While successfully conducting a business in 2022, you’ll likely observe paying credit card processing fees is an avoidable expense. This is completely true for eCommerce businesses especially. These fees take place because there are various parties involved in a credit card transaction and each party takes a little percentage of the total.
 
The payment processor, card network, issuing bank, acquiring bank, and payment gateway all play their role in each transaction. Finally, there are applied costs involved in ensuring successful transactions go through in tokenized fashions without a pull, these fees are transferred to the merchant according to the merchant account agreement. As a merchant, your fees combine additional costs based on your sort of business and credit risk.
 
In a chance to shrink this expense. You may ask yourself if you can give away these fees to your customers. Can you end up with a lower fee? Do some companies ask for more fees than other companies? Below, you’ll find answers to all of these questions and much more.

Approximate Credit Card Processing Fees

Many new business owners quickly invent that credit card processing fees charge much more than they’d earlier thought. While the percentage keeps on changing depending on several factors. The average credit card processing fee bracket starts from 1.5% to 3.5% per transaction.

How Payment Processors Discover Credit Card Processing Fees

There’s no standard set for credit card processing companies to follow when administering merchant account fees. However, there is a standard set of disclosure as well as common fee structures. The initial four credit card networks let go of their interchange rate fee schedule yearly. These fees are the ones they (Visa, MasterCard, Discover, and American Express) allow to run various types of credit cards (note that this is not the complete fee to process a transaction. This is generally the portion that goes to the card brands).
 
Each credit card processor operates accounts differently based on many various factors, but it all brings down to risk. Thus, the processing fees each merchant pays are generally different. Some stagnant factors that decide merchants’ credit card processing fees are given as follows:
 
Merchant Category Code– A merchant category code (MCC) is a four-digit number used by credit card issuers to know the type of business in which a merchant gets busy.

Processing Method – How are merchants accepting card payments, in-person, taking orders over the phone, or transacting online. Each method carries a different level of both fraud and chargeback risk.

Processing History – A merchant’s processing history is a part of many factors like the amount of time they’ve been processing transactions. The volume of transactions, refund ratios, and chargeback ratios.

Merchant’s Personal Credit Score – Many times. The personal credit score of the merchant is a factor in determining their business’ credit card processing fees. FICO credit scores calculate a consumer’s creditworthiness on a scale ranging from 300 to 850. A score of 740 is generally above the average. Between 740 and 799 is declared Very Good.

Forward Exposure – Forward exposure defines monetary risk forecasted by the processor and is usually overviewed every month. It’s the amount the processor tends to lose if the merchant does not complete their depository duty.

Chargeback Risk – The high chargeback ratio (the ratio of transactions that gives a result in a dispute compared to normal transactions) may result in high processing fees and even rejection of processing services.

Three different parties participate in the process. They are:

• Credit Card Company: Mostly called the “issuer” because it’s the organization issuing the credit card. Examples are mostly Citibank, Chase, Capital One, Wells Fargo, and Bank of America.
• Credit Card Network – These companies are sort of partners of the credit card companies. Importantly, they are the one who is responsible to process payments made by credit cards to merchants. They take a charge of the relationship between the credit card issuer and the merchant processor. The most often known are Visa and MasterCard.
• Payment Processor – The Company that securely implies a merchant’s credit card transactions.

 
Each of these parties decides the transaction fees that they will charge for their participation in a credit card transaction.
 
How do fees differ for card-not-present (CNP) vs card-present transactions?
 
You’ll pay various credit card processing fees for the different types of transactions. In particular, card-not-present (CNP) and card-present transactions are subject to various fees.
 
A CNP transaction defines as any payment done without the merchant handling a physical card. This consists when a customer pays for goods virtually through the virtual terminal and over the phone by reading out their card number. As well as when the cards can’t be scanned must be manually entered or keyed. On the other hand, card-present transactions play a process of swiping a card, inserting a card into an EMV terminal, and using contactless options.
 
Because the risk is lower in terms and is associated with card-present transactions, the interchange rate for this sort of transaction is much lower than that for card-not-present transactions.

General Merchant Account Credit Card Processing Fees

The foremost step towards shrinking your credit card processing fees is knowing the diversity of credit card processing fees, why charges are applied to them, and the best way to avoid them if possible.
 
