To get the best possible pricing for your credit card processing service, you must understand the different pricing models processors use and how they work. Credit card processing companies charge various fees, including some you should never have to pay. Understanding these costs will help you choose a processor with the best rates and lowest fees.
What are credit card processing fees?
Accepting credit cards requires various services that work together to process transactions. For example, merchants will need one of the best credit card processors and one of the top merchant account services. E-commerce businesses or stores that take credit card payments over the phone will also need a payment gateway.
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Each service provider charges fees. Some fees depend on the transaction’s total dollar amount, while others are based on transaction numbers. Other fees, like chargeback fees, only apply in specific circumstances. Additionally, fees vary by provider, so it’s crucial to ask any potential payment processor about all its applicable fees and to shop around to ensure you don’t overpay.
Three primary credit card processing fees exist:
- Transaction rate: The transaction rate is a fee you pay every time a customer buys from you with a credit card. It’s a percentage of the purchase amount (also called the discount rate) and sometimes includes a flat per-transaction amount. The transaction rate includes the interchange rate, assessment fee and payment processor markup.
- Flat fee: A flat fee is a set amount you’ll pay, usually monthly, to the merchant account provider and, if applicable, the payment gateway.
- Incidental fees: Incidental fees are fees the payment processor or merchant account provider only charges in response to specific actions, such as chargebacks.
What’s the difference between credit card processing rates and fees?
When you contract with a credit card processor, you typically pay two sets of costs: rates and fees.
- Rates: Rates are what you pay every time a customer purchases from you with a credit card.
- Fees: Fees, including flat fees and incidental fees, are what you pay the processor to maintain your account.
The rate you’ll pay breaks down as follows:
Cardholder’s issuing bank
Card brand (e.g., Visa, Mastercard, Discover, American Express, etc.)
Credit card processing company
Who determines credit card processing fees?
The card networks set the interchange rates and assessment fees; the credit card processing companies determine their markups. All processors pay the same interchange rates and assessment fees. The processor’s markup is the only negotiable part of a credit card processing fee.
How to get the lowest credit card processing fees
Many of the best processors post their rates and fees on their websites and charge all merchants the same. However, processors that provide custom rates consider several factors when determining what they’ll quote you:
- Card type: The types of cards you accept can influence your processing fees. The different card types, from cheapest to most expensive, are as follows:
- Regular debit card
- Regular credit cards
- Rewards credit cards
- How you accept card payments: Accepting cards in person at a fixed location has the lowest risk of fraud and is, therefore, the cheapest transaction type. Cards accepted online or over the phone are more expensive to process because they have a greater risk of credit card fraud. This is because it’s more difficult to verify the authenticity of the cardholder and the card.
- Transaction volume: Merchants with a high monthly processing volume are better able to negotiate low rates. The more transactions you have, the more value you have to the processor. Additionally, a large average ticket size is a plus.
Having excellent personal and business credit scores and a good processing history can help you qualify for the lowest possible credit card processing fees.
Credit card processors with low processing fees
Finding a processor with low fees is critical for small businesses looking to maximize every dollar. Here are a few to consider:
- Square: Square only charges a flat transaction fee — no monthly or annual statement fees, payment gateway fees, PCI compliance fees, or chargeback fees. Read our comprehensive review of Square to learn more about its POS and credit card processing features.
- Helcim: All Helcim merchants receive interchange-plus pricing. Additionally, the company has a rate-lock guarantee, which keeps its markup from increasing during the life of your account. Check out our review of Helcim to learn more.
- Payment Depot: Payment Depot is a great option with a pricing structure that could save high-volume businesses money. Our Payment Depot review explains more about its rates and fees.
- PayPal Zettle: When you accept payments with PayPal, you’ll use PayPal Zettle technology to process payments, track sales and manage inventory. There are no account setup or maintenance fees, making this a good option for businesses that process a low volume of monthly transactions.
Comparative rates for fixed-location, in-person sales
Here’s how several top processors’ rates compare:
Credit card processor
1.93% for credit; 1.01% for PIN debit
$15 for each chargeback
Payment Depot (starter membership)
Between 0.05% for debit regulated and 2.5% for corporate
$0.10 to $0.22
$99 per month; $25 per chargeback
Credit card processing pricing models
Most credit card processing companies offer one or more of the following pricing models to calculate your transaction rates.
Also called cost-plus pricing, interchange-plus pricing adds a markup of a set percentage above the interchange rate to each transaction. The processor takes that markup as its payment. This pricing model shows you exactly what percentage of your costs go to the processor, no matter what card type you accept or how the transaction is processed. Industry experts recommend this pricing model as the most cost-effective option, and it’s the best pricing model for most small businesses.
