Credit card processing fees: What you need to know

Credit cards are the most popular and widely used payment method. To serve customers, almost all merchants must offer credit cards as a payment option, even if they come with the added expense of credit card processing fees.

Credit card processing fees are a necessary business expense.

But what are the fees for, how much are they, and is there a way to reduce fees to keep more money in your business?

Disclaimer: This content should not be construed as legal or financial advice. Always consult an attorney or financial advisor regarding your specific legal or financial situation.

What is a credit card processing fee?

Credit card processing fees are the costs a merchant incurs when a customer uses a credit card at their business. The fees are paid by the merchant and typically range from 1.43% to 3.5% of a transaction total.

The total amount of fees depends on multiple factors, such as the type of payment processor used, the type of card used, how the card is processed, and the transaction's risk level.

Additionally, whether or not the card is physically used during the transaction can impact the fees.

Card-not-present transactions tend to have higher risk of fraud and chargebacks.

Credit card transaction fees are often thought of as one cost, but the total fee is made up of multiple fees paid out to various financial institutions and service networks.

A credit card fee is made up of an interchange fee, assessment fee, and payment processor fee.

Interchange fee

An interchange fee, sometimes called a “swipe fee,” is the fee charged by the banking institute that issued the credit card. It is charged each time the credit card is used. The rate is typically a percentage of the transaction value and a small fee per transaction.

Most of what is considered to be a credit card processing fee is made up of the interchange fee.

Assessment fee

An assessment fee is paid to a credit card company, such as Visa, Mastercard or American Express, for the use of their network.

Unlike interchange fees, assessment fees are not paid per transaction. Instead, assessment fees are paid on a monthly or annual basis. The rate is a percentage of the total value of transactions over a set period of time.

Payment processor fee

A payment processor fee is paid to the company providing the merchant with the tools needed to facilitate credit card transactions.

To accept credit card payments, merchants need a reliable payment processor that verifies the card and transfers funds from the customer’s account to the merchant’s account.

Payment processing fees cover the cost of the technology, which may include point-of-sale (POS) hardware and software.

Merchants may see credit card processing fees broken down into the three costs above. But most frequently, merchants use a payment processing partner who wraps all of the fees into one charge.

For example, merchants using GoDaddy Payments do not pay monthly assessment or payment processor fees. Instead, they pay one fee each time a transaction occurs.

Example credit card processing fee

An example of a credit card processing fee is a customer making a $100 online purchase. The payment processor used by the merchant charges 2.3% + 30¢ each time a credit card is used online. The merchant is charged $2.60 in credit card fees for the $100 customer purchase. The $2.60 covers the interchange fee, assessment fee and payment processor fee.

How do processing fees work?

Credit card transaction fees are set by banking institutes, credit card networks and payment processor companies.

Banking institutes set interchange fees, credit card networks set assessment fees and payment processors set payment processor fees.

In most cases, merchants do not pay banking and credit card companies directly. Instead, merchants work with a payment processor and pay them a set fee that covers the fees paid to the banking institutes and credit card companies.

Payment processors may offer three types of payment structures.

Flat-rate (or blended) pricing

Flat-rate pricing charges merchants a set fee for each transaction. For example, the merchant may pay 2.3% plus 10¢ per transaction and not be responsible for monthly payments.

Many major payment processors, such as GoDaddy Payments, offer this pricing model.

It is a predictable and simple pricing model.

The fee does not change based on the type of card used, although the fee may change based on the way the card is accepted (such as being swiped, being keyed in, or being used online).

Tiered pricing

Tiered pricing charges one fee each time a credit card is used. But unlike flat-rate pricing, tiered pricing charges a different fee depending on the type of card used.

Cards are broken into three tiers:

Qualified cards are generally point-of-sale transactions involving a PIN to verify the cardholder's approval of the transaction.
Mid-qualified cards often include cards with certain rewards programs and instances when the owner manually enters their card numbers.
Non-qualified cards - payment processors may charge a non-qualified rate for remote transactions, like telephone orders, or other exchanges that do not meet the criteria for the lower qualified rate.

Qualified cards come with the lowest fees, while non-qualified cards come with the highest fees.

Interchange-plus pricing

Often the least expensive pricing option, Interchange-plus pricing is made up of two costs:

The interchange fee
The payment processor mark-up fee

The interchange fee is set by banking institutes, and the processing fee is set by the payment processor.

Unlike flat-rate and tiered pricing, interchange-plus pricing has a high amount of variability as the interchange fee may fluctuate depending on factors such as type of card, type of transaction and size of transaction.

The variability of rates can be confusing for small business owners trying to reconcile their processing fees.

Why are card processing fees so high?

If you find that credit card processing fees are high, it could be that your payment structure is not the right fit for your business.

Flat-rate pricing is the most straightforward structure.
Tiered pricing is a bit more complicated, but it could help a merchant cut down on credit card processing costs.
Interchange-plus is often the least expensive pricing option.

How much do major credit card companies charge?

Credit card fees vary by provider and change over time. It’s important to do research to find the most accurate, up-to-date credit card fees.

When communicating their fees, major credit cards present their:

Average interchange fee: The percentage and one-time fee a merchant pays each time a credit card is used
Average assessment fee: The percentage a merchant pays each month or year based on the month or year’s total transaction value

Credit card processing fees only refer to the fees paid by the merchant. They do not refer to any fees paid by the customer, such as foreign transaction fees.