Interchange fee
 
One of the most famous and basic mentioned fees is interchange fees. Base interchange fees/rates are used by the credit card networks (Visa, MasterCard, American Express, and Discover) on every credit/debit card transaction. These interchange fees are traveled through to the merchant with an additional overhead added on by the processor. For example, an interchange fee can be 1.3%+ $0.10 and the processor may add on an additional 0.20% making the cost to the merchant 1.50% + $0.10 for that specific transaction. This makes it tough for merchants to make a guess what their fees will be short of time since there are hundreds of interchange rates.
 
Interchange fees also differ based on the sort of card the customer uses to pay as well as the method of acceptance. Credit cards with advantageous rewards programs may suffer higher interchange fees, whereas debit cards usually generate the lowest fees.

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Likewise, the method of card presentation affects the interchange rate. Card-not-present transactions generally provoke an average of 1.60%+ $0.10 to 2.60% + $0.15 in interchange fees. Whereas card-present transactions generates an average of 0.10% + $0.10 to 2.35% + $0.10. The major thing that this varies is because much more fraud happens in CNP transactions where the cardholder is not present. It is already assumed that in an in-person sale the cardholder is present to offer another form of recognition. So that the merchant can make sure the transaction is authorized.
 
On top of it, Visa and Mastercard adjust their rates twice yearly. But on average Visa and MasterCard interchange rates are between one and two percent. Visa outlines its interchange compensation fees with almost over 100 classifications. For example, a transaction that takes place for a hotel and car rental company that the credit card is there at present for will be charged 2.40% + $0.10 on a Visa Signature Preferred/Visa Infinite credit card.

Processing fee

Given credit card processing fees, no fee is huger than the processing fee because it’s provoked on every credit card transaction. If you give attention to only one fee. It should be the most important processing fee.

For example, Stripe charges 2.95% + $0.25. The 2.95% is considered a processing fee. Moreover, the merchant service provider may also ask for a flat fee and commission similar to the structure of the interchange fee which is listed above.

The sort of merchant, processing volume and other factors will decide the rate and percentage for these charges. Here are the few factors that immensely impact processing fees:
 

• Type of card – Credit cards and debit cards consists of different rates. But even within credit cards, these rates may fall differently. The most valuable type of credit card, in terms of processing fees, is commonly a business credit card.
• Network – Most networks, including Visa, MasterCard, Discover, and American Express, have very unlike interchange rates. In between these networks, the different hierarchies may also sustain. For example, Visa’s Platinum- and Signature-level products give different interchange fees.
• Processing type – How a credit card comes into the system matters. Transactions swiped on a POS terminal, keep the entry of the numbers manually, paid online, and feel as card-not-present are charged different processing fees.
• Merchant category code – MCC is what credit card companies give consumer transactions. These four-digit numbers are generally partially determined by the nature of the business and its risk level. For example, a restaurant will be in a different segment than a supermarket or other business.
• Annual Business Sales – The quantity, in units and currency, of transactions your business generations on annual basis.

 
Transaction fee

The transaction fee is a clear and flat, per-transaction fee charged on each transaction included with the processing fee. The transaction fee is charged near about $0.10 for card-present transactions and $0.25 for CNP transactions. The fee is asked to pay on all approved and declined transactions, as well as batches and returns. It’s a fee to use the processing network. Therefore it costs you every time the network is accessed.
 
Assessment fee
 
Assessment fees are amounts paid to credit card networks like Visa, MasterCard, and Discover. As with interchange rates, assessment fees can’t be determined by the payment processor, but rather by the credit card network. These fees are intended to cover the operating costs of credit card networks.
 
Lower than the interchange rate, the assessment fee depends on factors such as the sort of card used by the consumer, the merchant’s transaction volume, and other overhead fees. (Miscellaneous fees are told in more detail further below.)
 
Visa International Service Assessment (ISA) fee
 
The Visa International Service Assessment (ISA) fee is a charge used by Visa to help nullify the risks related to processing cards issued in another country. The ISA fee is used on a per-transaction basis and is given money by the business constitution accepting the card. The ISA fee is mostly passed on to cardholders through high amount of fees or prices.
 
