Credit Card Processing Fees: Your Definitive Guide in 2024

As fewer and fewer people choose to pay with cash, every business that wants to thrive needs to be able to accept credit cards. However, while offering customers the convenience of paying with a credit card may increase your sales, the cost of processing these payments can also cut into your profits.

Accurately predicting and budgeting for the full cost of processing credit card payments is essential – but no easy task, especially when it comes to deciphering how to calculate these fees. That’s why I’ve done extensive research to bring you all the different types of fees and charges you can expect to pay.

How much you end up paying in fees will depend on the processor you choose, their payment model, and other factors. For example, some services charge fees for POS equipment, software, a payment gateway, PCI compliance and, in some cases, your statement itself.

I’ll also explore ways to minimize these fees and recommend the pricing models and processors that offer affordable rates that will help you keep your overall costs to a minimum.

Thanks to its low interchange-plus rates, tailored merchant accounts, free equipment, and dedicated support, I found Leaders Merchant Services (LMS) is a great option for most budget-conscious businesses.

Understanding Credit Card Processing Fees

The total credit card processing fee your business will pay for each transaction is actually a combination of multiple fees.

These include the fee you’ll pay to the card network, the fee you’ll pay to the bank that issued the credit card to your customer (interchange or bank rate fee), and the fee you’ll pay to your credit card processing company (payment processing fee).

Processing fees will also vary based on how your customer pays. For example, many credit card processors charge higher transaction fees for card-not-present transactions, such as when a customer makes a purchase online or over the phone, or when you or your staff key in payment details.

Card Network/Assessment Fee

The assessment fee or card brand fee is the fee you pay to the credit card network itself. Major brands include American Express, Discover, Mastercard, and Visa.

These fees are generally quite low, ranging from 0.13% for Discover to 0.15% for American Express. Updates to these fees occur twice a year.

Most payment processors will lump the assessment fee and interchange fee as a single charge on your monthly statement.

Interchange Fee

The bank that issued the credit or debit card will also charge a fee based on the transaction amount. This interchange fee varies by type of card used, your business type or merchant category (MCC), and whether a customer pays in person or online.

Interchange fees typically range from 1.5% – 3.5%, but some card issuers may charge a higher percentage based on the transaction amount or whether the customer uses a basic or rewards credit card. Cards that offer travel rewards and other perks like purchase protections typically have higher interchange fees.

You can also expect to pay a higher fee for online and other card-not-present payments because banks consider these types of transactions to be riskier than those made in person.

On top of the interchange rate, some transactions will also include a flat fee, which can range from 10¢ – 22¢.

Here are the average rates for the four major card networks:

American Express has the highest interchange rates. It also charges a higher fee depending on your business type and the amount of the transaction. For example, the rate for small retail transactions is 1.60% but rises to 2.40% for transactions over $1,000.

Payment Processing Fee

Your payment processing fee will depend on the plan you choose and payment model: subscription style, interchange plus, tiered pricing, or flat rate.

Payment processing fees are charged in addition to the interchange (or bank rate fee) and the card network fee. They are the fees you pay to your processing company for handling credit card transactions.

Some credit card processors like PAYARC and CreditCardprocessing.com offer plans with zero interchange markup, which can help you save on processing costs.

While the interchange and card network fees are set in stone, you may be able to negotiate a better processing fee with your credit card processor.

How Pricing Models Affect Your Credit Card Processing Fees

Processors use different pricing models and fee structures, which are often difficult to navigate. Figuring out which model will best serve your needs is key to understanding how to minimize your processing costs.

The four most common pricing models you’ll encounter are subscription-style (or membership), interchange-plus, tiered pricing, and flat rate pricing.

Subscription-Style

With this payment structure, you’ll pay a monthly fee, a 0% markup on the interchange rate, and a few cents per transaction. The transaction fee is the same for all in-person credit card payment methods – swiped, inserted, tap-to-pay, Near Field Communication (NFC), and digital wallet.

Some processing companies may charge a higher fee for card-not-present transactions, so it’s important to weigh your options.

