What Are Credit Card Processing Fees and How to Reduce Them

Every time your business accepts a credit card payment, you’ll pay processing fees that can cost up to 3% of your revenue. That’s a lot of money for small business owners, but you do have some power over how much you pay.

In this article, we’ll explain everything you need to know about credit card processing fees and offer four tips on how to reduce them.

What Are Credit Card Processing Fees?

Credit card processing fees include three charges that businesses must pay every time they accept a credit or debit card payment. They are the interchange fee, the assessment fee, and the payment processor fee.

Interchange Fee

The interchange fee goes to the bank that issued your customer’s credit card. For example, if your customer pays with a Visa credit card issued by Santander, the interchange fee will go to Santander.

Assessment Fee

The assessment fee goes to the credit card network that processes payments, such as Visa, Mastercard, American Express, or Discover.

Processor Fee

The processor fee goes to the company that holds your merchant account, such as SumUp or Square.

How Much Are Credit Card Processing Fees?

Credit card processing fees in the UK typically range from 1.2% to 3%.

Interchange fees in the UK are capped by law at 0.3% for credit cards and 0.2% for debit cards. Although interchange fees are paid to banks, the fee rates are set by credit card companies like Visa and Mastercard.

Assessment fees usually include both a flat per-transaction charge and a percentage rate. The flat charge ranges from £0.009 to £0.11 per transaction and the percentage rate varies from 0.018% to 0.0508%. These fees are set by credit card companies.

Processor fees typically range from 0.8% to 2.6% per transaction. These fees are set by merchant account providers. They may negotiate rates with business owners based on payment volume and whether you pay for add-ons like a credit card machine.

How Are Credit Card Processing Fees Calculated?

Credit card processing fees for any transaction are the sum of interchange, assessment, and processor fees. Let’s take a look at the most important variables that determine each of these fees.

Interchange Fee

• Domestic vs. cross-border: In the UK, interchange fees are limited to 0.30% for credit card transactions when the customer’s card was issued in the UK. However, there are no fee limits if the card was issued in another country. So cross-border transactions can have significantly higher interchange fees.
• Credit vs. debit: Credit card interchange fees are typically higher than debit card interchange fees. This is partly due to laws that require reduced fees for debit card payments.
• Online vs. in-person: Credit card companies set higher interchange fees for any transaction in which the card is not physically swiped, dipped, or tapped. So online transactions typically carry higher interchange fees.

Assessment Fee

• Card network: Each of the major credit card providers sets its own assessment fees. Discover is usually the cheapest, while American Express is usually the most expensive.
• Rewards and business cards: Different cards carry different assessment fees. Rewards and business cards often have higher assessment fees.

Processing Fee

• Merchant account provider: Every merchant account provider sets its own processing fees. These can usually be negotiated based on your business’s transaction volume and how many additional services you purchase from your provider.

How To Reduce Credit Card Processing Fees?

There’s no way to entirely avoid credit card processing fees short of not accepting card payments—and that’s sure to leave many customers unhappy. However, you can reduce how much you pay.

Avoid Flat-Rate Fees

Many merchant account providers offer flat-rate processing fees rather than charging a percentage of every transaction. While these rates may look cheap, they add up quickly and can be much more expensive than percentage-based rates for small purchases. Most businesses are better off choosing percentage-based processing rates.

Renegotiate Rates With Your Merchant Account Provider

If you’ve been with your merchant account provider for more than a year, try revisiting your rates. Many providers are willing to negotiate, especially if you can get a better quote from a competitor. If your provider won’t offer lower rates, shop around and consider switching to another.

Encourage Customers To Buy In-Store

One of the best ways to reduce your interchange fees is to encourage customers to make purchases in-store. In-store purchases where you can swipe, dip, or tap the customer’s card have significantly lower fees compared to online purchases.

Pass On Costs To Customers

Surcharges on customers who pay with a credit card have been illegal in the UK since 2018. However, you can still levy service charges that apply to all customers. This offers a way to pass credit card processing fees on.

Keep in mind that these service charges may anger some customers since they work like hidden fees that only appear at checkout. They’re also not fair to those paying with cash. You may be better off raising prices rather than adding a service charge for every transaction.