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Credit Card Processing Fees Simplified

Learn About Interchange Rates, Assessment Fees & More

Your sales will rise and your fees will rise. That’s the annoying truth about credit card processing fees. It means one smart business decision (accepting credit card payments) demands another: understanding your costs and how best to control them.

But you can figure out how credit card processing fees work with a little expert guidance, and the breakdown below is the right place to start. Digest the pro-tips below, and you might just discover an added bonus along the way: the power to provoke your sales agent into actively keeping your costs low.

How Northwest Can Help

We work with a number of payment processors to get low credit card processing fees and better contract terms for our clients, including transparent interchange plus pricing and ongoing customer support.

It all starts with a FREE in-house credit card processing consultation. Click the button below to learn more about our service.

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What Are Credit Card Processing Fees?

Credit card processing fees are the fees a merchant pays for each sale involving a credit or debit card. These are basically transaction fees and other service fees that get distributed among the various companies or financial institutions that do their part to make any given credit card payment possible.

Credit card processing fees are complicated because a range of factors can influence a merchant’s overall processing costs, including how you do business, what you sell, which card brands you accept, and how you process payments (in-person, over the phone, or online).

Types of Credit Card Processing Fees

Generally, there are three types of credit card processing fees:

  1. Interchange Fees: Interchange fees (often called “swipe fees”) are fees that apply to each transaction. The money from interchange fees goes to your customers’ card issuing banks.
  2. Card Network Assessments: Assessments are fees paid to the card brands themselves (e.g. Visa and MasterCard).
  3. Payment Processor Markups: Markups are the fees payment processors add on to support their services and make a profit.

When it comes to potentially saving money on payment processing, it’s the third category—the payment processor’s markup—that matters. This is because no payment processor can change anything about the interchange rates and assessment fees associated with any given transaction, but payment processors do determine the added costs they charge merchants for their payment processing services.

We’ll take a detailed look at each type of credit card processing fee in the sections below.

Interchange Fees & Rates

Let’s start with interchange fees and rates—by far the most costly and complex category when it comes to credit card processing fees. These are the non-negotiable rates set bt the credit card networks for each transaction, and they will represent somewhere between 70% to 90% of your overall processing costs when you accept credit card payments at your business.

How Interchange Fees Work

In most cases, an interchange rate will include two components: 1) a percentage of the total sale, and 2) an authorization fee or per-item fee expressed as a dollar amount.

For example, if you processed 15 transactions for a combined total of $375, each payment was from an ordinary Visa consumer credit card, and each transaction qualified for Visa’s Credit CPS Retail interchange rate of 1.51% + $0.10, your total interchange fees would be calculated like this:

  • 1.51%($375) + $0.10(15) = $7.16.

Here, your average sale is $25, and the interchange fees come to 1.9% of your overall sales.

Suppose, however, that you take in the same amount in sales ($375) but spread out over 50 transactions instead. In this case, your interchange fees would be higher because you’re generating more per-item fees:

  • 1.51%($375) + $0.10(50) = $10.66.

Here, your average sale is $7.50, and the interchange fees come to 2.84% of your overall sales.

Of course, not all interchange rates are 1.51% + $0.10. There are hundreds of possible interchange rates depending on your business type, the transaction type, the card brand you accept, and the type of card your customer uses to pay (credit cards, debit cards, rewards credit cards, business credit cards, and so on)—far too many possibilities to list out here.

If you’d like to take a truly deep dive, you can view the current Visa interchange rates and MasterCard interchange rates at their websites (unfortunately, Discover and American Express don’t publish their rates online). For most businesses, however, a high-level overview of the factors that influence interchange rates is all that’s needed.

Factors Determining Interchange Rates & Fees

Interchange rates are determined by 4 main factors. You’ll notice, however, that these categories overlap, so the interchange rate for any given transaction isn’t determined by a single factor alone.

The brand of the card used determines the general rates that might apply. Your business type provides an additional sub-category. The type of card used (debit, consumer credit, rewards, etc.) adds in another factor. And the circumstances surrounding the transaction (whether the card is present or not) make for an additional determining factor. These factors merge, so to speak, to generate the interchange fees your business pays.

Here are the key details you’ll need to know:

Card Brand

Every card brand sets its own interchange rates, so the brand of the card your customer uses to pay is the foremost factor in determining the interchange rate for the transaction. In general, Visa and MasterCard have relatively similar interchange rates overall because they are true “card networks” that don’t issue credit cards directly to consumers.