A processor like PAYARC that offers a subscription-style plan makes it easier to figure out your effective rate because there’s no interchange markup, and it will charge the same low fee whether a transaction is in-person or online.

Interchange-Plus

The name says it all: your processing fee under this pricing model includes the card network assessment fee, the variable wholesale interchange fee the card issuer charges, plus the processor’s markup on the interchange rate.

This is one of the more transparent pricing models because the processor’s markup and per transaction fee are clearly spelled out.

Tiered

With this pricing model you’ll pay a different rate based on the “tier” your transactions fall under. A common approach is to classify transactions as qualified (credit cards without reward programs), mid-qualified (credit cards with basic reward programs), or non-qualified (corporate cards and cards with generous reward programs).

While tiered pricing may look less expensive than interchange-plus, it tends to be more costly. Processors often quote the rate for the lowest tier when they’re encouraging you to sign up and then downgrade transactions and put them into the tier with the highest possible rate.

Flat Rate

Under this pricing model, when a customer pays with a credit card, digital wallet, or debit card, you’ll pay a percentage of the total transaction amount plus a flat fee. The processor’s fee is the same for all in-person credit card payments and typically averages 2.6% – 2.99% with a flat fee of 10¢ – 49¢ for these transactions.

As with interchange-plus, the percentage markup for online and other card-no-present transactions is higher, ranging from about 2.9% to as much as 3.49%.

Processors that offer flat rate pricing are attractive to merchants looking for a simple, easy to understand pricing structure and no monthly fee. However, because the markup on the bank and card network fees is higher, flat rate pricing can be more expensive as your sales volume grows.

Additional Fees that Can Add to Your Overall Processing Costs

While transaction fees make up the biggest slice of your credit card processing costs, the total amount you’ll pay on a monthly or annual basis includes more than the sum of your processing fees. These additional charges can add up quickly.

Some of the most common fees include:

• Monthly plan fee. Most processors charge a monthly fee to use their services. For interchange-plus and tiered pricing payment structures, the monthly fee averages about $10.

• Monthly minimum fee. If you’re only charged $15 in processing fees and you have a $30 monthly minimum, you’ll be charged an additional $15.

• Payment gateway/virtual terminal fee. Some processors charge a monthly fee to use their virtual terminal and payment gateway. Prices can range from $7.95 to $25 per month. You may also be charged a setup fee.

• PCI compliance fee. This can be a regular monthly charge or one-time annual fee of up to $120. Not all processors charge for PCI compliance. For example, PAYARC and ProMerchant include the PCI compliance fee in your plan.

• PCI non-compliance fee. You’ll be charged anywhere from $20 to $44 per month until your business becomes compliant. You can avoid this fee by filing your PCI Self-Assessment Questionnaire (SAQ). Many processors will help you with this process.

You may also have to pay invoicing fees, statement fees, early cancellation fees, chargeback fees, and a fee for reporting your annual transaction amount to the IRS. These are often termed “hidden” fees.

In addition, some processors don’t offer free equipment. If you don’t purchase your POS or mPOS hardware outright, you’ll also have to pay to lease and/or insure the equipment.

How to Calculate Your Business’s True Processing Cost

To calculate your true processing costs, you’ll have to do a bit of math. Add up the card issuer’s interchange fee, the card network (or assessment) fee, and your payment processor’s total fees (including markup, monthly plan, and other charges).

Then, divide the sum of all your credit card processing costs by the total amount processed and multiply that number by 100 to get your effective rate. For low-risk merchants, the effective rate should average 3% – 4%. High-risk merchants should expect to pay as much as 2% more.

Your effective rate is your true credit card processing cost, and you may be surprised to learn it’s higher than you thought – especially when you factor in all the miscellaneous credit card processing fees that you may not have considered when projecting your costs.

How to Offset or Lower Your Credit Card Processing Fees

Low-risk businesses and those with brick-and-mortar locations that primarily accept in-person payments typically qualify for the lowest credit card rates. But don’t despair if your business is considered mid- to high-risk and most of your customers pay online. There are still ways to reduce your costs.