Regularly Scheduled Merchant Account Fees
 
To stabilize your merchant account, the processing company charges these sorts of fees regularly which scheduled flat fees:

• Annual Fee – Some processors charge a yearly fee just for letting the merchant access the software.
• Monthly Minimum Fee – This fee is of a lower amount you must pay in processing fees every month. If you do not touch this amount, you are charged for the difference. For example, if you are facing a particularly slow month, only accruing $10 in processing fees, but you are least processing fee amount is $15, you’ll be charged $5 at the end of the month cycle to meet the monthly minimum.
• Statement Fee – This is the fee charged for the delivery of a paper statement to your business.
• Wireless Fee – If you process wirelessly, this is your monthly cellular bill.
• Internet Access Fee – If you process transactions over the internet or via a website, this is a fee for all entire internet transactions. This fee is not charged in all payment processing accounts, even if internet usage is given.
• Supplies Fee – Some merchants are set up with monthly supplies. This fee is to securely cover the cost of giving those supplies.
• Batch / Batch Header Fee – This fee is charged every time a merchant batches out their EMV terminal, mobile terminal, or software which is generally at the end of every working day.
• PCI Non-Compliance Fee – Processors generally permit 90 days to become PCI Compliant before they commence charging the non-compliance fee. Make sure you ask your merchant services company to take the PCI exam to escape the fee together.

Random Fees: Authorization, Chargebacks & Termination

On top of reoccurring scheduled fees, many uncommon fees only apply if triggered by an incident. These incidental fees sum up, but are not constrained to:
 

• Voice Authorization Fee – A voice authorization happens when a merchant calls into a help desk to sanction a transaction physically.
• Voice AVS Fee – Voice AVS generally means the manual verification of a cardholder’s address by calling the card into the processor’s help desk.
• Electronic AVS Fee – Electronic AVS is the program in a credit card terminal that particularly verifies the cardholder’s address against the information linked to the card. This process is done automatically through the terminal.
• Chargeback Fee – The chargeback fee is charged when a merchant gets hit by a chargeback to their merchant account.
• Return Fee/Return ACH Fee – A return fee is charged when the processor gives a try to collect payment from a bank account with less or no funds for said payment.
• Early Termination Fee – An early termination fee is charged if a merchant shuts their account or demolishes their contract before the agreed-upon date.

Credit Card Processing Fees: Other Costs to think about

Adding on top of common and miscellaneous credit card processing fees, merchants may also be charged any other fees for processing services. Here are fewer fees for which merchants should keep their eyes constantly out:
 
Fixed Acquirer Network Fees (FANF)
 
In 2012, Visa started charging a Fixed Acquirer Network Fee (FANF), officially known as the Network Participation Fee (NPF). All merchants accepting Visa cards were asked to pay this fee, but the fee itself differs. For merchants with a tangible location, the fee differs on the number of physical locations the merchant has. Simultaneously, eCommerce merchants will pay a fee reliable on the gross processing volume. The FANF is a charged quarterly fee on the following quarter. For example, the FANF for the first quarter of 2022 will be levied in the second quarter of 2022.
 
Kilobyte Access Fee (KB)
 
The Kilobyte Access Fee is a very general assessment fee imposed by your credit card processor when accepting credit cards. Both Visa’s and Mastercard’s fee is levied for every transaction capitulated to the card network for resolution. So, if you’re processing a Visa or MasterCard transaction, we need to accept a Kilobyte Access Fee. While Visa charges $0.0047 and MasterCard $0.0035, your processor may pad this fee at a higher cost to you give it a look and a second thought.
 
Network Access and Brand Usage Fee (NABU)
 
As of 2018, MasterCard’s Network Access and Brand Usage Fee (NABU) is $0.0195. Because income from this fee directly jumps into MasterCard, processors transfer this fee onto merchants. Like the Kilobyte Access Fee, processors may pay the NABU fee they charge to merchants.
 
Acquirer Processing Fee (AFP)
 
The Acquirer Processing Fee (APF), also called the Visa Authorization Processing Fee is $0.0195 for credit card transactions and $0.0155 for the respective debit card transactions. In regards to debit card transactions, this fee only goes to transactions authorized with signatures, not with PIN entries.
 

Common Credit Card Processing Pricing Models

Payment processors charge merchants credit card processing fees via different pricing models. Below is five common pricing models for payment processors usage:
 
Flat-Rate
 
The temptation of the flat-rate model is its simplicity. In this model, you’re asked the same rate on every transaction. While the standardized rate makes it quick and easy to forecast how much you’ll pay in fees that forecasting comes at a cost. The total fees assessed at month-end in a flat-rate model can be much more or higher than in other models as you pay the same fee on less-cost cards like debit. However, many merchants like this fee due to the relief of expense prediction.
 