Credit card	Average interchange fees
For in-person or “card-present” transactions	0.92% for a Mastercard that doesn’t offer rewards - 2.08% for a Visa premium card
For “card-not-present” transactions	1.45% for a Visa card without rewards - 2.54% for Mastercard premium cards
Debit transaction	10c - 40c

Disclaimer: Pricing verified as of August 20, 2024. If you see any issues with this information, please consult BDC's primer on credit card transaction fees.

What are the average costs of credit card processing?

On average, merchants can expect to pay 1.5% to 3.5% of each transaction value in credit card card processing fees.

Many factors go into determining the costs of credit card processing.

The rate could be impacted by:

The payment processor's payment structure
The credit card issuer
Merchant category code (MCC)
Type of card used
Type of transaction
Size of transaction
How the transaction is entered (such as being swiped, being keyed in, or being used online)

For most merchants, the average cost of credit card processing will depend on their payment processor. You'll need to compare the best payment processing companies to make an informed choice.

5 best ways to minimise credit card fees

Payment processing fees are a top expense for many small shops, so most owners try to minimise the cost of credit card fees.

While it is difficult to completely avoid paying credit card fees, there are ways to help keep costs down.

1. Set a minimum purchase amount

High credit card processing fees per transaction can cut into the margins of small purchases and make them less profitable. By establishing a threshold below which credit card payments are not accepted, businesses can offset the processing costs associated with small transactions.

For example, you may not accept credit card payments for purchases under $5 or $10.

This practice requires customers to increase the size of their purchase or use alternative payment methods, such as cash or debit cards. These forms of payment carry low or no processing fees.

2. Encourage cash and debit card payments

Businesses can effectively minimise credit card fees by actively encouraging — or even incentivizing — cash or debit card payments for purchases of all sizes.

Cash transactions have no processing fees
Debit card payments often carry lower processing fees compared to credit cards

This makes cash and debit card payments cost-effective alternatives for you.

You can educate customers about payment options that lower your overheads and offer benefits (such as discounts or rewards) to customers who choose to pay in cash or debit card.

3. Minimise chargebacks

Credit card chargebacks that are a result of customer disputes, miscommunication or fraud can lead to an increase in credit card processing fee rates.

Instead of processing the transaction once, the card company has to process it twice.

To keep credit card processing costs at a minimum, keep your chargebacks at a minimum.

To prevent chargebacks:

Maintain clear refund and return policies
Promptly address customer disputes
Resolve customer concerns before they escalate to the point of initiating a refund

Also, use tools to prevent fraud and monitor transactions for suspicious activity to further lower chargeback risks.

4. Pass credit card surcharges onto the customer

To minimise credit card fees, merchants may pass the cost onto customers. You can do this one of two ways:

Merchants can factor the extra fee into the cost of their products or services. Customers will not see the fee, but pricing will reflect the added expense for the vendor.
Another option for merchants is to include a credit card surcharge that is visible to customers who choose to use a credit card.

Local and national regulations govern surcharge fees and how businesses must communicate fees with customers, so be sure to follow these legal guidelines if you choose this option.

Editor's note: With GoDaddy Payments, businesses can enable credit surcharging for in-person payments.

5. Shop around for a payment processor

Every payment processor offers their own pricing for credit card processing fees. You should shop around to find payment processors that offer the fees and payment structure that work best for yourr type of business.

You can also try to negotiate with payment processors on their rates.

In most cases, interchange and assessment fees are not negotiable, but payment processor rates may be. It can't hurt to ask.

Credit card processing with GoDaddy can help minimise payment processing fees.

GoDaddy is proud to offer the lowest transaction fees when compared to other leading providers, along with no long-term contracts, monthly minimums or surprise fees.

Credit card processing fees FAQ

Do you have more questions about credit card processing fees? Get answers to the most frequently asked questions here.

What are the average credit card processing fees?

While fees are determined by multiple factors, credit card processing fees are typically 1.43% to 3.5% of a transaction total.

How are they paid?

Credit card processing fees are paid by the merchant. Fees are automatically deducted from the merchant’s account or collectively deducted once a month. Fees are charged per transaction and may also include fees that are charged on a monthly or annual basis, depending on the type of credit card processing fee pricing model.

What are the factors that influence the credit card transaction fee?

There are multiple factors that impact credit card transaction fees. The factors include:

The payment processor payment structure
The credit card issuer
Merchant category code (MCC)
Type of card, type of transaction
Size of transaction
How the transaction is entered

Who pays the credit card fees, merchant or customer?

Credit card processing fees — such as interchange, assessment, and payment processor fees — are paid by the merchant. Customers only pay a fee when using a credit card if the merchant has a credit card convenience fee.

Is it legal to charge credit card convenience fees to the customer?

The legality of charging credit card convenience fees to customers varies by jurisdiction and is subject to specific regulations and laws. Whether or not it is legal to charge such fees depends on several factors, such as card network rules, state/federal laws, type of credit card and agreements with payment processors.

What is a foreign transaction fee and how is it calculated?

A foreign transaction fee is a charge imposed by credit card companies on customers who buy from a Canadian company but use credit cards issued outside Canada.

Transactions, including purchases and refunds or credits, made in Canadian dollars are subject to foreign currency conversion fees. These charges can vary across credit card companies and even cards from the same company.

Foreign transaction fees are not considered to be a credit card processing fee as they are paid by the customer, not the merchant.

Foreign transaction fees are a percentage of the total transaction. The rates typically range from 1% - 3% on average. Many credit cards offer no foreign transaction fees as a benefit to customers.

Are processing fees negotiable and how to negotiate?

Interchange fees set by banking institutes and assessment fees set by credit card companies are typically not negotiable.

But merchants can attempt to negotiate payment processor fees. To negotiate with payment processors show them the value you can bring through processing fees by reviewing: