Demystifying Credit Card Processing Fees

If you have ever sat down and reviewed your monthly Merchant Statement, it has likely left you bewildered. All merchants know that it costs money to accept credit cards. However, with terms like Interchange Rates, Dues and Assessments, Gateway Fees, PCI fees and the like, it can truly be confusing to understand. To fully demystify the fee schedule could take an entire week. Let’s break those fees down into a basic level so that you know how processing fees are calculated and what exactly you are paying for. We’ll even tell you how to get rid of those pesky fees forever! 

 What’s Everyone Paying? 

Merchants always wonder if they are getting a good deal from their processor. You’ve likely been called on by a processor who wants to lure you away from your current processor with a promise of great savings. All processors pay the exact same wholesale rate based on the type of card presented for payment, the method the payment was received and the type of business you operate. If you use Square for processing, every transaction keyed into a virtual terminal will cost 3.5% of the amount plus a .15 transaction fee. The same transaction could cost less than half of that amount with the right Merchant Services Provider. On average, most merchants paid fees between 1.4% to 4.35% in 2022 according to a report published by SoFi Bank. 

 Who Gets Those Fees? 

Contrary to what most merchants think, your credit card processor is not getting rich from all those fees. In fact, your processor gets the smallest piece of the pie while collecting fees for others. The bank and card network assess fees based on a fee schedule called the Interchange Rate. The bulk of Interchange fees goes to the bank that issued your customer’s credit card and a smaller amount goes to the respective brand, such as Visa or Mastercard. Those rewards and cash back bonuses must be paid by someone. That someone is merchants. Interchange fees are non-negotiable and based on many factors such as the type of card presented by your customer and your industry.  

 Interchange Rate Factors 

There are a few factors that go into calculating how much a merchant is charged. The first factor is the type of transaction. Card present, card-not-present, online payments and contactless payments have a role in the Interchange rate schedule. The type of card used for payment is another factor. The fees for Mastercard Core cards are significantly less than World Elite cards which provide the maximum benefits for the cardholder. Visa has a similar rate schedule based upon Classic, Gold, Infinite and Infinite Privilege cards. Visa’s lowest Interchange Rate is 0.8% with a maximum of 2.45%. Consider these numbers to be the wholesale rates. It is the same for all processors and processors mark-up these rates much as you mark-up items for retail sale from your wholesale cost. 

 Industry Rate Factors 

Because some businesses are riskier than others for fraud and chargebacks, the Interchange Fee schedule may be higher for a $100 transaction in a restaurant than a retail in-store purchase. Each industry has its own fee schedule based upon your Merchant Category Code (MCC).  

Assessment Fees 

These small fees are assessed by the credit card brands. These fees vary from 0.08% to 0.09% of the transaction and are usually a monthly fee based on total monthly sales. 

 Terminal Fees 

Terminal fees are fees paid for a monthly rental or lease on terminals your customers use to complete the sale. 

 Payment Gateway Fees 

Payment gateway fees are charged either as a monthly or per item fee and connect your online store or website to your merchant account.  

 PCI Fees 

PCI fees go directly to The PCI Security Standards Council (PCI SSC). This is a global forum that brings together payments industry stakeholders to develop security standards for safe payments worldwide. These fees help ensure the security and fraud prevention of credit card networks and can be assessed monthly or annually. The fee is collected by your credit card processor on behalf of the PCI Security Standards Council. 

 Incidental Fees  

Incidental fees are assessed when something happens on your end. A few examples include a non-sufficient funds fee when you don’t have enough money in your account to pay your fees or you encounter a chargeback.  

 Eliminating Fees 

There have been several rule changes in the past few years that allow Merchants to pass the cost of accepting credit card payments on to consumers paying by credit card. Some people call these programs Zero-Cost Processing while others call them Cash Discounting. Using technology, customers can be offered a choice of paying a lower cash price or continuing with a credit card transaction that can add charges of up to 2.4% to the total bill.  

 Interested in learning more about eliminating fees? Send us an email at or call us at 833-287-6722. You’ll be saving money in no time!