What are the Normal Credit Card Processing Fees?
It goes without saying that every modern company needs to accept credit card payments.
That said, accepting credit cards does come with certain fees, and it’s important to be aware of the fees that you’re paying, so you can assess your profitability and performance.
It’s also helpful to know what other companies are paying. When you have an idea of where you stand in terms of credit card fees, you can work to minimize your costs and improve your bottom line.
What are the Average Processing Fees for Merchants?
How much do merchants pay on average? The simple answer is it depends. As you’ll learn below, there are numerous factors that go into the merchant’s credit card fees. Our team will break down these factors in the following paragraphs and we suggest reading through them so you can understand how much you and other businesses are paying — and what you can do to lower your rates.
But if you’re just looking for a general overview, the average costs for credit card processing ranges from 1.5% to 2.9% for swiped cards, and 3.5% for keyed-in transactions.
Who Determines these Processing Fees?
There is a common misconception that credit card processing fees are determined solely by the credit card companies themselves. That’s not the case. In order to determine the average credit card processing fees you’ll need to pay every month, you must begin by understanding the three parties that decide how much a business has to pay:
- The Banks – The financial institution that issues the card (e.g. Capital One, Chase, Bank of America, etc.)
- The Credit Card Network – The companies (e.g. Visa, Mastercard, etc.) that partner with banks.
- The Payment Processor – The company responsible for securing and carrying out the credit card transaction.
Generally, most businesses have to pay a fee (called an “interchange rate”) on the total of the transaction and a flat fee to the credit card company. One reason it’s so hard to predict the credit card fees companies will have to pay is that interchange fees aren’t static. Furthermore, businesses typically owe a commission and flat fee to the payment-processing company, too. Again, there’s no easy way to average this out, because your processor’s fees will vary depending on factors like your credit card processing volume, the type of business that you have, and the payment model that the processor is using.
A breakdown of what these fees mean:
As we touched on above, interchange fees represent the largest percentage of the total processing fee you’ll need to pay every time a customer pays with their credit card.
These fees can vary greatly based on a number of factors:
- Network – American Express, Discover, Mastercard, Visa, and other major credit card networks all charge different amounts for their interchange rates.
- Credit Card Type – Processing a credit card and debit card will represent two different types of rates. Even among credit cards, the rates will differ.
- Processing Type – Whether the card is swiped, or its number is directly entered into the system matters, as well. Swiping the card tends to be the cheapest option.
- Merchant Category Code (MCC) – MCCs are four-digit numbers that credit card companies use to classify consumers’ transactions using particular cards. The rate also depends on your category of business.
These are the costs paid to the card networks like Visa, Discover, and Mastercard. Just like with the interchange, assessment fees are determined by the card brand/network and not your payment processors. These fees cover the operating costs of credit card networks. The assessment fee is lower than the interchange fee, and it depends on various factors, including the type of card used by the cardholder, the transaction volume, and incidental fees like the costs that come with processing foreign transactions.
Payment Processor Fees
Now let’s talk about the fees that you’re paying to your credit card processor or merchant account provider. While interchange and assessment fees are dictated by the card networks and issuers, your payment processor fees are determined by the provider you choose.
There are 4 different types of pricing models that payment processors use to determine your rates. They include:
- Tiered pricing – This pricing model charges you based on three main tiers — qualified, mid-qualified, and non-qualified.Transactions that fall under the qualified category have lower rates, while your processor will charge higher rates for non-qualified transactions. Debit cards and non-reward credit card transactions typically fall under the qualified rate, while transactions involving corporate cards and higher rewards cards would be under the non-qualified category.
- Blended pricing (aka flat-rate pricing) – With blended pricing, the processor charges a flat rate for all credit card transactions. So, whether a customer pays using a credit card, a debit card, or a rewards card, the rate will be the same. This is typically expressed as a flat percentage plus a transaction fee — e.g., 3% + $0.10. Square and PayPal are some of the most popular payment processors that use flat-rate / blended pricing.
- Interchange-plus pricing – With interchange-plus pricing, your processor breaks down your rate into two components:
- The interchange, which, as mentioned above, is the fee set by credit card networks.
- The “plus”, which is essentially the markup of your processors.
- Membership-based pricing – Arguably the most favorable model out of the above, processors that use membership-based pricing do not take a cut out of your sales. Instead, you only pay the interchange rates set by the card networks (Visa, Mastercard, Amex, etc.)
Avoidable Fees from Your Payment Processor
The following list outlines the fees that are not necessary in order for you to process credit cards. These fees are levied against you by your credit card processing company or merchant services provider. The fees that these processors charge go towards their operations, profits, etc. These fees are the ones that you can and should negotiate.
- Minimum Monthly Processing Fee
- Monthly Fee
- Contract Cancellation Fees
- PCI Compliance
- Statement Fee
- Account fees
- Terminal Lease Fee
- IRS Reporting Fee
- Payment Gateway Fees
- Chargeback fee
- Service Fee
You should also be mindful of any hidden fees. You can uncover these costs by analyzing your merchant account statement.
Need help figuring out your rates?
If you’re having trouble identifying the information we’ve outlined above, feel free to send us your merchant statement and our payment consultants will analyze it for you. Get in touch with the Midwest Merchant Services team — we’re happy to assist you.
You can’t eliminate swipe fees completely, but you can lower them. If you’re looking to cut your credit card processing fees, Get in touch with Midwest Merchant Services. We’ll review your statement and recommend ways to help you save.
As one of the top-rated credit card processors in the market, we’re able to save merchants $450+ a month in payment processing.