover the processing costs involved in crediting the customer's account with the amount of the purchase.

E-commerce businesses experience more chargebacks than companies that accept credit cards in person, since common reasons for chargebacks include delivery failures, technical errors, customer dissatisfaction and fraud. It also happens if your merchant name differs from your store name and your customer doesn't recognize the charge on their credit card statement. The amount of this fee varies by processor. 

Nonsufficient funds (NSF) fee

This may also be called a return draft fee. If you don't have enough money in your business bank account to pay the fees you owe your processing company, you are charged a fee. 

Various card network fees

The card networks charge a variety of non-negotiable fees that your processor may pass on to you. Some processors may overcharge you for network fees by adding a markup rather than passing the fees straight through to you. 

Major card brands' network fees

These are proprietary fees for using the card brands' networks. Visa charges the Network Acquirer Processing Fee (APF), Mastercard charges the Network Access and Brand Usage (NABU) fee, and Discover charges the Data Usage Fee. 

Visa's Fixed Acquirer Network Fee (FANF)

Since 2012, Visa has charged this non-negotiable monthly fee as a result of the Durbin Amendment. It applies to all businesses that accept Visa-branded cards. The rate depends on your processing volume, the number of locations your business operates in, and how your business accepts payments. The fee is higher for businesses that process online than for those that accept credit cards in person.

Mastercard's Merchant Location Fee

This is an annual fee that Mastercard implemented mid-2016 and increased to $15 per location in 2017. Your processor may pass it on to you as a single annual fee or prorate it on your monthly statement to spread out the cost. 

Cross-border fees

For U.S.-based merchants that accept international cards, the card networks charge a fee (or two) to offset currency exchange costs. American Express charges the International Assessment Fee. Discover charges the International Processing Fee and the International Service Fee. Mastercard charges the Cross-Border Assessment Fee and the Acquirer Program Support Fee. Visa charges the International Acquirer Fee and the International Service Assessment Fee.

Nonstandard credit card processing fees to avoid

Besides the standard fees listed above, some processors charge miscellaneous fees. These additional fees are uncommon and should be avoided if possible. When you're evaluating a credit card processor, review every fee the processor plans to charge you so you're not hit with any hidden fees. The best credit card processors don't charge the below fees. If you choose a processor that does, negotiate with your account rep to eliminate them. 

The following fees can often be negotiated or waived: 

Cancellation fees 

There are two types of cancellation fees you need to watch out for. The first is for the credit card processing service; the second is for the credit card processing equipment if you lease or accept "free" equipment. 

Some sales representatives may use alternate terms (e.g., "early termination fee," "early deconversion fee," "exit fee" or "lost profit fee"). To avoid confusion, specifically ask the sales rep if the company penalizes you for canceling the service, and carefully review your contract, including the application, the terms and conditions, and the program guide. 

FYI: The best way to avoid paying expensive cancellation fees is to sign up with a company that offers month-to-month service and purchase the equipment outright.

Liquidated damages

Some cancellation policies have a "liquidated damages" clause that allows the processor to charge you for the revenue it expected to earn over the life of your contract. This could add up to thousands of dollars. 

Annual fee

This is a fee you pay each year for maintenance on your merchant account. As with the application fee, the best processors don't charge it. Some credit card processors waive the fee for the first year, but it's best to choose a processor that doesn't charge it at all. 

IRS reporting fee

In 2008, the IRS mandated that credit card processors report income passing through credit cards. What this means for you is that if you process more than 200 transactions annually, totaling more than $20,000, you'll receive an IRS 1099-K form from your processor. Some processors charge a fee for preparing and supplying this form, but, again, the best processors don't. Those that do charge this fee may call it an "IRS fee," "reporting fee," "regulatory fee," "regulatory comp fee" or "IRS 1099-K fee." 

Club or membership fee

Some processors roll all of the standard fees (including monthly, gateway and PCI compliance) into a single membership fee to simplify their fee structure; others charge a membership fee on top of their standard fees. These membership fees may be billed monthly or annually.

