Credit Card Processing Costs: Average Fees & Rates

“Average” credit card processing fees are highly variable because credit card brands break down transactions into hundreds of separate categories based on the risk factors that apply to that particular type of transaction.

These major factors affect the cost of interchange fees:

• Credit VS Debit Cards: Debit card transactions are inherently less risky because the funds are transferred directly from customers’ bank accounts. Credit cards, however, require the issuing bank to loan the funds to the customer, with repayment typically taking 30 days or longer.
• Card-Present VS Card-Not-Present: Retail transactions where the merchant can verify the customer’s identity and inspect the credit card present a relatively low risk of fraud. Online transactions, on the other hand, provide limited cardholder data and don’t allow as many options for identity verification. For this reason, card-not-present transactions incur higher interchange fees due to the greater chance of fraud. (Note that this risk can be mitigated by using security features such as tokenization.)
• Credit Card Type: Rewards cards that offer cash back or frequent flier points will cost more in interchange fees to offset these perks. These types of cards are particularly problematic under a tiered pricing plan, usually resulting in the transaction being downgraded to the most expensive unqualified tier.
• Transaction Size: Larger transactions are riskier than smaller ones, so the issuing banks charge a higher fee to process them. Credit card brands use a variety of additional factors to determine whether a transaction is “large” or “small,” so there isn’t a simple one-size-fits-all rule to determine where a given transaction will fall.
• Merchant Category Code: The major credit card brands use merchant category codes (MCCs) to classify businesses by the type of goods and services they offer. Depending on your product lineup, your business may fall under more than one MCC.

While they usually constitute the smallest portion of your credit card processing costs, network assessment fees nonetheless make credit card acceptance just a little more expensive than it would be otherwise.

These are essentially licensing fees and are paid to the credit card brands themselves. Assessment fees usually range from 0.13% to 0.15% per transaction, depending on the card brand. These fees are typically lumped in with interchange fees as a single cost, as your processor passes them through to the issuing bank and credit card association.

For more detailed information on assessment fees and other charges imposed by credit card networks, check out our complete guide to card brand fees.

Credit card processing fees include two distinct elements: wholesale fees and markup fees. Wholesale fees encompass all the fees and charges that must be paid to the issuing bank and the credit card association (as discussed above). Markup fees are the fees your processor keeps for itself in exchange for processing the transaction and maintaining your merchant account.

Here’s a summary of the main differences between wholesale and markup fees:

• Wholesale fees are passed onto the issuing bank and credit card association, while markup fees are retained by your processor.
• Wholesale fees are the same for every processor, while markup fees differ for every merchant services provider.
• Markup fees can often be negotiated with your processor, while wholesale fees are fixed and cannot be reduced through negotiation.

Although wholesale fees are the same for everyone, there’s still a lot of variability from one transaction to the next. All the factors identified above (card type, transaction size, Merchant Category Code, etc.) will impact how much you’ll pay in wholesale fees for any transaction.

The pass-through approach is used in interchange-plus and membership pricing plans. With this approach, the interchange and the markup are separated, so you know exactly how much your processor takes from each transaction. This approach is generally best suited to established businesses with a stable month-to-month processing volume.

The blended approach is used in flat-rate and tiered pricing plans. With this approach, the interchange and the processor’s markup are combined into a single charge, so it can be more difficult to determine how much of your processing fee is going to the issuing bank and how much to your processor. The blended approach can save small or newly established businesses money — if the processor doesn’t charge additional recurring account fees.

With interchange-plus pricing, your merchant services provider simply adds a fixed markup to every transaction, so you’ll pay the interchange and assessment fees plus that markup. This markup is the same for every type of transaction, and the cost of processing each transaction varies based on the applicable interchange fee.

In addition to fully disclosing how much of your processing fees your provider keeps for itself, interchange-plus pricing tends to be less expensive overall than flat-rate or tiered-rate plans. However, additional merchant account fees can add to your overall costs, making this type of pricing most suitable for established businesses processing at least $5,000/month.

A variation of interchange-plus pricing, membership pricing (also called subscription pricing), eliminates the percentage-based portion of your processor’s markup and most merchant account fees in exchange for a single monthly subscription fee. With this type of pricing, you’ll pay just the interchange fees and a small, fixed per-transaction authorization fee (typically $0.05-$0.30/transaction).

However, the monthly subscription fee can be quite expensive—typically around $100/month or more. For this reason, we only recommend subscription pricing for large, established businesses with a high, stable monthly processing volume.

Flat-rate pricing addresses the confusion merchants often experience in trying to sort out their processing costs. With this type of pricing, you’ll pay the same rate for every transaction. (Well, sort of. Almost all providers offering flat-rate pricing use at least two rates: one for in-person transactions and another for card-not-present transactions.)

While predictable, these rates tend to be fairly high, as they have to cover the interchange fees and ensure a profit for even the most expensive transaction categories. At the same time, providers offering flat-rate pricing typically don’t charge any monthly or annual account fees, lowering overall costs. We recommend flat-rate pricing to startups and small businesses with a low or sporadic monthly processing volume.

A variation of flat-rate pricing, tiered pricing separates your transactions into three tiers (qualified, mid-qualified, and non-qualified) based on various factors that usually aren’t disclosed very well. Each tier has a fixed rate, but it’s nearly impossible for a merchant to tell in advance which tier a transaction will fall into. Factors such as rewards cards and even submitting the transaction for processing after the date payment was accepted can drop a transaction into the non-qualified tier, where processing rates might be as much as two to three times higher than for qualified transactions.

Unfortunately, tiered pricing is quite popular with many traditional merchant account providers. It obscures markup costs and usually ensures a healthy profit. For merchants, your processing costs will almost always be higher with tiered pricing, and there are no counterbalancing advantages to this type of pricing. Stay away.