Credit-Card Processing Fees: A Guide for Shoppers (and Merchants)

Merchants and all other types of businesses see credit-card processing fees as a necessary evil. That's because, like it or not, businesses must pay these fees if they want to accept credit cards as payment for the goods and services they provide.

Credit-card processing fees vary widely based on the type of processing fee being charged, the payment network, and other factors. However, these fees typically amount to 1.5% to 3.5% of the total of each transaction. Businesses can absorb these fees as part of the cost of doing business, but most ultimately pass them on to customers in the form of higher prices.

Types of credit-card processing fees

The term "credit-card processing fee" encompasses a broad range of charges merchants and businesses pay to credit card companies and payment services providers. All fees that fall in this category are used to facilitate the completion of credit card transactions.

Before a merchant accepts credit cards as payment, it must set up and agree to a merchant discount rate (MDR). This rate is the amount ultimately charged to the business for accepting credit cards, and it is broken down as follows:

Assessment fees

Assessment fees are charges made to a business based on its card acceptance. The amount collected is sent to credit card networks, including American Express, Discover, Mastercard, and Visa. Each card network sets its assessment fee structure with the funds going to help pay its operating expenses.

Interchange fees

Interchange fees are a component of the merchant discount rate (MDR) that goes to the bank facilitating a credit card transaction. This could be a financial institution such as Bank of America, Chase, or Wells Fargo. Note that interchange fees make up the largest portion of the merchant discount rate (MDR).

Payment processor fees

Payment processor fees are also part of the merchant discount rate (MDR), and these fees go directly to payment processing companies that help move credit card transactions to the finish line. Common payment processors include such companies as Helcim and Square.

Note that payment processor fees can be charged in different increments depending on the agreement. Some merchants may be charged payment processor fees for all transactions just once per month, whereas others can be charged annually or on a per-transaction basis.

Typical costs from major credit card networks

Credit card network charges vary by company and based on the type of transaction moving through the system. According to payment processor Payment Depot, average credit-card processing fees across all networks range between 1.5% and 2.9% for transactions in which the credit card is present. For online purchases, the average processing fee is 3.5%.

The chart below shows the average credit card network fees for each of the major networks: American Express, Discover, Mastercard, and Visa.

Why are American Express processing fees higher?

American Express charges higher processing fees than Discover, Mastercard, and Visa. While a percentage point or two may not seem like a significant difference for companies, imagine how much these fees add up for businesses with high-volume sales.

For example, paying a 1.4% fee for Visa transactions on $100,000 in sales translates to $1,400 in fees, whereas paying 2.3% in American Express fees translates to $2,300 in fees. These higher fees can make accepting American Express considerably more expensive for merchants. Some companies opt not to accept cards from this issuer and network.

That said, American Express goes out of its way to attract more affluent customers who pay large annual fees for considerable card perks. For example, American Express offers one of the highest-priced premium travel cards from a major network available today: the Platinum Card® from American Express ($695 annual fee). Simply put, the company believes its product justifies the higher transaction fees.

So far, it appears to be correct. According to the card network, American Express is accepted at 99% of places that accept credit cards as payment—despite its pricer processing fees. The company also boasts that American Express credit card customers spent 60% more than non-card members on a per-transaction basis in 2023.

What are the different pricing models for processing fees?

Different pricing models can apply to credit-card processing fees, and some merchant services providers offer more than one option.

Flat-rate pricing

Flat-rate pricing is a pricing model in which every transaction incurs the same processing rate, making it easier for businesses to budget for this expense (and estimate costs). Flat-rate providers typically avoid charging additional monthly fees, but transaction costs can be higher overall.

Interchange-plus pricing

This pricing model separates network interchange fees from payment processor fees. Not only is pricing more transparent this way, but it can lead to savings because some types of transactions require lower fees overall. And, according to Payment Depot, interchange-plus pricing makes it easier for companies to integrate their credit-card processing fees into QuickBooks accounting software.

Subscription pricing

Subscription pricing uses a membership model to cover transaction fees. Merchants pay a monthly fee for services, and that fee covers all credit-card processing fees. This pricing model is geared toward high-volume businesses that have considerable credit card transactions on a monthly and annual basis.

Tiered pricing

Tiered pricing offers multiple flat rates for different types of cards. According to Payment Deposit, a typical tiered pricing structure will offer three tiers—qualified rates that apply to debit cards and non-rewards credit cards, mid-qualified rates that apply to standard rewards credit cards, and non-qualified rates that apply to premium credit cards and transactions where the card isn't present.

This pricing model has the potential to be advantageous for merchants that accept a lot of payments from debit cards and credit cards that don't earn rewards. Since companies have no control over that aspect of their business, however, tiered pricing can be more expensive in the long run.

Typical costs for credit card processors

Merchant services providers change their own set of fees that add to the total costs of credit-card processing fees. These fees also vary by provider and by the type of transaction taking place.