Because Discover and American Express are both card issuers, however, their rates tend to be more unique. American Express is famously the most expensive of the major card brands for merchants because of its wide range of rewards programs and other perks for its members.

Business Type

The card payment industry is almost entirely risk-driven, so businesses that present higher levels of risk for fraud and chargebacks (payment disputes) tend to pay higher interchange fees on average.

As such, if you run a traditional brick-and-mortar store (in a low-risk industry that retail) that mainly takes payments face-to-face, your interchange fees will typically be lower than if you belong to a high risk industry, accept payments online, or take card information over the phone.

Card Type

In general, you’ll pay less to accept debit card payments than credit cards (again because of debit card’s low risk–the funds are already there in your customer’s bank account, so nothing has to be repaid).

Beyond that distinction, you can expect to pay higher interchange fees when your customer uses a card with “perks” that go beyond those of an ordinary consumer credit card. Why? Because the card brands support their rewards programs for consumers by charging you higher fees when your customers use those types of cards to make purchases.

Transaction Type

Lastly, the way you accept a card payment heavily influences the interchange fees you’ll pay (and, once again, this is a risk-driven issue). If you swipe, chip, or tap a card at a payment terminal, the transaction will be considered “card-present” and carry a lower interchange fee.

If you accept the payment online through a website or manually key-in the card information even when the card is physically present (as when a card is defective and won’t swipe or chip), a higher interchange rate will apply because the risk of fraud increases for all card-not-present transactions.

Card Network Assessment Fees

Card network assessment fees (also called card brand fees) are the next big category of credit card processing fees you’ll pay. Like interchange rates, assessment fees are set by the card networks (and so differ depending on the brand of card your customer uses).

Importantly, assessment fees can’t be negotiated, can’t be changed, and can’t be avoided. Even if your payment processor uses a pricing model (such as flat-rate pricing) that doesn’t explicitly identify interchange fees and assessment fees, the rate you’re paying include them.

In the table below, you’ll find the basic assessment fees for the 4 major card brands. Note that these figures are specific to transactions involving credit cards, not debit or prepaid card transactions, but they’ll give you the general understanding of card network assessments that your business needs.

Card Brand Credit Assessment Fee
MasterCard 0.1375% of all MasterCard credit sales

(+ 0.01% for transactions greater than or equal to $1000)

Visa 0.14% of all Visa credit sales
American Express 0.15% of all American Express credit sales
Discover 0.13% of all Discover credit sales

Other Card Network Fees

Unfortunately, assessments aren’t the only fees the card networks will generate for your business. Your monthly merchant statements will likely include a slew of obscure micro-charges (tiny charges for data usage, international transactions, and so on). For example, Visa charges an “Acquirer Processing Fee” of $0.0195 (close to 2 cents) for each credit card transaction using a Visa card. And the possibilities don’t stop there.

There isn’t much profit in trying to list out all of these possible micro-charges. There are simply too many of them, and the way these fees are identified on merchant statements can vary wildly from payment processor to processor.

But, basically, every time the card network so much as sneezes, someone (you or your payment processor) has to pay for it. That someone is typically you.

Payment Processor Markups

Markups are the fees your payment processor adds into the mix to support its services and make a profit. These fees can include markups on transactions, monthly account fees, payment gateway fees, fees for optional “value-added services” (such as same-day funding) or more—basically, any fees you pay beyond assessments and interchange fees.

Because markups can and do vary from processor to processor, they are perhaps the most important type of credit card processing fee for merchants—because only here, with your processor’s markups, do you have any room to choose.

Processor Markups & Pricing Structures

The basic idea behind markups is like the difference between what a department store pays for a t-shirt and the price you pay when you buy it. The department store pays a wholesale price (equivalent to interchange fee and card network assessment for a card payment), and you pay a retail price—a price that typically includes the department store’s wholesale costs and whatever the department store needs to add on to support its business.

But, of course, the devil is in the details when it comes to payment processing. Depending on your pricing structure or pricing model, your payment processor’s markup will take a different form, so understanding how markups work really depends on understanding the various pricing models available when your business accepts credit card payments.

