How Much Do Credit Card Companies Charge Merchants?

Navigating the complexities of credit card processing fees is a significant challenge for merchants in today’s digital economy.

With the surge in cashless transactions, it’s essential for merchants to understand these fees to maintain profitability and deliver an efficient customer experience.

What are credit card processing fees?

Credit card processing fees are fees merchants must pay to accept credit card payments from their customers.

The fees associated with credit card processing typically consist of various costs, including transaction fees, interchange fees, and service provider fees, which can significantly impact a business’s bottom line.

Understanding these fees is essential for merchants to optimize payment processing strategies and manage costs effectively.

Merchants should evaluate credit card merchant fees to ensure this spend is worth the benefits of using payment processing services to accept credit cards.

Breakdown of credit card processing fees

Credit card processing fees are charged to merchants for each credit card transaction processed.

Merchants typically encounter three primary types of fees: interchange fees paid to the card issuers, assessment fees paid to credit card networks, and various payment processor fees that cover the services provided by merchant services providers. These combined costs are calculated as a percentage of each transaction plus, in some cases, additional fixed fees.

Here’s a breakdown to help you better understand the average fee ranges:

The fees outlined in this table encompass the standard costs. Still, merchants should be aware of other potential charges that may apply.

Assessment fees

Assessment fees are relatively small but consistent fees charged by credit card networks like Visa, MasterCard, American Express, and Discover. These fees support the network’s operational costs, including maintaining the credit card system’s infrastructure and ensuring secure and efficient payment transactions.

Assessment fees are a fixed percentage of each transaction and remain relatively stable compared to other fees. Merchants will find these fees listed as a separate line item on their monthly processing statements.

Interchange fees

Interchange fees make up the most significant portion of credit card transaction costs going to the card issuer — the bank or financial institution that issued the credit card to the consumer. These fees cover handling costs, fraud and bad debt costs, and the risk involved in approving the payment.

Interchange fees vary depending on numerous variables, such as the card brand, whether it’s credit or debit, the type of credit card (e.g., rewards, corporate), the merchant category code, and the nature of the transaction (e.g., card-present or card-not-present transactions). Each card issuer’s interchange rates are publicly available for reference.

Payment processor fees

Payment processor fees are determined by the merchant services providers that facilitate the transaction between merchants and customers. These fees vary depending on the payment processor and the merchant’s chosen service plan.

Processors may offer pricing models such as flat-rate, tiered pricing, or interchange-plus pricing, each with its own set of rates and fee structures. These fees may include a percentage of each transaction coupled with a fixed fee, monthly service fees, and equipment rental fees, among others.

Hidden and additional fees to watch out for

Aside from standard fees, merchants should be vigilant about hidden and additional fees that payment processors may charge, including termination fees, PCI compliance fees, chargeback fees, and monthly minimum fees. While some fees may be a one-time charge, others can recur monthly or annually.

Merchants should thoroughly review their merchant account agreement and ask for clarification on line-item charges they don’t understand. It’s also advisable to monitor monthly statements to keep track of any new or unexpected fees that arise.

3 factors that affect credit card fees for merchants

Credit card processing fees vary significantly and are influenced by many factors, sometimes making them appear complex and confusing to merchants. Understanding these factors is critical to anticipating credit card payment costs.

Credit card fees can vary depending on the specifics of the transaction or even the broader elements of a merchant’s business profile. Considerations such as the type of card used, the merchant’s industry and size, and the merchant’s processing history and risk profile all play notable roles in determining the ultimate fees charged for credit card transactions.

The type of card used

The fees charged for credit card transactions depend on the customer’s card type. Cards are generally categorized into various tiers by credit card networks, and each tier has its own set of interchange rates.

For example, a primary consumer debit card often incurs lower fees than a rewards or corporate credit card. Credit cards issued for international use or those with enhanced rewards and benefits can also attract higher interchange fees due to the greater value offered to cardholders. Differentiating between these can have a notable impact on the effective rate that merchants pay per transaction.

Merchant industry and size

Merchant services providers classify businesses with Merchant Category Codes (MCCs), which are four-digit numbers that card issuers use to identify purchases based on the type of merchant that provides the associated goods or services.

The industry a company operates in can affect the interchange fees, as different industries have different typical processing risks and average transaction sizes.

For instance, a retail store may incur lower fees compared to an online software vendor due to the differing risk of fraud and chargebacks.

Similarly, the size of your business and the volume of credit card transactions you process can influence merchant service providers to offer volume discounts or more favorable terms, lowering overall processing costs.

Merchant processing history and risk profile

A merchant’s processing history encompasses the volume of transactions, average ticket size, and the history of chargebacks or fraudulent transactions.

Established businesses with a consistent and robust processing history can negotiate better terms with payment processors. Conversely, companies that pose a higher risk due to numerous chargebacks, irregular transaction patterns, or operating in high-risk industries may face higher processing fees.

A strong processing history can signal to financial institutions that the merchant poses a lower risk, potentially leading to more favorable processing rates.

These variables are all critical considerations for merchants when navigating the complexities of credit card processing fees. It’s recommended that merchants review their processing activity regularly and consult with their merchant services provider to ensure they get the most cost-effective terms for their payment processing needs.

Now that you have a solid understanding of how a merchant’s processing history and risk profile influence fees, you can explore various strategies to reduce processing costs.

7 strategies to reduce credit card processing fees

Companies are often battling the never-ending cycle of paying off expenses and fees. However, there are ways they can avoid some of those costs.

Here are seven strategies to help your business reduce credit card processing fees:

1. Look into surcharging options
2. Implement payment optimization strategies
3. Negotiate with payment processors
4. Leverage technology and software solutions
5. Monitor chargebacks
6. Choose a suitable pricing model
7. Avoid high-risk transactions

1. Look into surcharging options

Surcharging enables merchants to pass their credit card processing fees to customers who pay them by credit card while maintaining compliance with all the surcharging regulations.

Businesses can use surcharging options to charge a small fee (a percentage of the transaction or a fixed rate) to customers using credit card payments. While surcharging can offset or cover credit card processing fees altogether, merchants must comply with the rules set by credit card networks and local laws.

Disclosing the surcharge to customers before completing a transaction is essential, as it ensures transparency and maintains customer trust.

Reliable payment processors like EBizCharge provide surcharging options that eliminate these costs while keeping your business compliant with relevant regulations.

2. Implement payment optimization strategies

Optimization strategies may include selecting the most efficient and affordable transaction processing methods, minimizing costs while maintaining or improving service quality. This ensures that resources are utilized effectively, leading to cost savings and enhanced operational efficiency.

For example, entering additional information for each transaction, such as invoice numbers or order IDs, can lead to lower interchange fees for card-not-present (CNP) transactions.

Businesses should also ensure that their terminals and software are correctly installed to capture the highest level of data for each transaction, which can yield lower fees.

3. Negotiate with payment processors

Negotiation with payment processors can lead to reduced fees, especially for businesses with a high volume of credit card transactions or those with an excellent processing history.

By understanding your processing statement and fees, you can discuss rates and possibly receive custom pricing or reduced rates from your processor.

4. Leverage technology and software solutions

Businesses can leverage modern technology and software solutions to reduce their credit card fees.

For instance, integrating a payment gateway t