Written by Michael Graw Updated on 2 August 2024 On this page Key Takeaways What Are Credit Card Processing Fees? What Impacts Credit Card Processing Fees? How To Reduce Credit Card Processing Fees? Verdict FAQs Expand Every time a customer makes a purchase using a credit card or debit card via a card machine at your small business has to pay a fee. These fees can add up to a lot of money, costing your business hard-earned revenue and making it more difficult to turn a profit on your products and services.There’s no way to avoid credit card processing fees entirely, but the good news is that you have some control over how much you’ll pay. However, in order to reduce your fees, you first need to understand what they are and how they work.In this guide, we’ll explain everything you need to know about credit card processing fees, including their cost and how you can reduce them. Key TakeawaysCredit card processing fees include interchange fees (charged by card issuers), assessment fees (charged by card networks), and processor fees (charged by your merchant account provider).In total, credit card processing fees typically range from 1.2% to 3% of each transaction.Fees vary for each transaction based on a variety of factors, including what bank issued a customer’s card, what network a customer’s card uses, and whether a purchase is made online or in-store.You can reduce your fees by negotiating with your merchant account provider or by encouraging customers to make purchases in-store instead of online. However, in the UK, it’s illegal to apply surcharges to customers who pay with a credit card. What Are Credit Card Processing Fees?Credit card processing fees are fees that your business has to pay every time you accept a credit card or debit card payment. These fees range from 1.2% to 3% of every card transaction your business accepts.Your merchant account provider lists the fee for each transaction on your merchant account statement at the end of each month. The fees are taken out of the funds that your merchant account provider transfers to your business checking account.While credit card processing fees appear as a lump sum on your statement, there isn’t just one fee you pay for processing a credit card payment—there are several. Below, we break down the different types of fees and what they’re for.Interchange feeThe interchange fee is charged by the bank that issued your customer’s credit card. It covers the cost of paying your business upfront for a customer’s purchase (the bank assumes the risk that the customer will fail to pay their credit card bill).As an example, say your customer has a Visa credit card issued by Santander Bank. The interchange fee will go to Santander Bank. Importantly, though, Visa sets the interchange fee amount. Card issuers (usually banks) don’t get to set the interchange fees they charge for cards they issue.UK regulations limit interchange fees to 0.3% of a purchase for credit cards and 0.2% of a purchase for debit cards.Assessment feeAssessment fees are paid to the credit card companies that run the payment networks, like Visa, Mastercard, and American Express. These fees cover the cost of operating these payment networks, which are essential for credit cards to function.The current assessment fees for most transactions on the major networks are as follows:Discover: 0.07%Mastercard: 0.0983%Visa: 0.1017%American Express: 0.12%Processor feeProcessor fees are paid to your merchant account provider, which is also known as your credit card processor. Examples of merchant account providers include Square, PayPal, and Stripe. Processor fees cover the costs of managing your merchant account and include a markup to generate a profit for your merchant account provider.Merchant account providers can charge flat fees (like 50p per transaction), percentage-based fees (like 2.5% of each transaction), or a combination of both (for example, 20p + 1.5% per transaction). They can also offer tiered pricing options or more complex pricing structures that include additional services, like access to business loans.Here are the fees at some large merchant account providers in the UK:ProviderIn-person card paymentsOnline card paymentsRevolut2p + 0.8% per transaction20p + 1.0% per transactionSquare1.75% per transaction25p + 1.4%-2.5% per transactionStripe10p + 2.9% per transaction20p + 1.5% per transactionPayPal1.75% per transaction30p + 1.2% per transactionNotably, processor fees include a variety of small fees, such as:Payment Card Industry (PCI) compliance fees: Covers the cost of complying with standards to prevent fraudulent purchases.Transaction authorisation fees: Covers the cost of processing transactions and usually includes a markup.Payment terminal fees: Covers the cost of leasing a credit card processing machine.Online payment gateway fees: Covers the cost of accepting online purchases.All of these fees reflect services your merchant account provider offers. They’re usually included in the headline rate that your provider charges for every transaction, but some providers break them out into separate charges. For example, you may pay 1.75% per transaction plus a flat rate of £20 per month for PCI compliance.You may also pay additional one-time fees for events like chargebacks and refunds. Your merchant account contract will specify how much these fees cost but expect to pay a flat fee of around £15 to £25 per chargeback. What Impacts Credit Card Processing Fees?Fees for credit cards can vary based on a lot of factors, some of which you might not expect. Next, we’ll explain what goes into determining each part of your overall fee.Interchange feeInterchange fees vary based on who issued your customer’s card and how they use it to make a purchase.Card issuance: Credit cards issued in the UK (such as by a UK bank) are limited to charging an interchange fee of 0.30% per transaction. However, this regulation doesn’t apply to cards issued outside the UK. So, you could pay much higher interchange fees when processing transactions for foreign customers.Credit vs. debit cards: For UK-issued cards, credit card interchange fees are capped at 0.30%, while debit card fees are capped at 0.20%. For foreign cards that don’t have these limits, credit card interchange fees are usually higher than debit card interchange