Here’s a quick overview of the 3 most common credit card pricing structures:

  • Flat-rate pricing: With flat-rate pricing, your processor will define a few basic transaction categories (often just card-present, manually-keyed transactions, and online payments) and charge a set rate for every transaction within those categories. The rates are usually fairly high—commonly ranging between 2.6% and 4.00% of your overall sales—because the rate stays the same regardless of the processor’s wholesale costs for each transaction.
  • Tiered pricing: With tiered pricing, your processor defines various rate “bundles” or “buckets,” usually based on the level of risk posed by the transaction in question (but extending to rewards cards, corporate cards, and the like), and then drops every transaction within one of those bundles. Depending on which bucket or tier a transaction qualifies for, you’ll pay a lower or higher transaction rate.
  • Interchange plus pricing: With interchange plus pricing, your processor will pass its wholesale costs—interchange fees and assessments—directly through to you, and then add its markups on top of that.

In general, neither flat-rate pricing nor tiered-pricing models are designed to be inexpensive. They’re designed to be simple. It’s pretty easy to understand and anticipate your costs month to month if you know the rates you’ll pay regardless of the complicated interchange fees and assessments generated (in the background) by those transactions.

But this simplicity often comes with a loss of transparency, on the one hand, and higher overall processing costs on the other. One key benefit of interchange plus pricing is that you can actually see the difference between what your processor charges you and what the card networks charge you in interchange fees and assessment fees.

Additionally, interchange plus pricing tends to be cheaper for businesses in the long run—particularly if your business is established, has a fairly high sales volume, and accepts a lot of credit card payments each month.

Credit Card Processing Fees FAQs

Can my business pass credit card fees to my customers?

Your business can put into practice cash discounts to cover the cost of credit card fees. Alternatively, you can charge customers a fee for paying with a credit card (called credit card surcharges) if the practice isn’t restricted in your state. It is generally illegal to apply surcharges to debit card and prepaid card transactions.

If you’re interested in applying surcharges for credit card payments, you’ll need to discuss this option with your payment processor because there are a range of complex rules to follow (maximums, whether to apply the surcharge at the brand or product level, and so on).

You’ll also need to weigh the downsides of credit card surcharges. Cardholders often frown on surcharges, and there’s no way to conceal the charge. Merchants must disclose the presence of surcharges to their customers (at the point of sale and on the receipt for the purchase).

What is the average interchange rate?

For debit card payments, the average interchange rate is 0.5% of the sale. For credit card payments, the average interchange rate is around 1.8%.

Are interchange rates negotiable?

No. Interchange rates are set by the major card networks and can’t be negotiated (not even by your payment processor). Note that interchange fees are actually paid to your customers’ issuing banks for taking on the risk of authorizing card payments, which is why they can’t be negotiated by processors or merchants. You can check out our detailed breakdown of how credit card processing works to get a better sense of where your money goes when you pay processing fees.

Are card network assessments negotiable?

No. The card brands set their assessment fees themselves, and they are the same for every payment processor and every merchant.

Are payment processor markups negotiable?

Yes, but with the following qualification. Most merchants won’t have much power to get a payment processor to lower their markups on their own, so the sense in which most merchants can “negotiate” markups usually comes down to the choosing a payment processor that offers lower rates.

This is why signing up with a processor through us can be so valuable. We have the power to negotiate rates and contracts for our clients—and this includes keeping the processor’s markups low.

What is a merchant processing statement?

Merchant processing statements are monthly statements your business will receive from your payment processor. Merchant statements typically show the volume of card transactions you accepted that month and your overall processing costs, though the details can vary widely depending on your processor and your pricing model.

In general, you’ll only see a clear breakdown of your credit card processing fees—from interchange fees to assessments to processor markups—if your business is on an interchange plus pricing plan.

Will I pay higher fees for online payments?

Generally, yes. Online credit card processing carries a higher risk of chargebacks and fraud, so you can expect to pay higher overall processing costs when you accept card payments online.

How can I save money on credit card processing fees?

They key to saving money on credit card processing fees is to find the right person to sign you up. This is because most payment processors locate and sign-up new merchants through agents who have some control over setting your overall rates and fees.

Is Northwest a payment processor?

No, but we work with processors to get our clients signed up to accept credit card payments or more. This includes finding the processor that’s the right fit for your business, negotiating processing rates, and providing ongoing customer support for your business after that.

Get a Free Credit Card Processing Consultation

We work with multiple payment processors to get low rates and better contract terms for our clients. If you’re already a Northwest client, you can request your free consultation in your online account. If you’re new to Northwest, choose the option below that’s right for you.

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