Membership and/or Subscription-Based Pricing
 
Undergoing a payment processor’s membership- or subscription-based model, you’ll pay a monthly or yearly membership fee and added to the interchange rate levied by the network. Large, established businesses may see savings under this pricing model.
 
Tiered
 
Tiered pricing models are commonly broken down into three tiers. Each transaction falls into one of the buckets:
 

• Qualified Rate
• Transactions with fewer fees, like non-reward credit cards and debit cards, get a qualified rate.
• Mid-Qualified Rate
• Middle-of-the-road transactions receive a bit higher rate than that of the qualified rate. This rate is called the mid-qualified rate.
• Non-Qualified Rate

 
One of the most expensive transactions, like those in which a high-tier prize program or corporate credit card is used, gets a non-qualified rate.
 
Blended/Bundled Rate
 
A bundled rate has a fixed rate and downgrade fees. This formula is influenced by how a transaction processes, the industry into which the business comes under, and the time in which the transition unloads. Meanwhile, a blended rate is a flat rate for different transactions including credit cards, rewards cards, and debit cards.
 
Interchange-Plus Pricing
 
The most ordinary pricing model is interchange-plus pricing. Two parts add up and make this pricing model. The credit card networks mark the “interchange,” while the additional markup levied by your processor is the “plus.” For average size businesses with forecasting monthly processing volumes, this may be the most pocket-friendly option.

Calculate Credit Card Processing Fees

In terms to evaluate how much you can expect to pay in credit card processing fees, you should know how to calculate these fees on your own. However, it’s very crucial to note that you should only calculate the fees after a few months of business, as only one day or one week isn’t symptomatic of a full month of transactions.
 
Below are stats on how to calculate your credit card processing fees?
 
Ask the merchant service provider for the current statement
 
Reach out to the merchant service provider that assists set up your merchant account and asking for a monthly statement, commonly issued as a PDF. Many merchant service providers will issue you a login via which you can download these statements on your own. Cross-check your paperwork for said login to neglect to call your merchant service provider.
 
Determine the pricing model you are on
 
After getting your merchant statement, identify which pricing model you’re on. For help finding these details, we give a guide on how to get through a merchant statement.
 
Many times, the discount rate will be visible on every transaction. If you’re on flat-rate pricing, every transaction will be the same and easily visible. Some merchant service statements are tough to read, especially if you’re on an interchange-plus pricing model, in which case every transaction is related to a different fee or rate. If you are still not sure you can directly call your merchant service representative and ask them what your current rate is. Never ask what rate you initially signed up with, ask which rate you are currently being evaluated as you may have gone through a series of price increases.
 
Calculate effective rate
 
In situations in which rates aren’t easily achieved, the faster way to find out how much you’re giving is to calculate what is called the effective rate. To get the effective rate, take the total amount of processing fees divided by the total sales volume on your credit card processing statement. For example, if you paid $3,100 in processing fees and your total sales volume was $100,000, your effective rate will be 3,100 divided by 100,000. This sums up to 0.031, which is a 3.10% effective rate.
 
How much should you get to pay in processing fees?
 
This is a crammed question. What we signify by that is not all businesses are invented equal—that is, in the eyes of payment processors.
 
If you’re a dry cleaner, which is considered a low-risk industry, accepting card-present swiped transactions, your average processing fee should be around 1.7% + $0.10. This doesn’t include any random and miscellaneous fees. However, if you’re in a card-not-present environment, like operating completely as an eCommerce store, your average transactions will incur processing fees closer to 2.95% + $0.25. If your business is too high-risked, then you could be paying near about 3.95% + $0.25 per transaction.
 
Can you subtract credit card fees from your taxes?
 
If you’re thinking about whether or not credit card processing fees are tax-deductible, the simple answer is yes. As a business operator, you can subtract most credit card fees. Taking supremacy of the deductions offered by the IRS can assist you to earn back some of the money invested in fees.
 

8 Tips to Get the Economic Credit Card Processing and Lesser your Rates

Now that you got to know the different fees in cooperation under the roof of credit card processing fees, and the average fees by industry and transaction types, it’s time to revisit the fees you’re being charged. Opposite to popular belief, there are many ways to lessen the processing rates. Below, we’ve outlined 8 steps as an initial point to lowering your rates.
 