If your processor charges this, ask what exactly you get with your membership (it's often just rolls of paper for your terminals). Ask your rep if you can opt out and what fees, if any, you'll be charged if you do. 

Additional services

If your contract includes an "additional services" clause, it often means the processor automatically signs you up for various unnamed services (fees undisclosed) unless you opt out within a set time frame, usually 30 days after you sign up with the company. You may find information in the program guide about what the additional services are and what they cost, but more than likely, you'll have to contact your sales rep for this information. 

Semiannual postage and handling fee

If you're already paying a statement fee or you receive your statements and other correspondence electronically, ask to have this fee removed. 

Access fee

If you're charged an access fee in addition to APF, NABU, Data Usage, and/or FANF, ask the processor what the fee is for and if it can be removed from your bill. 

Foreign transaction fee

Although card networks already charge non-negotiable fees if you accept foreign credit cards, some processors tack on a markup or a fee of their own.

If you're charged more than two fees for a single foreign transaction – such as an International Acquirer Fee, an International Service Access Fee and a Foreign Handling Fee – ask your credit card processor which fees are charged by the card network and which is their markup or surcharge, and if they'll waive it for you. 

Monthly (or quarterly) regulatory compliance fee

This fee may replace or be charged in addition to the PCI compliance fee or the IRS reporting fee. You should question this fee if you find it in your contract. 

Other nonstandard fees

Below is a sampling of nonstandard fees to look for as you review a contract before signing up with a credit card processing company. As with the other nonstandard fees on our list, the best processors don't charge the following: 

• Application or setup fee
• Audit fee
• Billback fee
• Conversion fee
• Customer service fee
• Electronic Benefits Transfer (EBT) network access fee
• Excessive transaction fee
• File fee
• Interchange-compliance adjustment fee
• Liquidated damages fee
• Next-day funding fee
• Online reporting (or online transaction reporting) fee
• Over-limit fee
• Quarterly technology fee
• Security fee

How to negotiate credit card processing fees

Before you sign up with a processing company, bear in mind that most rates and fees are negotiable, especially if you have stellar credit and a solid business history. Don't hesitate to ask for discounts and waivers, especially for the nonstandard fees listed above. Also, shop for the best deal; competition is fierce among credit card processors, and many are willing to waive or reduce fees to win your business. The only non-negotiable fees are the card network fees; everything else may be flexible.

Here are three tips for negotiating with companies: 

1. Give yourself plenty of time to call for pricing quotes to get the best deal. This allows you to gather all of the information you need, read the contracts and ask questions. [Our in-depth review of National Processing and review of ProMerchant are good places to start your research.] 

• Call several weeks before you need to start processing so you have time to contact several companies.
• Plan to spend 20 to 30 minutes on the phone with each sales rep. 
• Call multiple companies so you can find the best pricing and terms.

2. Don't provide your Social Security number, give any bank account information, or sign the application until you're ready to sign up with a processor. If you provide this information and sign the application, you've essentially signed the contract and signed up with the service. Use your information and your signature as leverage; let the rep know that you're not providing these until you're convinced this processor is the best fit for your business – and to make this decision, you need a complete pricing quote and a full contract to review (the application, the terms and conditions, and the program guide).

3. Ask detailed questions about pricing models, rates, fees and terms. Sales reps are usually forthcoming with the information you specifically request, but most don't volunteer information that doesn't help them make the sale. They generally don't tell you about fees you don't ask about.

There are good credit card processing companies out there that charge reasonable rates and minimal fees; choosing the right one for your business saves you money and frustration. By understanding how the different pricing models work and which fees you should expect and which ones you don't have to pay, you can confidently navigate the market and choose the best processor for your business.

Simone Johnson, Lori Fairbanks and Skye Schooley contributed to the writing and reporting in this article. Source interviews were conducted for a previous version of this article.