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.
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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 1.5% 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, as 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 multiple 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, Discover, and 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 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 these three costs, 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.
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.
Related: How to accept credit card payments in-store and online
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 often include debit cards and cards without rewards programs
- Mid-qualified cards often include cards with certain rewards programs
- Non-qualified cards often include corporate cards and cards with generous rewards programs
Qualified cards come with the lowest fees, while non-qualified cards come with the highest fees.
Related: Payment methods: 10 types of payment options
Interchange-plus pricing
Interchange-plus pricing is made up of two costs: the interchange fee and 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 multiple factors such as type of card, type of transaction, and size of transaction.
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.
Related: How to evaluate POS devices when switching
How much do major credit card companies charge?
Credit card fees vary by provider and change over time. It’s important to 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 | Average assessment fees |
| Visa | 1.15% + $0.05 to 2.40% + $0.10 | 0.14% |
| Mastercard | 1.15% + $0.05 to 2.50% + $0.10 | 0.1375% (transactions under $1000) or 0.01% (transactions $1000+) |
| Discover | 1.35% + $0.05 to 2.40% + $0.10 | 0.13% |
| American Express | 1.43% + $0.10 to 3.30% + $0.10 | 0.15% |
Disclaimer: Pricing verified as of December 13, 2023. If you see any issues with this information, please let us know.
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 payment structure, the credit card issuer, merchant category code (MCC), type of credit card, type of transaction, size of transaction and how the transaction is entered (such as being swiped, being keyed in, or being used online).
Interested in viewing a breakdown of fees across multiple providers? Take a look at the best payment processing companies.
For most merchants, the average cost of credit card processing will depend on their payment processor. Comparing the best payment processing companies makes it easy for merchants to understand the full cost of credit card processing fees. They clearly state the fees charged for each transaction.
How can businesses/merchants minimize credit card fees?
Payment processing fees are a top expense for many merchants, so businesses often employ strategies to avoid or minimize the cost of credit card fees. While it is difficult to completely avoid paying credit card fees, there are ways to help minimize costs.
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, a business may not allow credit card payment 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 which carry low or no processing fees.
2. Encourage cash and debit card payments
Businesses can effectively minimize credit card fees by actively encouraging the use of cash or debit card payments for purchases of all sizes. Cash transactions have no processing fees, and debit card payments often carry lower processing fees compared to credit cards, making them a cost-effective alternative.
Merchants can educate customers about payment options that lower business overhead and consider offering benefits (such as discounts or rewards) to customers who choose to pay in cash.
3. Minimize 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. 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 and resolve customer concerns before they escalate to the point of initiating a chargeback. Also, employ fraud prevention tools and monitor transactions for suspicious activity to further mitigate chargeback risks.
4. Pass credit card surcharges onto the customer
To minimize credit card fees, merchants may pass the cost onto customers. Merchants 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 merchants must ensure that they are following legal guidelines if they choose this option.
With GoDaddy Payments, businesses can enable credit surcharging for in-person payments. For more information on this, see our help guide.
5. Shop around for payment processors
Every payment processor offers their own pricing for credit card processing fees. Merchants can shop around to find payment processors that offer the fees and payment structure that work best for their type of business. Merchants can also attempt to negotiate with payment processors on their rates. (In most cases, interchange and assessment fees are not negotiable, but payment processor rates may be.)
Credit card processing with GoDaddy can help minimize 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 1.5% 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 credit card, type of transaction, size of transaction and how the transaction is entered.
Who pays the credit card fees, merchant or customer?
Credit card processing fees, such as interchange fees, assessment fees, and payment processor fees, are paid by the merchant. Customers only pay a fee when a credit card is used 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 when customers use their credit card in a foreign country. 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% to 5% and are 3% on average. Many credit cards offer no foreign transaction fees as a benefit to customers.
Are processing fees negotiable and how to negotiate?
A portion of credit card processing fees may be difficult 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, review different options of payment structures, compare competitors, and estimate your payment volume to show processors the value you can bring through processing fees.
