Your ultimate guide to navigating the pitfalls and potholes of accepting credit and debit card payments at your business
So, you want to start taking card payments? Wise move.
With the popularity of Apple Pay, the recent rebrand of Android (now Google) Pay, and the continued growth of debit and credit card payments here in the US, accepting cashless payments is one of the easiest decisions your business will make this year.
What’s less easy, though, is getting to grips with the complex combination of credit card processing fees that come with maintaining a merchant account. With your bank, your customer’s bank, the card brands, your payment provider, and a whole bunch of other financial institutions all taking a cut of each payment you accept, it’s a pretty baffling business.
Worse still, many merchant account providers take advantage of this confusion – tucking costs away in the fine print, and hiding fees behind the smoke and mirrors of indecipherable pricing plans. What can you do to cut through the noise and get the right deal?
Let’s face it – the only way to avoid being locked into a long contract where you have no idea what you're paying… is to know exactly what you’re paying.
So read on, as we break down all the different types of credit card processing fees. We’ll cover exact ranges of what you’ll pay in costs, who those fees go to, and how to get the best value for your business.
We’ve all paid with a card before… but do we really know how much it costs to accept one?
Types of credit card processing fees
Wholesale vs. markup fees: What’s the difference?
At the top level, you can divide your credit card processing fees into two camps: wholesale and markup. Wholesale fees are set by the card issuing banks and the card associations involved in the transaction, and are fixed rates.
Wholesale fees aren’t negotiable – you just have to grit your teeth, shrug your shoulders, and pay up. The two most common forms of wholesale credit card processing fees are called interchange and assessments.
Markup fees, however, are negotiable. As the name suggests, markup fees are additional costs applied by the other parties in a credit card transaction – namely the payment gateway, the payment processor, and the merchant services provider.
Transactional, scheduled, and incidental fees
Under the umbrella of wholesale and markup fees, credit card processing costs fall into three additional categories:
Transactional fees are paid every time you accept a credit or debit card payment. They usually consist of a percentage of the transaction’s value, or a percentage plus a flat-rate (say, 1.8% + 20 cents). Interchange fees will make up the largest portion of your wholesale fees in this category, while the processor’s rate markup is your main markup fee here.
Scheduled fees are billed on a more consistent basis, usually monthly. These fees include wholesale costs such as the Fixed Acquirer Network Fee (FANF), as well as markup costs that go to maintaining your account (terminal fee, statement fee), and ensuring you fulfil your legal and tax obligations (PCI compliance fee, IRS reporting fee).
Incidental fees occur on a more irregular basis – and usually never when you want, need, or expect them. While incidental fees refer to the one-off costs that can come with opening up a merchant account, they often crop up when something’s gone wrong.
Processing integrity fees are the only wholesale incidental charges you’ll come across. Markup incidental fees, however, are myriad – and include set up costs, Address Verification Service (AVS) fees, as well as fines for chargebacks and PCI non-compliance.
Where do your credit card processing fees go?
Credit card processing fees go to the financial institutions involved in processing the actual transaction.
For wholesale fees, these are:
The card issuer (or card issuing bank). This is any bank that provides credit or debit cards to consumers (think Chase and Bank of America). The card issuers set the rates for (and collect) the interchange fees you pay.
The card associations. These are networks of banks responsible for processing transactions made with a specific brand of card (American Express, Visa, Mastercard, and JCB). Card associations take their cut in the form of assessments fees, a wholesale cost you’ll hear more about soon.
Markup fees are collected by:
The credit card processor (specifically, the merchant services provider). This is the entity in charge of handling debit and credit card transactions on behalf of your business. Your merchant account provider levies these fees to cover its own wholesale costs, pay for third-party services, and make a tidy profit.
The payment gateway. This is a piece of software that helps verify, secure, and authorize the transaction. While some processors provide in-built payment gateways, most have to outsource. This costs money, and you can bet those processors are passing that check straight on to you!
So, now you have a rough idea of the shape that credit card processing fees will take when they’re applied, and who that money is going to when it leaves your account.
But what are those fees, exactly – and how much will they set you back?
