Business tips

Your guide to payment processing fees — and how to not get ripped off.

By Joshua Griffin on
post image

There’s no getting around it: accepting credit cards means paying processing fees. Several factors affect how much you pay, including your payment processor, the card provider, and the type of transaction. Here’s what you need to know to avoid shelling out too much for offering your customers the convenience of paying with plastic.

Rate and fee structures.

Fees for payment processing include two types of charges:

  • Wholesale prices — made up of interchange fees paid to card-issuing banks and card association fees paid to card brands.
  • Markup — set by payment processors or payment gateway providers.

How these fees are charged and how they appear on your bill depends on the structure your provider uses. Providers typically use one of the following three structures.


A tiered model charges markup based on the level of risk involved in transactions, which are categorized as qualified, mid-qualified, or nonqualified. Payments must meet a set of standards to be labeled qualified and receive the lowest rates.

Flat fees.

This structure “flattens out” the tiered approach so that you pay one fee for all transaction types regardless of risk. Fees may consist of a percentage of the total transaction or a percentage of the purchase price with a fixed fee tacked on.

Interchange plus.

This is the most recognizable fee system, in which you pay the basic interchange fee plus markup, either as a percentage or a fixed amount. This separates the wholesale costs from the markup on your bill so that you can see exactly what your provider charges over and above the base rates.

Because processors and merchant service providers are required to pay both interchange and card association fees, you’re pretty much stuck with these. However, some providers may be willing to negotiate markup if you’ve been a customer for awhile and handle a high volume of transactions.

Additional fees to consider.

Processing fees aren’t the only costs associated with accepting credit cards. Your payment processor or merchant account provider may also charge these industry standard fees:

  • Terminal fees for the use of terminal equipment.
  • Statement fees for issuing paper or electronic statements.
  • Incidental fees for chargebacks or non-sufficient funds.
  • Monthly minimum fees if you fail to meet the minimum required number of transactions.
  • Online payment gateway fees.
  • Merchant account fees.
  • PCI compliance fees.
  • Account setup or cancellation fees.
  • Batch processing fees when batches of payments are submitted.

Some of these fees can be avoided by choosing a provider without a lengthy service contract or using a robust point-of-sale solution in which the merchant account and other necessities are bundled together.

Since rates and fees differ between providers and you want to minimize how much of each transaction you lose, shopping around is the smartest approach for securing the lowest payment processing costs. Compare features as well as rates to get the best value for your investment and ensure your customers enjoy hassle-free payments.