Even though most credit card processing companies offer interchange-plus pricing (the best processors offer it to all of their customers), you may have to ask for it when you call for quotes, as many companies prefer to set you up with tiered pricing (see below).
Additionally, some companies impose specific requirements before you can process cards with interchange-plus pricing. For example, you may have to process a certain dollar amount of sales each month, or you may have to be a customer of that processor for a certain period.
This pricing model is standard with mobile credit card processors but often isn’t offered by traditional credit card processors. You pay a flat percentage of each transaction, regardless of the card type used. This means that while there’s a smaller markup for a premium card, such as a rewards credit card, there’s a higher markup for other cards, such as regular debit cards. If you’re looking for simplicity, your sales tickets are small, or you process a low monthly sales volume, look for a processor with flat-rate pricing.
As a variation of flat-rate pricing, some processors charge a flat rate plus a per-transaction fee. Usually, the percentage rate for these plans costs less than the services that charge a flat percentage only.
It may be tempting to pass on the cost of processing fees to your customers in the form of a surcharge, but it’s not recommended. Surcharging isn’t a best practice for accepting credit cards and is illegal in some states.
Tiered pricing, also known as bucket pricing, arranges rates on the interchange tables into tiers, with a different price for each tier. Processors typically have two to six tiers, often with separate tiers for debit and credit cards.
The most common structure has three tiers each for credit and debit cards, usually categorized as “qualified,” “midqualified” and “nonqualified.” These terms don’t imply whether a card is or is not valid for processing; instead, they refer to the card type and how the card is processed and verified.
- Qualified: A transaction is qualified if the customer swipes or inserts the card and either signs or enters a PIN to authorize the transaction. The card is typically a credit or debit card with no rewards attached to it.
- Midqualified: If you manually key in a transaction and use an address verification service (AVS) for the cardholder, it may be considered midqualified. This tier may include rewards credit or debit cards, although some processors categorize rewards cards as nonqualified transactions, particularly those with premium rewards.
- Nonqualified: Transactions you manually key in without using an AVS are nonqualified, as are transactions made with international, corporate, and government-issued credit and debit cards. Some processors also categorize rewards credit and debit cards as nonqualified transactions, especially premium rewards cards.
Qualified rates are temptingly low, particularly for debit cards. If your business accepts a high percentage of regular debit cards, this pricing model could be a good choice.
However, if your clientele tends to use high-end rewards credit cards or if you key in many sales, such as for phoned-in orders, you may pay expensive, nonqualified rates. For this reason, it’s essential to understand what kind of cards your customers use and how your processor categorizes them.
Read our in-depth Clover review to learn about a credit card processor with a tiered pricing model.
Types of credit card processing fees
Credit card fees can be confusing, so it’s essential to understand the various fees outlined in your credit card processing contract. Consider the following fees:
Recurring credit card processing fees
In addition to the processing rates you pay for each sales transaction, most companies charge fees for account maintenance. The best processors charge very few fees, and the best mobile credit card processors don’t charge any additional fees. Typical recurring fees include the following:
- Monthly fee: Processors charge monthly fees, sometimes called statement fees, to prepare your statements and provide customer service. Some processors include the cost of printed statements in the monthly fee; others charge an additional fee if you opt to receive printed, mailed statements.
- Gateway fee: A payment gateway is the online equivalent of a credit card terminal. A processor may have a proprietary system or work with a third-party provider such as Authorize.net to ensure online payment security. If you sell your products through your company’s website, you need payment gateway access. Most companies charge a separate monthly fee for this service, though some include it in the standard monthly fee.
- Monthly minimum fee: Many card processors expect you to process a specific dollar amount of monthly credit card transactions. Some companies require a monthly minimum, such as $25, to keep your account active. However, most processors use the monthly minimum requirement to guarantee a specific dollar amount of monthly transaction fees from your account. Understanding monthly minimum fees is particularly crucial for small or seasonal businesses.
- PCI compliance fee: All merchants must adhere to the Payment Card Industry Data Security Standard (PCI DSS) to process credit cards. These payment processing regulations help prevent fraud and protect you, your customers and the credit card company from costly security breaches. To certify as compliant, you must complete a self-assessment questionnaire; you may also need to meet additional requirements, depending on your business. Most traditional credit card processors charge a monthly, quarterly or annual fee to ensure PCI compliance. (Most aggregators, or mobile credit card processing companies, don’t charge PCI-related fees.) Processors don’t always disclose this fee when you call for quotes, so be sure to ask. If you are already PCI-compliant or handle your compliance in-house, ask to have this fee waived.
- PCI noncompliance fee: When you sign up with a processor, you usually have a few months to establish PCI compliance. However, if you fail to comply or don’t reestablish compliance annually, you may incur a monthly fine. The fine varies by processor and can be quite high. For this reason, it’s important to check your monthly statements for new fees and notices that your compliance renewal is imminent.
- Batch fee: A batch fee is a nominal fee charged when you post a batch of transactions, usually once or twice a day. It’s typically the same amount as the per-transaction fee, which ranges from 10 to 25 cents.
Incidental credit card processing fees
You may occasionally encounter incidental fees for qualifying transactions. These are some specific incidental fees:
- Address Verification Service fee: You’re charged this fee when you use AVS to verify the cardholder’s billing address. AVS is a standard fraud-prevention tool for e-commerce credit card processing, but you may also use this service when you manually key in a card. This fee varies by processor but is typically lower if you use the automated touch-tone service and higher if you require operator assistance.
- Voice authorization fee: As a fraud-prevention measure, your terminal may instruct you to call the voice authorization center to provide additional information to the cardholder’s bank before it authorizes a transaction. Voice authorization is rarely required, but you’re charged for each occurrence. This fee varies by processor and may be charged as either a flat fee or a percentage of the transaction.
- Retrieval request fee: If a customer questions a charge, their bank may ask for a copy of the sales draft to verify the authenticity of a purchase. You may also receive this request if a customer needs a copy of a sales draft for their records or purchase documentation for legal proceedings, such as bankruptcies or divorce settlements. The cost of this fee varies by processor.
- Chargeback fee: Sometimes, customers want their money back and ask their bank to cancel the transaction and return the funds. When this happens, you pay a fee to cover the processing costs of crediting the customer’s account. This fee varies by processor. E-commerce businesses tend to experience more chargebacks due to circumstances like delivery failures, technical errors, customer dissatisfaction and fraud. Chargebacks may also occur if your merchant name differs from your store name and your customer doesn’t recognize the charge on their credit card statement.
- Nonsufficient funds (NSF) fee: This business banking fee may also be called a return draft fee. If you don’t have enough money in your business bank account to pay the fees you owe your processing company, you are charged a fee.
Card network fees
Card networks charge various nonnegotiable fees your processor may pass on to you. Some processors may overcharge you for network fees by adding a markup instead of passing the fees through to you.
Here’s an overview of the card network fees you may encounter:
- Major card brands’ network fees: Card network fees are proprietary fees incurred for using the card brands’ networks. Visa charges the Network Acquirer Processing Fee (APF), Mastercard charges the Network Access and Brand Usage (NABU) fee, and Discover charges the Data Usage Fee. Here are the card networks and the usage fees they incur for card-present transactions:
0.1275% + $0.0195 – 0.1475% +$0.0195
0.13% + $0.0155 – 0.14% + $0.0195
0.13% + $0.0195
- Visa’s Fixed Acquirer Network Fee (FANF): Since 2012, Visa has charged this nonnegotiable monthly fee due to the Durbin Amendment. It applies to all businesses that accept Visa-branded cards. The rate depends on your processing volume, the number of business locations, and how your business accepts payments. The fee is higher for businesses that process online than for those that accept credit cards in person.
- Mastercard’s Merchant Location Fee: This annual fee is $15 per business location. Your processor may pass it on to you as a single annual fee or prorate it on your monthly statement to spread out the cost.
- Cross-border fees: For U.S.-based merchants that accept international cards, the card networks charge a fee (or two) to offset currency exchange costs. American Express charges the International Assessment Fee. Discover charges the International Processing Fee and the International Service Fee. Mastercard charges the Cross-Border Assessment Fee and the Acquirer Program Support Fee. Visa charges the International Acquirer Fee and the International Service Assessment Fee.
Nonstandard credit card processing fees to avoid
In addition to the standard fees listed above, some processors charge miscellaneous fees. These additional fees are uncommon and should be avoided if possible. The best credit card processors don’t charge the fees listed below. If you choose a processor that does, negotiate with your account rep to eliminate them.
The following fees can often be negotiated or waived:
- Cancellation fees: You may be charged for canceling service and pay additional fees for leased or “free” equipment. These fees may be called “early termination fees,” “early deconversion fees,” “exit fees,” or “lost profit fees.” Ask your sales rep if the company penalizes you for canceling service, and carefully review your contract. Be sure your review includes the application, the terms and conditions, and the program guide. Companies with month-to-month service where you purchase equipment outright won’t charge these fees.