fees.Online payments: Interchange fees are usually higher for any transaction in which a card number is entered manually—including most online purchases. You’ll pay less if a card is physically present and is swiped, dipped, or tapped.Assessment feeAssessment fees vary based on the type of card your customer uses.Card network: Each credit card network provider sets its own fees. Discover is usually the cheapest, with a fee of around 0.07%, while American Express is usually the most expensive and charges a fee of around 0.12%.Card type: Different types of cards can have different assessment fees. For example, rewards and business cards have higher fees since the card networks need these extra fees to pay out rewards to cardholders.Processing feeThe processing fee charged by your merchant account provider can vary depending on how you negotiate your contract. If you have a large business that processes a high volume of transactions, you may qualify for cheaper rates.You may also be able to secure a lower fee if you purchase or lease a credit card machine from your merchant account provider or sign up for other add-on services. How To Reduce Credit Card Processing Fees?The only way to eliminate credit card fees entirely is to stop accepting credit and debit card payments. However, that’s not likely to go over well with customers as most people expect businesses to accept their cards.Instead, you can reduce the amount you pay in credit card processing fees. Here are a few approaches.Avoid flat-rate feesFlat-rate fees such as 50p per transaction might look cheap at first, but they can add up quickly over time. Not every customer will make a large purchase, and 50p out of a £10 purchase is the equivalent of a 5.0% fee.Businesses are usually better off with a percentage-based processing fee. You’ll always pay 2.5%, for example, no matter the size of a customer’s purchase or what type of card they use.Renegotiate rates with your merchant account providerGoing to your merchant account provider and asking for a better deal is one of the best ways to lower your processing fees. Your provider is incentivized to offer you lower rates if it means preventing you from switching to a competitor. You’ll be especially well-positioned in the negotiation if you can bring a quote from another merchant account provider.If your provider refuses to budge, think about switching. While it can be a hassle to change merchant account providers, the savings from securing a lower rate for card transactions can be worth it.Encourage customers to buy in-storeMost merchant account providers charge lower rates for transactions where the card is physically swiped, dipped, or tapped than for transactions where the card number is keyed in manually. This is because keyed-in transactions have higher rates of fraud and chargebacks, which eat into merchant account providers’ profits.So, you can reduce your fees by encouraging customers to make purchases in-store rather than online. Just don’t go too wild nudging customers to shop in-store—it’s almost always better to make an online sale and pay the card fee than it is to miss out on a sale altogether.Reduce chargebacksChargeback fees can be extremely costly for your business—every time a customer requests a chargeback because of a fraudulent transaction, your business can end up paying £15 to £25.You can reduce chargebacks by using an address verification service. This verifies a customer’s address with their credit card issuer, helping to prevent unauthorised users from completing credit card transactions online. Note that address verification services usually cost a few pence per transaction. However, you can pay for verifying hundreds of transactions with the money saved from avoiding one fraudulent transaction.It’s also a good idea to use a card reader with an EMV chip reader for in-person purchases. EMV chips are much harder to forge than traditional magnetic strips, so purchases made with an EMV chip reader are much more secure.Pass on costs to customersIf you can’t reduce your credit card processing fees, you can reduce their impact on your business by passing the costs onto customers.Importantly, you can’t charge surcharges to customers who pay with a credit card—this is illegal under UK law. However, you can charge extra fees during checkout as long as they apply equally to all customers.Be cautious doing this, as many customers will be annoyed to find out your business charges a hidden fee when they go to pay. In most cases, you’ll be better off raising your prices rather than introducing checkout fees. Verdict Credit card processing fees include interchange, assessment, and processing fees. They typically range from 1.2% to 3% of every card transaction, although you may be able to lower your rate by negotiating with your merchant account provider or encouraging in-store purchases.To get started accepting credit card payments, check out our complete guide to opening a merchant account. FAQs Can I pass on credit card processing fees to customers? In the UK, it’s illegal to pass on credit card processing fees to customers via credit card surcharges. However, you can pass on costs by raising your prices or by charging checkout fees that apply to all customers, regardless of how they pay. How much do credit card processing fees cost? For UK business owners, credit card processing fees range from 1.2% to 3% of every transaction. Exactly how much you’ll pay varies based on what type of card a customer is using and whether a purchase is in-person or online. Can I reduce credit card processing fees? You can reduce credit card processing fees by renegotiating your contract with your merchant account provider and by encouraging customers to shop in-store rather than online. You can also offset credit card processing fees by raising your prices. Written by: Michael Graw Michael is a prolific business and B2B tech writer whose articles have been published on many well-known sites, including TechRadar Pro, Business Insider and Tom's Guide. Over the past six years, he has kept readers up-to-date with the latest business technology, corporate finance matters and emerging business trends. A successful small business owner and entrepreneur, Michael has his finger firmly on the pulse of B2B tech, finance and business.