To start, you should shop around for multiple quotes and ask each service to provide a detailed breakdown of all processing, monthly, and incidental fees. Be sure to ask about special discounts, such as lower rates if you process a high volume of transactions.

Negotiate Better Rates With Your Current Processor

If you feel your current credit card processing company is taking too big a bite out of your earnings, you can negotiate.

While it can’t change the interchange rate and card network fee, your processor may be open to reducing the interchange markup and/or transaction fee. You can also ask to have other monthly fees (such as your plan, payment gateway, or equipment fee) lowered.

Check Out the Competition

If your current processor takes a hard line on rates, it’s a good idea to explore other payment providers who may offer you a better deal. Even if you’re locked into a long-term contract, some processors will pay the cancellation fee.

Leaders Merchant Services (LMS) is one of several popular services that offer a “meet or beat” or assured savings guarantee. LMS will ask you to provide your two most recent statements so it can compare your current costs (rates, fees, and other monthly charges) with its proposed rates, fees, and monthly charges.

It’s a win-win situation. If offered a better deal, you can switch services. On the other hand, if you’re happy with your current service, you can use a competitor’s offer to encourage your current provider to give you a better deal.

Consider Surcharging

Surcharging passes the credit card processing fee (up to a maximum of 4%) onto the customer. If the customer chooses to pay with a credit card rather than a debit card, cash, ACH transfer, or e-check, they’ll see the surcharge on their bill.

If you decide to sign up for a surcharging plan, it pays to choose a processor that will ensure your business complies with the complex card brand, federal, and state regulations.

Offer a Cash Discount

When you offer a cash discount, the processing fee is already added into the purchase price, and customers who pay with cash pay less. As with surcharging, the maximum discount you can legally offer is 4%.

If you process a high volume of low-cost sales and your customers often pay with cash, offering them a discount can minimize your credit card processing costs. The downside (as with surcharging) is that you risk losing business to competitors who aren’t penalizing shoppers for paying with credit cards.

You should expect to pay about $30 per month for a cash discount plan.

Our Top Five Recommended Credit Card Processing Companies

Our experts have spent hundreds of hours reviewing credit card processors’ fees and practices to find the most reliable companies that offer affordable pricing and disclose fees upfront. Some even encourage you to negotiate the rates best suited for your business.

1. Leaders Merchant Services: Budget-Friendly Interchange-Plus Pricing

Leaders Merchant Services (LMS) has some of the industry’s lowest interchange-plus rates and a 98% approval rate, which makes it ideal for most types of businesses looking for affordable processing. A variety of customizable plans to suit different needs and budgets can help you save on your overall processing costs.

LMS pairs its industry-low rates with impressive features, including free equipment, customer loyalty programs, business loans, and cash advances. Its secure Authorize.Net payment gateway for online transactions and smart POS solutions (Clover, SwipeSimple, First Data) integrate with popular business software and include a variety of helpful tools to manage your operations.

There’s also 24/7 technical support so you never have to worry if an issue arises with your equipment or processing. LMS devotes an entire department to fraud and chargeback prevention, which can yield substantial savings over time, especially for mid- to high-risk businesses.

2. PAYARC: Affordable Subscription-Style Plans With No Hidden Costs

Multiple payment models make PAYARC suitable for most businesses regardless of industry or size. It offers competitively priced membership (or subscription-style), flat rate plans, and a cash discount program that allows merchants to pass processing costs along to their customers.

For its three subscription-style plans, you’ll pay a monthly fee and a flat transaction fee of 0% + 10¢ (in-person & online) to 0% + 15¢ (in-person & online) – there’s no markup on the interchange rate. The monthly plan fee and transaction fee vary depending on your processing volume. Nonprofits and educational organizations benefit from even lower transaction fees.

PAYARC offers several payment gateways for e-commerce, including international gateways for US-based merchants with an international clientele. It’s also one of the few payment processors that offers HIPAA compliant processing through its integration with Rectangle Health.