Interchange fees are the biggest expense you’ll pay per transaction. These rates are set by the card issuing banks, are non-negotiable, and are sadly unavoidable, too. That said, exactly what you’ll pay in interchange fees per transaction depends on how the payment is processed (i.e. swiped, dipped, keyed, or contactless), as well as the type of card your customer uses (i.e. debit, credit, rewards, personal, or corporate).
Interchange rates are one of the more visible credit card processing fees you’ll pay. Visa and Mastercard both publish their rates online, though you’ll need to wade through a lot of numbers to dig out the figures most relevant to your business.
Typical interchange fees consist of a percentage of the transaction’s value, plus a flat-rate on top. Most rates hover between 1 and 3% of the payment, plus a fee of around 10 to 20 cents (for example, 1.5% + 15 cents).
Assessments fees go to the card associations, such as Visa, Mastercard, Discover, and American Express, to compensate them for their role in the transaction.
Assessments fees will vary depending on the card brand, the type of card (credit/debit) used to pay, and whether the transaction takes place within the US or internationally. Assessments fees range from around 0.12% to 0.15% on each card transaction you accept.
Markup transactional fees
Processor’s rate markup
As well as the wholesale fees above, you’ll also be liable to pay a processor’s rate markup fee. This (highly negotiable) fee is added on by the company you choose to process your payments with.
However, it’s not always easy (if at all possible) to differentiate the processor’s rate markup fees from the ones you have to pay. That’s because there are four different pricing plans commonplace in the industry. Where one plan might clearly list each fee and where it comes from, another will bundle all the costs together and slap you with a single, static fee for all transactions.
Of these four, the plan that’s best suited to you will depend on your business’ size and sales volume. Skip to our pricing plan section below to find the one that’s right for your SMB.
PIN debit network fee
This is a charge for accepting PIN debit (when your customer enters a four-digit code – rather than signing – to authorize a payment) transactions. If your business accepts these kinds of payments, you’ll be liable to pay a PIN debit network fee of around $50 to $60 per year.
Mastercard merchant location fee
To use its service, Mastercard charges businesses a fee of $15 per year, per location (though this is just $3 per year if you’re using a payment facilitator, such as Square). Your merchant services provider may mark this up – so keep an eye out for this one on your statement, and remember to negotiate before signing a contract!
Fixed Acquirer Network Fee (FANF)
This is a fancy name for a fee Visa charges merchants every three months. As the name suggests, it’s a flat, fixed fee – though exactly what you’ll pay depends on your sales volume, and the type of business you run.
Monthly costs are added to your bill by your credit card processor, and mostly go towards maintaining a good standard of customer support. Depending on just how high that standard is (or how greedy your merchant services provider is), these fees can range from anywhere between $5 and $100 per month.
Often levied under the dubious justification of ‘maintaining your account’, some processors will also charge an annual fee of up to $300 per year. We’d suggest thinking very carefully about partnering with a merchant account provider that charges an annual fee, particularly if monthly fees also apply.
PCI compliance fee
The Payments Card Industry Data Security Standard (PCI DSS, or PCI for short) are a set of guidelines that all merchants accepting card payments have to follow.
If your business is compliant, you’ll be eligible for this scheduled fee, to help ensure it remains so (it’s around $5 to $10 per month). If you’re not compliant, however, well… that’s an even uglier charge, which we’ll get into below.
Monthly minimum fee
When you open a merchant account, there may be a monthly minimum ‘fee' specified in your contract. This is a set amount in transaction volume that you’ll be required to meet each month.
If, for whatever reason, sales are bad and you don’t meet this threshold – and thus don’t end up paying the required amount of fees to your credit card processor – you’ll have to face this cost. It’s generally around $25 per month.
If you opt for a traditional merchant account provider, chances are you’ll have to pay a fee to rent or lease your card machine – usually on a monthly basis. With costs ranging anywhere from $5 to more than $50 per month, it’s a frustrating fee – and one that adds up quickly.
The good news, though, is that if you opt for a payment facilitator such as Square, iZettle, or SumUp to process your payments, you won’t have to worry about this. These credit card processors offer their terminals at nominal costs (sometimes free!), and they’re yours to keep.
You’ll only pay this if you (or your provider) have deemed it necessary to receive your processing bills in the mail. If you have, you could be stung with as much as $10 per month in costs! Our advice? Get everything sent out electronically, and bypass the statement fee completely.
Payment gateway fee
Kind of like the terminal fee above (but for ecommerce businesses), the payment gateway fee goes to covering the costs of businesses accepting card transactions online, or via keyed transactions.
This cost amounts to around $10 to $20 per month, or may take the form of a small percentage of each ecommerce transaction.
IRS reporting fee
Records of all credit and debit card payments you accept at your business will need to be passed on to the IRS, for tax purposes. Your credit card processor will do this for you, and the IRS reporting fee ($25 per year) is what they charge for it.
Wholesale incidental fees
Processing integrity fees
Like assessments fees, processing integrity fees go to the card association brands – Visa, Mastercard, American Express, JCB, and Discover. Unlike assessments fees, though, you’ll only face a processing integrity fee if you’ve done something wrong.
Among the reasons you might be penalized are if a transaction isn’t settled within 24 hours, Address Verification Service (AVS) isn’t applied to keyed transactions, or if a payment isn’t authorized to the standards of the relevant card association.
Visa’s integrity fee is $0.10, while Mastercard charges a minimum of $0.040 for breaches. American Express will penalize you 0.75% for non-compliant transactions, but these aren’t as common as they are with Visa or Mastercard. Discover doesn’t disclose its processing integrity fees.
When you enter into a credit card processing agreement, some providers will charge a one-off establishment fee. This doesn’t go towards anything except lining the merchant account provider’s pocket, so the provider can essentially charge as much as it wants – though it won’t be more than $100.
Our top tip? Negotiate this fee away, or walk away.
You’ll probably have already heard of the trouble that a chargeback can cause. When a customer disputes a card payment they’ve made through you, it gets investigated. If the customer is ruled to be in the right, the sale is refunded, and you get slapped with an extra fee of anywhere between $10 and $30 per chargeback. Ouch!
Early termination fee
Most merchant account providers will charge a fee if you want to get out of a contract early. It can be anywhere from $200 to $1,000, so if you’ve got designs on leaving a contract early, look to negotiate a lower cost here. Or, better still, choose a payment facilitator such as Square. They won’t rope you into contracts, and almost always operate on a pay-as-you-go basis.
Account closure fee
This fairly self-explanatory fee is levied when you close your account – whether early or otherwise. It can come in anywhere between $15 and $70.
Address Verification Service (AVS) fee
Businesses that rely on accepting card payments over the phone, or via mail, need to know about the AVS fee. AVS is required as an extra layer of security when verifying keyed card transactions, so a charge for the service is a given.
The AVS fee is applied to all payments where a card’s details are keyed in, and costs between 5 and 25 cents per transaction.
PCI non-compliance fee
This is a monthly fee you’ll be liable for if your business fails to meet the PCI’s rigorous list of standards. Find them here.
In the baffling, convoluted world of credit card processing, it’s not just the names and nature of the fees themselves that you need to understand – it’s how they’re priced, packaged, and presented to you, too.
Because no matter how well you understand the myriad fees involved with accepting credit card processing, the pricing plan you choose is crucial to your success. Pick the right one, and you’ll be getting the absolute best deal for your business, saving money on every transaction, every day. Select the wrong plan, and the consequences could be dire.
Don’t fall into the trap of being rushed into the wrong plan by a good salesperson – take a couple of minutes to explore all of your options below.
Best for businesses seeking transparency
This plan offers the most transparent pricing, listing all wholesale fees on your statement as separate from the markup fees. This way, it’s easy to see what you’re paying because you have to, and what you’re paying as arbitrary additions to the provider.
Knowing this makes it easier to re-negotiate better terms in the future, or find yourself a better deal elsewhere when your current contract ends.
The best credit card processing companies offering Interchange-Plus pricing are Helcim and National Processing. Both offer fee structures and rates that are transparent, easy to understand, and some of the lowest in the industry to boot.
