Crucial Information & Tips to Reduce Your Credit Card Processing Fees
No one wants to pay credit card processing fees. However, the small fee you pay to process each credit or debit card transaction plays a key role in maintaining payment infrastructure.
Processing fees are the price you pay to run credit and debit cards on your platform. Exact amounts can vary according to transaction amount, transaction type, and the number of transactions you run each day.
Which credit card processing fees are relevant to your business? And, how can you triangulate to keep costs as low as possible? Let’s find out.
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What are Credit Card Processing Fees?
- Credit Card Processing Fee
Credit card processing fees are the costs that merchants pay to process card transactions. These fees cover the operational and technological expenses associated with processing payments, including the transfer of funds between the cardholder's bank (issuing bank) and the merchant's bank (acquiring bank).
[noun]/krə • dət • kard • prä • səs • iNG • fē/Credit card processing is a service. Like all services, fees exist to cover the costs associated with facilitating that service.
When a customer uses a credit card for a purchase, several parties are involved in the transaction, including the card issuer, the processor, and the acquiring bank, among others. Each party contributes to the secure and efficient processing of the transaction, and they all incur costs to do so.
Credit card processing fees help to cover these costs and ensure that each party is fairly compensated for their role in maintaining system integrity.
Who Sets Your Card Processing Fees?
In short: merchants bear the direct cost of these fees.
Credit card processing fees that a merchant pays per transaction can be divided into two groupings: the “merchant discount rate,” and processor fees. The merchant discount rate is a combination of interchange fees and assessment fees:
Interchange Fees
These fees are set by the card networks, but are allocated to the issuing bank. Interchange fees may vary based on factors like card type, transaction method, and merchant industry. This usually represents the largest portion of the discount rate.
Assessment Fees
These fees are charged by the card networks (e.g., Visa, Mastercard) for the use of their infrastructure and services. Assessment fees are typically a small percentage of the overall transaction amount.
To illustrate how these work: say you have a customer that uses a Chase Visa card to pay for an order. The interchange fee would go to Chase Bank, and the assessment fee would go to Visa.
In contrast to the fees outlined above, you also have fees assessed by your payment processor and your acquiring bank:
Processor Fees
These fees are set and charged by the payment processor for their role in facilitating the transaction. Processor fees can include a percentage of the transaction amount, a fixed per-transaction fee, and/or a monthly fee.
Acquirer Fees
Your acquiring bank may also assess fees for their services, such as account maintenance fees or additional transaction fees.
The merchant is responsible for paying card processing fees. They can pass these costs along to customers in the form of higher prices or added surcharges, making goods and services more expensive for customers. Imposing fees on customers is increasingly rare, though, as cards become the default preferred payment method.
How Much Do Credit Card Processing Fees Cost?
It varies, depending on the fee in question, and which party is assessing it. To simplify, let’s focus on interchange and assessment fees for a moment.
Interchange fees are typically a percentage of the purchase price, plus a fixed amount; for example, a flat $0.15 per transaction. Keep in mind that every entity involved in that transaction may affect that interchange fee. For instance, the card network, processing method, card issuer, and merchant category code (MCC) each impact the total interchange fee.
The following table is an example of how interchange fees break down across some of the largest card networks (as of this writing):
| Payment Network | Low Interchange Fee Range | High Interchange Fee Range |
| Visa | 1.15% + $0.05 | 3.15% + $0.10 |
| Mastercard | 1.25% + $0.05 | 3.15% + $0.10 |
| Discover | 1.45% + $0.05 | 3.05% + $0.10 |
| American Express | 1.35% + $0.10 | 3% + $0.10 |
Assessment fees are generally much smaller than interchange fees. They also vary according to the network and other factors. Assessment fees stack up to around 0.15% of each transaction.
Typical assessment fees break down like this:
| Payment Network | Average Assessment Fee |
| American Express | 0.15% |
| Discover | 0.13% |
| Mastercard | 0.1375% for transactions under $1,000; 0.01% for transactions of $1,000 or more |
| Visa | 0.14% |
With these interchange and assessment fees in mind, you can typically expect to pay from 1.5% to 5% of the transaction total in credit card processing fees.
To illustrate how these fees are assessed in total, refer to the following table. Remember that these figures serve as a general example and are subject to change at the card network’s discretion:
| Payment Network | Low Interchange Fee Range | High Interchange Fee Range |
| Visa | 1.29% + $0.05 | 2.54% + $0.10 |
| Mastercard | 1.29% + $0.05 | 2.64% + $0.10 |
| Discover | 1.48% + $0.05 | 2.53% + $0.10 |
| American Express | 1.58% + $0.10 | 3.45% + $0.10 |
Remember, you then have to account for per-transaction fees assessed by your processor and acquirer. This could add another percentage point or two onto the credit card processing fee total.
Remember, you then have to account for per-transaction fees assessed by your processor and acquirer. This could add another percentage point or two onto the credit card processing fee total.
Other Factors Impacting Credit Card Processing Fees
We now have a better understanding of how interchange and assessment fees affect your revenue. So, let’s dig into some additional circumstances and how they might impact your total fees.
Remember, all total fees will combine interchange and assessment fees, no matter which processor you choose. From there, several factors influence your overall payout, including:
Real-World Credit Card Processing Fee Models
As mentioned above, interchange and assessment fees aren’t exactly negotiable with banks and card networks. However, merchants can negotiate fees at the processing level.
Payment processors feature their own methods and rates, from which merchants can choose what works best for their business. Beyond this, there are also many payment processors and fee tiers to choose from.
To illustrate, here are a few examples of common fees structures used by processors:
Don’t Forget About Equipment Costs!
Keep in mind every one of the companies above (regardless of pricing model) will require you to obtain proprietary equipment for their brand. These costs can fluctuate drastically from one end of the payment spectrum to another.
Some payment providers offer basic mobile readers for free (like Square), while others run around $50. If you need in-store terminals, however, equipment costs can run anywhere from $50-1000. Whichever model and provider you choose, don’t forget to factor these costs into your bottom line.
Easy Tips to Lower Your Credit Card Processing Fees
Your processing fees are only negotiable up to a certain point. However, if your goal is to reduce the overall cost of processing, there are some simple ways to do this which can also help reduce your exposure to fraud and chargebacks in the long run.
Controlling loss is crucial here. You’ll be penalized for excessive chargebacks, so it’s vital that you prioritize this issue. To fight both criminal fraud and illegitimate chargebacks, you’ll need a comprehensive fraud management strategy that addresses both concerns at once.
Thankfully, this isn’t something you have to do alone. With over a decade of industry-leading experience in the realm of fraud mitigation and chargeback management, Chargebacks911® is here to help your business meet incoming challenges and exceed revenue limitations. Give us a call and get started today.
FAQs
Why am I being charged a processing fee?
While no merchant is a huge fan of credit card processing fees, they do play a fundamental role in the payment process. The fees are used to pay for the infrastructure and technology that allows funds and transaction data to be processed and transmitted from one party to the next in the transaction process.
Are processing fees legal?
Yes. Credit card processing is a service. Like all services, fees exist to cover the costs associated with facilitating that service.
Who pays processing fees?
Merchants are the primary party responsible for paying processing fees.
How do I get rid of processing fees?
You can’t “get rid of” processing fees. However, you can limit your processing fees by decreasing your exposure to fraud and chargebacks, shopping around for the best payment processor in your transaction tier, and limiting the number of small-dollar transactions you run each day.