- Liquidated damages: Some cancellation policies have a “liquidated damages” clause that allows the processor to charge you for the revenue it expected to earn over the life of your contract. This could add up to thousands of dollars.
- Annual fee: Some processors charge an annual fee for maintenance on your merchant account. As with the application fee, the best processors don’t charge it. Some credit card processors waive the fee for the first year, but it’s best to choose a processor that doesn’t charge it at all.
- IRS reporting fee: In 2008, the IRS mandated that credit card processors report income passing through credit cards. If you process more than 200 transactions annually, totaling more than $20,000, you’ll receive an IRS 1099-K form from your processor. Some processors charge a fee for preparing and supplying this form. They may call it an “IRS fee,” “reporting fee,” “regulatory fee,” “regulatory comp fee,” or “IRS 1099-K fee.” Again, the best processors don’t charge this fee.
- Club or membership fee: Some processors roll standard fees (including monthly, gateway and PCI compliance) into a single membership fee to simplify their fee structure; others charge a membership fee on top of their standard fees. Membership fees may be billed monthly or annually. If your processor charges this fee, ask what it gets you (it’s often just rolls of paper for your terminals). Ask your rep if you can opt out and what fees, if any, you’ll be charged if you do.
- Additional services: If your contract includes an “additional services” clause, it often means the processor automatically signs you up for various unnamed services (fees undisclosed). However, you can opt out within a set time frame, usually 30 days after signing up with the company. You may find information about the additional services and their costs in the program guide. In any case, you’ll probably have to contact your sales rep for this information.
- Semiannual postage and handling fee: If you’re already paying a statement fee or receive your statements and other correspondence electronically, ask to remove this fee.
- Access fee: If you’re charged an access fee in addition to APF, NABU, Data Usage or FANF, ask the processor what the fee is for and if it can be removed from your bill.
- Foreign transaction fee: Although card networks already charge nonnegotiable fees if you accept foreign credit cards, some processors tack on a markup or an additional fee. If you’re charged more than two fees for a single foreign transaction — such as an International Acquirer Fee, an International Service Access Fee and a Foreign Handling Fee — ask your credit card processor which fees are charged by the card network and which is their markup or surcharge. Ask it to waive nonstandard fees.
- Monthly (or quarterly) regulatory compliance fee: This fee may replace or be charged in addition to the PCI compliance fee or the IRS reporting fee. You should question this fee if you find it in your contract.
- Other nonstandard fees: Look out for the following additional nonstandard fees. As with the other nonstandard fees on our list, the best processors don’t charge the following:
- Application or setup fee
- Audit fee
- Billback fee
- Conversion fee
- Customer service fee
- Electronic Benefits Transfer (EBT) network access fee
- Excessive transaction fee
- File fee
- Interchange-compliance adjustment fee
- Liquidated damages fee
- Next-day funding fee
- Online reporting (or online transaction reporting) fee
- Over-limit fee
- Quarterly technology fee
- Security fee
How to negotiate credit card processing fees
Before signing up with a processing company, understand most rates and fees are negotiable, especially if you have stellar credit and a solid business history. Don’t hesitate to ask for discounts and waivers, especially for nonstandard fees. Also, shop for the best deal; competition is fierce among credit card processors. Many processors are willing to waive or reduce fees to win your business. The only nonnegotiable fees are card network fees; everything else may be flexible.
Here are three tips for negotiating with companies:
- Take time to conduct your search. Give yourself ample time to call processing companies for pricing quotes to get the best pricing and terms. Gather all the information you need, read contracts and ask questions. Start calling potential processors several weeks before you begin accepting payments to allow yourself time to explore several contenders. Plan to spend 20 to 30 minutes on the phone with each sales rep. [Start your research with our in-depth review of National Processing.]
- Don’t provide crucial information early. Don’t provide your Social Security number or bank account information. And don’t sign the application until you’re ready to sign up with a processor. If you provide confidential information and sign the application, you’ve essentially agreed to a contract. Use your information and signature as leverage; let the rep know you won’t provide confidential information or a signature until you’re convinced this processor is the best fit for your business. Tell them you need a complete pricing quote and a full contract to review (e.g., application, terms and conditions, and the program guide, etc.) before making a decision.
- Ask the right questions about fees and rates. Ask detailed questions about pricing models, rates, fees and terms. Sales reps are usually forthcoming with the information you specifically request. However, most don’t volunteer information that doesn’t help them make the sale. They generally don’t tell you about fees you don’t ask about.
Good credit card processing companies exist, charging reasonable rates and minimal fees. Choosing the right processor for your business will save you money and frustration. Understanding various pricing models and standard and nonstandard fees allows you to confidently navigate the market and choose the best processor for your business.