Best for businesses with large transactions
Like the Interchange-Plus plan, a subscription plan itemizes wholesale and markup fees separately. However, your interchange fees will come as a flat rate, rather than as a percentage of each transaction. On top of this, you’ll pay a monthly ‘subscription’ fee for your merchant services.
For this reason, it’s ideal for businesses looking to accept higher value transactions. Rather than have your merchant account provider take a cut of your profits, you’ll just pay a predictable, fixed fee to take card payments.
If you're looking to pay a flat subscription fee for your merchant services, we recommend Sage Pay.
Best for nobody
Tiered pricing divides transactions into three levels; qualified, mid-qualified, and non-qualified. Qualified transactions cost the least to process, while ‘non-qualified’ are the most expensive.
To classify as ‘qualified’, transactions usually have to be swiped and signed for, and involve a debit or non-rewards card. If you take a card payment through a more ‘risky’ method (such as a virtual terminal, where the cardholder isn’t present at the point of sale), or with an international or rewards card, your transaction will be classified as one of the two higher tiers.
The trouble with this pricing plan is that how merchant account providers organize their ‘tiers’ isn’t regulated, or standardized in any way. This means rates can differ massively between providers, and the lack of transparency makes it hard for merchants to know how much their credit card processor is making off them.
For this reason, we don’t recommend this pricing plan to anyone.
Best for small businesses and sole traders
Flat-rate pricing offers ultimate simplicity. With this plan, all credit card processing costs – whether wholesale or markup – are blended and packaged in one single fee (usually a percentage of each transaction). You’ll pay the same rate, regardless of the card’s type (credit/debit) or brand (American Express, Visa, Mastercard etc,).
Sure, that simplicity comes at the cost of some transparency around what you’re paying. And having a single, set cost for large and small transactions alike means that we certainly wouldn’t recommend this model for larger merchants.
But for small businesses – such as market traders, seasonal enterprises, and micro-merchants – the lack of ongoing monthly fees (or a credit check) is simply too good a deal to ignore.
Congratulations! You’ve successfully navigated the stormy seas of credit card processing fees. Now it’s time to get out there and secure the best deal for your business.
But, err, how?
We’ll leave you with our three top tips to help you secure the right merchant account.
Remember, the only fees you can’t get out of are the wholesale ones. Everything else is up for negotiation! Setup and annual costs are some of the easiest to wriggle out of, though you should be able to haggle your provider down to lower transactional fees, too.
2. Shop around
There are countless companies in the US offering merchant services, and they all want your business. That puts you in a powerful position, so don’t be afraid to take your time, say no to low prices and flashy-sounding offers, and do your research.
3. Avoid tiered pricing
Tiered pricing is one of the easiest plans for providers to market, but comes with the fewest benefits for merchants. With tiered pricing, markup and wholesale rates are indistinguishable, and it’s likely that fees will lurk concealed within the specifics of the contract. Avoid!
It’s not all bad, though. In fact, signing up for merchant services can be as simple as filling out a few details online. With Square, for instance, you can order your free card reader in moments, and be taking payments within the week. No PCI fees, no credit check – just transparent pricing, and a single, understandable fee across all transactions.
Are credit card processing fees illegal?
Nope – it’s not illegal for merchant account providers to charge markup fees for using their services. Moreover, the amount processors are allowed to charge isn’t regulated, meaning they’re free to add in whichever hidden or extra fees they feel like. Frustrating? Yep. Unethical? Yep. Illegal? Nope.
What are Visa’s credit card processing fees?
Visa’s interchange rates are free to view on its website, along with the charge it levies for transaction integrity ($0.10), assessments fees (0.13 to 0.14%), and international acquirer fees ($0.45%).
What are Mastercard’s credit card processing fees?
Mastercard also publicizes its rates clearly online. Along with its cross border fee (0.60%), AVS fee ($0.01), and Network Brand Usage Fee (NABU) ($0.0195), you’ll be able to find clearly signposted information regarding its interchange rates and assessments fees, too.
All rates are accurate as of January 12th, 2021.