3. ProMerchant: Fixed Low Rates for Retailers and Restaurants

Quick approval, next-day payouts, low transaction fees, and a monthly fee starting at $7.95 make ProMerchant an attractive option for retail and restaurant businesses with high sales volumes. Unlike most processors, ProMerchant charges a “fixed” interchange markup that doesn’t vary with the type of payment.

For in-person transactions, ProMerchant offers a free terminal. It also has over 50 point-of-sale (POS) options for purchase, including all-in-one Clover systems/mobile devices equipped with industry-specific software. ProMerchant also offers the popular Authorize.Net payment gateway for online or phone/mail orders. This gateway includes useful features, including recurring payments and digital invoicing.

ProMerchant is also one of the few processors that supports merchants flagged as high risk. What’s more, while all ProMerchant clients enjoy a high degree of security for in-person and online transactions, it provides higher risk clients with extra fraud mitigation tools at no additional charge.

4. Flagship Merchant Services: Fast Payouts and Easy Onboarding

Flagship Merchant Services offers flexible month-to-month interchange-plus and tiered pricing plans for online, in-person, and mobile payment solutions. Since there are no cancellation fees, you can test the service without having to worry about a long-term commitment.

One of Flagship’s best features is its iAccess business portal. Detailed reporting and analytics tools give you valuable insights into your businesses transaction history, sales trends, and customer buying habits. You can use the data to refine your strategies and optimize them for growth. In addition, the mobile card swiper and accompanying app (for iOS and Android) allow you to accept transactions on the go.

And while Flagship has come under scrutiny for pricing transparency, its application process is straightforward and fast (as are its payouts) and every Flagship merchant gets a dedicated account manager.

5. CreditCardProcessing.com: Best for High Volume Merchants

CreditCardProcessing.com has four subscription-style plans (which it calls Flat Rate), with monthly fees that start at $15.00. While the fee for its cheapest plan may seem like a bargain, the 0% + 30¢ (Starter) transaction fee is high when compared to its competitors. On the other hand, high-volume businesses benefit from a 0% + 0.05¢ (High volume) fee, one of the lowest in the industry.

If you prefer an interchange-plus or cash discount plan, CreditCardProcessing.com also offers these options, although these may be better suited to startups and smaller businesses. Another plus is that this processor doesn’t charge higher fees for businesses with low credit scores.

Depending on your plan, you can get a free Pax or Clover terminal for free. Top-of-the line equipment is costly, so this can yield significant savings. You’ll also benefit from CreditCardProcessing.com’s partnership with Vindica, which provides tools to fix failed online transactions.

Choose a Company with Fair and Transparent Credit Card Processing Fees

With credit card transactions rising each year, every business needs to be able to process credit card payments. While there are dozens of credit card processing companies out there, not all offer fair or honest pricing.

Our expert team has put in countless hours researching payment processors to find the best companies for different business needs. Learn which processors met our stringent criteria for fair pricing in our in-depth review of the best credit card processing companies in 2024.

Here’s a summary of my top recommendations.

FAQ

How can I tell if I’m paying too much for credit card processing?

The best way to get an accurate assessment of how much you’re paying for your processing service is to divide your monthly costs by your transaction volume and multiply by 100 to get your effective rate. If it’s higher than 4%, you’re likely paying too much.

How much is the typical card processing fee?

Average credit card processing fees range from 1.5% – 3.5%, though fees can be higher for online payments, different types of businesses, and those flagged as high risk. It’s a good idea to speak with your processor if you think your fees are too high. You may be able to negotiate better rates.

Can I pass credit card processing fees onto my customers?

Both surcharging and cash discounting can offset the cost of credit card processing by passing 100% of the fee onto your customers. With surcharging, customers who pay with a credit card are charged a fee (or surcharge) at checkout. When you offer a discount to customers who pay in cash, the processing fee is built into the purchase price.

What are the best credit card processing pricing models?

A good way to reduce your fees is to choose a processor with a subscription-style or interchange-plus payment structure. Tiered and flat rate pricing structures are typically more costly, though they suit some businesses, such as new businesses.

Our expert review of the 10 best credit card processing companies in 2024 can help you choose one that fits your needs.