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Jan 16, 2024

What are credit card processing fees?

Business Mehdi Punjwani Alana Rudder “Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy. BLUEPRINT Published 3:37 a.m. ET Aug. 31, 2023 Editorial

Business

Mehdi Punjwani

Alana Rudder

“Verified by an expert” means that this article has been thoroughly reviewed and evaluated for accuracy.

BLUEPRINT

Published 3:37 a.m. ET Aug. 31, 2023

Editorial Note: Blueprint may earn a commission from affiliate partner links featured here on our site. This commission does not influence our editors' opinions or evaluations. Please view our full advertiser disclosure policy.

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Credit cards are an essential form of payment for millions of Americans, and processing credit card transactions is an unavoidable requirement for merchants. However, each swipe comes with fees attached from credit card issuers like banks, as well as credit card networks and payment processors. How much they add up to can depend on a range of factors.

In this guide on credit card processing fees, we will overview the fees themselves, how they work and what merchants can do to reduce their impact on profits.

A credit card processing fee is what merchants pay the payment-card issuer each time they accept a credit card payment. Credit card issuers charge different types of fees for each transaction, including interchange and assessment fees. In addition, payment processors charge their own fees.

Interchange fees make up the bulk of the overall cost of processing credit card payments. They are charged by the bank that issues the payment card to cover the service of handling the transaction. It also covers the cost of potential fraud, bad-debt costs and the risk of approving the credit card payment.

For example, interchange fees are higher for transactions in which the card owner is not present to swipe the card, such as for e-commerce transactions, because this circumstance poses a higher risk of fraud. Conversely, in-person interchange fees are generally lower because an owner-present transaction comes with less risk of fraud.

Assessment fees are charged by the credit card network, such as Visa or Mastercard, generally on a basis of monthly sales volume rather than per transaction. They are designed to cover the operating costs of running the network. Assessment fees are usually lower than interchange fees.

Payment processor fees are paid to the payment processing company that merchants use to accept credit card payments, such as Helcim or Square. The fees charged by these companies can be broken down further into the following:

Payment processors may also charge the following fees depending on your chosen service package:

There are some other fees to consider when accepting credit card payments, and some depend on the type of payment card. They include the following:

Most payment processor companies charge fees based on one of the following payment models:

The fees you pay to process credit card transactions are influenced by multiple factors, such as:

Most states in the U.S. allow merchants to charge processing fees to customers. These are usually convenience fees, a charge for the customer using a nonstandard payment method or a surcharge, which is what a business will apply to customers for certain specified payment methods. Merchants must, however, inform customers about the surcharge at the point of sale.

Five states in which it is illegal to charge such fees include:

Not all states allow merchants to charge fees to customers and not all credit card processors allow them either.

Credit card processing fees can make a noticeable dent in profits. Here’s how merchants can work to reduce these costs:

Square offers a Plus membership at $29 a month, plus processing fees, with packages for different types of businesses:

Quickbooks Payments also offers a membership package. Its Essentials plan is $60 a month (or 50% off for the first three months) with the following rates:

For some of the lowest fees in the industry, we recommend:

Blueprint is an independent publisher and comparison service, not an investment advisor. The information provided is for educational purposes only and we encourage you to seek personalized advice from qualified professionals regarding specific financial decisions. Past performance is not indicative of future results.

Blueprint has an advertiser disclosure policy. The opinions, analyses, reviews or recommendations expressed in this article are those of the Blueprint editorial staff alone. Blueprint adheres to strict editorial integrity standards. The information is accurate as of the publish date, but always check the provider’s website for the most current information.

Mehdi Punjwani

BLUEPRINT

Mehdi is a writer and editor with many years of personal finance expertise under his belt. He's a spirited money-saver, with a passion for making personal finance accessible and manageable. When he isn't writing, Mehdi likes to read about history and travel, hike along coastlines and in forests, and watch his beloved team Manchester United underperform.

Alana Rudder

BLUEPRINT

Alana is the deputy editor for USA Today Blueprint's small business team. She has served as a technology and marketing SME for countless businesses, from startups to leading tech firms — including Adobe and Workfusion. She has zealously shared her expertise with small businesses — including via Forbes Advisor and Fit Small Business — to help them compete for market share. She covers technologies pertaining to payroll and payment processing, online security, customer relationship management, accounting, human resources, marketing, project management, resource planning, customer data management and how small businesses can use process automation, AI and ML to more easily meet their goals. Alana has an MBA from Excelsior University.

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