The chart below shows some of the most common credit card processors and what they charge for transactions. Note that some processors charge different fees for in-person and online transactions. What’s more, some companies charge fees to the merchant, whereas others charge at least some processing fees directly to the shopper making a purchase.

What determines interchange fees?

Interchange fees are set by banks that facilitate credit card transactions. Factors used to determine these rates include the credit card network being used, the merchant category code (MCC) for the transaction, security measures in place for the transaction, and payment processing in use.

How do credit card swipe fees impact consumers?

The National Retail Federation (NRF) estimates that credit-card processing fees cost the average American family $1,000 annually. Consumers ultimately pay the price for exorbitant swipe fees, either in the form of higher prices or through credit card surcharges that apply for this form of payment.

On the flipside of that, small business owners that must accept credit cards as payment to stay competitive also feel the pain. The NRF reports that the high cost of swipe fees can be especially burdensome for small companies that must pay higher rates than large companies able to negotiate discounts or pay a bulk rate for payment processing.

How to lower your credit-card processing fees

If you're a business owner who wants to keep costs for accepting credit card payments at a minimum, here are some steps you can take to reduce this expense.

Ask customers to pay credit-card processing fees

First and foremost, you can ask your customers to pay credit-card processing fees on top of their purchases. Some credit card processors facilitate this option: For example, CardX charges a 3% fee to customers who pay with a credit card, which brings the merchant credit-card processing fee down to $0.

Conversely, you can rephrase your credit card surcharge as a "cash discount" for customers who don't pay with credit. Either way, you should know that businesses have to follow rules and regulations within the state where they operate. For example, businesses that operate in Connecticut, Massachusetts, and Puerto Rico are prohibited from adding a credit card surcharge to transactions.

Keep chargebacks at a minimum

A credit card chargeback occurs when a customer is dissatisfied with a product or service and decides to dispute the purchase with the credit card company. Although many chargebacks are legitimate, chargeback fraud is also a huge business. Per a study from Juniper Research referenced by payment company Stripe, chargeback fraud cost businesses $20 billion worldwide in 2021.

According to the U.S. Chamber of Commerce, businesses can reduce chargebacks and chargeback fraud by:

• Complying with Payment Card Industry Data Security Standards (PCI DSS)
• Training employees on how to process credit card payments over the phone and in person
• Requiring customer signatures for delivered purchases
• Keeping transaction records and receipts
• Writing a clear refund and return policy that's easy to understand

Shop around for a payment processor

Shop around for a payment processor that offers affordable rates, pricing models that make sense for your business and its revenue projections, or both. You can opt for interchange-plus pricing, tiered pricing, subscription pricing, or flat-rate pricing, but there's a good chance one of those options will be less expensive for your business overall.

The U.S. Chamber of Commerce also points out that you can negotiate rates with a payment processor, but this may only work if your revenue is relatively high. For example, credit card processors including Square and PayPal require merchants to have $250,000 or more in transactions each year before they can negotiate.

Verify addresses at the point of sale

Finally, the Chamber says you can reduce processing fees if you use an address verification service (AVS) that confirms each customer's billing address and ensures it matches one that customers enter at the point of sale. This process takes place during checkout, and it can reduce chargebacks for online purchases.

TIME Stamp: Credit-card processing fees are pricey and nearly unavoidable

Credit-card processing fees are a big expense for businesses. In fact, the NRF says processing fees are many merchants' highest business costs after labor.

While there's no way for businesses to avoid credit-card processing fees unless they refuse to accept credit cards, it's possible to reduce these fees by taking some precautions to prevent chargebacks, shopping around for a payment processor, and choosing the right payment model for their type of business and the number of transactions they process each year.

On the consumer end of the equation, we all pay the price for credit-card processing fees— whether we like it or not.

Frequently asked questions (FAQs)

Who pays the 3% credit card fee?

Credit-card processing fees are largely paid by merchants, although some businesses charge a credit-card processing fee directly to customers. Even when customers are not directly charged the fee, businesses charge higher prices to cover their operating costs and retain a profit.

Can I charge my customers a credit-card processing fee?

You may be able to charge customers a credit-card processing fee as long as it's not illegal in your state. Currently, it's illegal to charge credit-card processing fees in Connecticut, Massachusetts, and Puerto Rico.

Can merchants charge 2% extra on credit card payments?

Merchants can charge customers a credit-card processing fee at their discretion as long as it's not prohibited where they do business.

How much do credit card companies charge merchants?

Credit-card processing fees typically amount to 1.5% to 3.5% of the total of each transaction. However, these totals include a broad range of fees that go to credit card networks, banks that issue credit cards, and credit-card processing companies.

How often do payment networks update their interchange fees?

According to Stripe, credit card networks update their interchange rates twice per year. These updates typically take place in April and October.