Merchant’s Guide to Credit Card Processing Fees


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So you’ve opened a small business and you’re ready to accept your first customers — but you still have to figure out how to accept their credit cards. Whether you’re selling products or services online or operating out of a brick-and-mortar storefront, you’re going to need to work with a credit card processing service in order to allow credit card transactions. This often means getting a crash course in credit card processing fees, which can cost small business owners more than they realize.

Whether you use a simple credit card processing app like Square or sign up for a merchant account with a company like Fattmerchant, you need to understand what credit card processing fees are, how they work and how you can reduce the impact they have on your business. Can you pass credit card processing fees off to your customers? Is it possible to negotiate a lower credit card processing fee? Does Visa or Mastercard charge higher fees than Discover or American Express? Here’s what you need to know.

What is a credit card processing fee?

Every time a customer makes a purchase with a credit card, a credit card processing company can charge a credit card processing fee. Most small business owners do not have the capacity to process credit card transactions on their own, so they work with a third-party credit card processing company to ensure customers’ credit card transactions are completed swiftly and securely. In return for providing this service, the credit card processing companies charge per-transaction processing fees.

Credit card processing fees should not be confused with interchange fees, which are the fees that a bank or lender charges when a merchant processes a credit card payment — and yes, most small businesses pay both credit card processing fees and interchange fees on each credit card transaction.

Who pays for a credit card processing fee?

Small business owners are responsible for covering the costs of credit card processing fees. In many cases, the credit card processing service will deduct all applicable processing and interchange fees before transferring any money earned through credit card purchases to the business owner’s account.

How much are credit card processing fees?

Credit card processing fees vary depending on which credit card processing service you use. The credit card transaction process includes multiple steps, and each step can come with its own small fee — so your total processing cost might include transaction fees, interchange fees, network processing fees, and more.

If you use a service like PayPal, Square or Stripe, you’ll pay a flat credit card processing fee per transaction, as follows:

  • PayPal: 2.9 percent plus a fixed fee depending on the currency for online transactions, and 2.7 percent for in-person transactions
  • Square:6 percent + $0.10 per transaction
  • Stripe: 2.9 percent + $0.30 per transaction; goes down to 2.7 percent + $0.05 per transaction if you purchase a Stripe payment reader

Why are processing fees so high?

Credit card processing fees are priced the way they are for several reasons. Credit card fraud costs the credit card industry over $25 Billion (2018 figures), which get passed on to all the stakeholders involved.

Second, processing credit card transactions is complicated, and includes everything from checking for fraud to ensuring the customer has enough of an available credit card balance to cover the purchase — and that’s before the processing service begins moving all of those transacted amounts from one account to another.

Third, because credit card processing is an industry, they are incentivized to price their services as high as the market will bear — which, as a small business owner, you probably understand.

How can I avoid or limit credit card processing fees?

Here are some ways to reduce the cost of credit card processing fees:

  • Compare the total cost of all processing, interchange and membership fees before committing to a processing service — the company offering the lowest per-card fee may not actually be the most affordable option.
  • If you already have a merchant account with a credit card processing company, you might be able to negotiate a lower fee rate.
  • If your processing company charges a fee per credit card batch, request that they only process batched transactions once a day.
  • Practice good credit card transaction security. If your business processes credit cards in a way that is more likely to lead to fraudulent credit card transactions, your credit card processing fees might go up.

What is the cheapest credit card processing for small businesses?

The cheapest credit card processing for small businesses depends on the size of the business. If your business is relatively small, your best option is a payment service provider (PSP) like Square, PayPal or Stripe. These services are free to set up and don’t charge any monthly fees. You’ll only pay per credit card transaction, which is great if your business is just getting started and you aren’t processing a lot of credit card transactions yet.

If your business is processing over $10K of credit card transactions per month, you’ll want to look into a merchant account with a credit card processing company. Merchant accounts come with monthly membership fees, but offer lower credit card processing fees per-transaction — which means you could save a lot of money over time. Merchant Maverick is a great place to learn more about merchant accounts and evaluate potential options.

Can I pass on credit card processing fees to customers?

Some small business owners choose to pass some of the cost of credit card processing along to the consumer — either by raising prices, adding point-of-sale fees (often called surcharge or convenience fees) or by limiting credit card transactions to purchases above a certain dollar amount. There are state and federal laws that cover what business owners can and can’t do in terms of charging customers additional fees or imposing minimum transaction limits, so learn how these laws might apply to your business before you start adding fees or limiting transactions.

Do merchant fees differ between Visa and Mastercard?

Credit card processing fees can differ between Visa, Mastercard, Discover and American Express, depending on the processing service being used. If you use a PSP like PayPal, Square or Stripe, expect to pay the same fees on every transaction no matter which credit card is being processed. Small business owners who set up a merchant account with a credit card processing company may pay slightly different amounts for cards issued by different lenders, depending on the way the merchant account is structured.

Some small business owners choose not to accept American Express because of the high merchant fees associated with the lender — however, they may want to consider American Express OptBlue as a method of reducing the cost of Amex credit card processing. In general, credit card processing companies want to make the credit card transaction process as affordable as possible while still remaining profitable, so look for a company that offers credit card processing fees that make sense with your small business’s size, needs and long-term goals.