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Every card payment your business accepts comes with a cost. Here's a breakdown of what you're actually paying, why, and what you can do to keep more of what you earn.
Every time you buy something with a credit card, a small portion of that sale goes to processing fees. Most consumers don’t see those costs, but for small businesses, merchant processing costs can add up quickly.
Credit card fees usually range from 1.5% to 3.5% of the total sale. As a small- or medium-sized business (SMB), if you sell a $100 item, between $1.50 and $3.50 of that transaction will be divided among banks, networks, and processors before the rest reaches your bank account.
As your volume grows, so will the cost of taking payments. For instance, if your business does $100,000 per month in credit card transactions, between $1,500 and $3,500, on average, will go toward paying those fees.
In 2023, U.S.-based businesses paid $224 billion in credit card processing fees. Although there’s no way to get around card fees altogether, there are opportunities to minimize them. So, let’s break down the different types of credit card processing fees and what you can do to lower them.
Credit card processing fees — or processing rates — are the cost businesses pay to accept credit and debit card payments for their goods and services. Fees are split between a few people in the payments ecosystem, including:
Every time your customer swipes, dips, or taps their card, those organizations take a slice of the sale. Understanding who gets what will help demystify the cost of accepting credit cards and give you leverage when comparing providers.
Card-issuing banks like Citi, Chase, and Wells Fargo collect the largest share of fees, also known as interchange fees. These costs cover everything from assumed credit risk to fraud protection and transaction handling.
Card networks like Visa, Mastercard, Discover, and American Express charge assessment fees for access to their infrastructure. These costs support the secure global systems that make card transactions possible.
Payment processors are the companies that manage transaction logistics, deposit funds into your merchant account, and offer value-added tools like advanced reporting, customer support, or point of sale (POS) integrations. These companies often charge a markup or service fee to cover their services.
During online transactions, payment gateways securely transmit a customer’s payment information to the processor. Gateways are often built into the processor’s platform, but if you’re using a separate, third-party gateway, there may be additional fees.
Credit card fees often go beyond the standard percentage per transaction. Here’s a breakdown of the most common fees you might encounter as a business owner.
Interchange fees are set by the card networks and paid by a merchant’s acquiring bank to the card-issuing bank to compensate issuers for costs like fraud risk, transaction processing, and cardholder rewards. Interchange fee rates can range from 1.15% to 3.25% or more per transaction. These costs vary by card type, transaction method, and industry.
Assessment fees are charged by card networks like Visa and Mastercard for processing transactions through their payment networks. These fees are typically around 0.13% to 0.15% of each transaction. Although they’re more consistent than interchange fees, assessment fees can vary based on factors like transaction type or whether a payment is domestic or international.
Processor markup reflects what payment processors charge for providing the technology and services needed to manage transactions, including payment authorization, transaction routing, and customer support. Processors play an important role in the payments ecosystem by ensuring transactions move securely and reliably from one party to the next.
Processor costs vary based on pricing model, but the most common include:
Gateway fees are the charges payment gateway providers collect to handle online transactions. Gateway pricing often includes one or both of the following:
There are a few more costs to be aware of, ranging from monthly minimums to fraud-related chargeback fees. Here’s a quick look at some of the most common ones:
Payment providers structure their credit card processing fees in several different ways. Here are the three most common models you’ll see.
Flat-rate pricing is a fixed-fee structure in which businesses pay the same rate for each transaction. For instance, a payment company might charge 2.6% + $0.10 every time you take a payment, regardless of what you sold or the final price. It’s the most expensive pricing structure. While it’s convenient for some merchants, flat-rate processing rates can quickly add up and erode profit margins in high-volume businesses.
Here are the pros and cons of flat-rate payment pricing:
Pros:
Cons:
Tiered pricing divides transactions into three categories based on card type and payment processing method. Transactions are categorized as:
In tiered pricing, interchange rates are the lowest for qualified transactions and the highest for non-qualified transactions. This structure also includes a percentage-based fee based on the card type.
Overall, tiered pricing is generally less expensive than flat-rate pricing since you don’t have to pay as much for qualified transactions. Here are the pros and cons of this pricing model:
Pros:
Cons:
This model charges the actual interchange fee plus a fixed markup from the processor. For instance, you might pay 1.8% + $0.10, depending on the card and how it’s used. With interchange-plus pricing, you always pay the underlying rate plus a consistent, clearly defined markup that goes to the processor. This model lets you to cut costs on qualified transactions while knowing exactly how much will be sent to your processor.
Pros:
Cons:
Credit card processing rates aren’t just a transactional expense — they directly impact your total cost of ownership over time. That means a seemingly small difference in fees can translate into thousands of dollars annually, especially for businesses with high sales volumes. Thankfully, with the right strategies, you can lower processing fees and keep more of what you earn without changing how you do business.
Here are seven practical ways to get started:
Interchange-plus is the best pricing model for most businesses. It separates card network costs from processor markup fees, so you always know exactly where your money is going and save more long-term.
No fee payment processing options let you compliantly pass your merchant processing costs along to your customers. When choosing a payment provider, ask if they support cash discounting, dual pricing, or surcharging so you can keep more of what you earn.
Payment processors have more wiggle room in their pricing than you might think. Ask about how you can lower your per-transaction fee or monthly service charges — especially if sales are steady.
Leasing card terminals might sound convenient, but the long-term cost can be up to five times higher than buying hardware outright. Payment equipment usually pays itself off after just a few months.
High-risk businesses (like CBD, firearms, gaming, and travel) often have to pay higher interchange rates to cover the increased risks of fraud, chargebacks, and legal restrictions.
On the other hand, business-to-business (B2B) and business-to-government (B2G) companies may be eligible to apply for Level 2 or Level 3 processing, which offers lower processing fees in exchange for more detailed transaction data.
Understanding what type of business you operate can often help you navigate and even reduce credit card fees.
Being PCI-compliant protects your customers’ data and prevents costly non-compliance fees.
Take the time to fully understand your monthly statements and keep a close eye out for vague charges labeled “regulatory fees,” “service add-ons,” or “batch fees.” These might be unnecessary or inflated. If something looks off or is unclear, ask your provider to explain or justify the charges.
Small changes can lead to major savings, especially as your business grows. At Flute, we’re here to help you get the best deal and keep more of what you earn on every transaction. To learn more, reach out to a member of our team.