Find out if you clear for Level II or Level III processing
 
In each eligible transaction, there are three levels of data that can apply. Each level has a set of requirements a transaction needs to meet to qualify. The higher the level, the more details are required, but the lower the transaction risk, thus the lower the transaction cost.
 
Level I needs just the merchant’s name, billing zip code, purchase amount, and purchase date. Level II additionally needs the merchant’s TIN, invoice number, order number, customer code, and sales tax indicator and amount. Finally, Level III processing needs much more detailed information, from the product code to the shipping cost to unit quantity. Just qualifying for Level II can save merchants an amazing deal.
 
For more tips and tricks on fewer transaction fees, view our interchange optimization guide.
 
Sidestep avoidable fees
 
On your merchant statement, see through the scheduled fees and request lower fees across the board. Fees like the early ending, set up, monthly minimum, per transaction, PCI compliance, and monthly statement fee can all be a hammer.

It’s worth noting that the major of your savings available by this step comes as a result of lessening your transaction fee. If you ask to lessen only a single fee, it should be the transaction fee.
 
Keep your chargeback rate in control.
 
Chargebacks come with a huge cost to the merchant. Banks are never in the favor to get merchants to get chargebacks and their means of discouraging such is by applying costly fees. Getting fewer chargebacks is generally okay, but exceeding the chargeback gateway places you at risk of misplacing your merchant account.
 
For more information on chargebacks, read our ultimate guide to credit card chargebacks.
 
Skip flat-rate pricing or switch to interchange
 
After assessing the pricing model you’re on, think about switching to a more pocket-friendly model. If you’re on a flat-rate model, an interchange-plus model might not be expensive. Because flat-rate applies the same rate to every transaction, even paid with debit cards that receive fewer interchange rates. In reality, a transaction paid with a debit card through a card-present method should be less expensive than the flat rate.
 
Your processor cannot effectively make the switch in the mid-month but will be able to do so at the initial of the month.
 
Remove rolling reserve
 
If you have a high-risk merchant account, you may be working with a rolling reserve. If you fall under this category, consider hammering out a lower reserve percentage or exiting the reserve completely. However, this is not usually settled before six months of credit card processing, as this is enough time to establish a processing history. Also, if you have a huge number of chargebacks, it’s unlikely the bank will discard the reserve.
 
Set up a surcharging or cash discount program
 
If your business meets the standardized criteria, you may set up your merchant account as a surcharge program. By doing this, you’ll forward all your credit card processing fees to your customers. This may save you a great deal of money, but it’s not obtainable for every business in every state. To find out if you’re eligible, talk to your merchant service provider.
 
Collect quotes
 
If you feel you’re not able to assess market rates, go around to various merchant service providers to get quotes in writing form, in respect of supporting your type of business. By taking these quotes to your existing provider, you may be able to consider it a lower rate.
 
Renegotiate existing rates or switch processors
 
It’s always healthy to try renegotiating the existing rates with your current merchant service provider. By doing such activities, you avoid a credit check, due diligence process, and possible downtime in processing. Always, keep in mind that it’s normal and okay for merchants to go back to credit card processing providers and negotiate lower rates.
 
If your current provider is not willing to consider lowering your rates, then you give a second thought by switching processors.

Final Thoughts

The only guarantees in life are death, taxes, and credit card processing fees—that is, if you are owning a business in 2022. As you can see cashless currency is increasingly becoming the norm, and accepting credit card payments is an even more important task for businesses. And taking along with credit card processing, fees follow. But unlike death or taxes, credit card processing fees need not be scary or threatening.
 
By knowing the information in this guide, you should be able to assess your credit card processing fees from more empowered eyesight, as you now know what operation charges you, why it charges you, and how it increases what it’ll charge you. Armed with this knowledge, you should be able to shrink the bite credit card processing fees take out of your income.
 
In 2022, credit card processing fees may be guaranteed, but excessive, expensive fees are avoidable. Payment Guru is one of the best platforms ones can look for to have a secured business. If the business is high-risk or facing huge chargeback hits constantly payment guru needs is the perfect place itself to deal with every ill and bad. Get the merchant account service provider, high-risk merchant account counselor, secured credit card channel, etc everything under one roof.