Can a Business Charge a Credit Card Fee

A credit card reader on a table.

Prototype source: Getty Images

Visa and Mastercard simply delivered some good news for U.S. merchants. For the second yr in a row, the 2 largest payment networks accept elected to delay an increase to their credit menu processing fees.

Until their respective announcements, both payment networks planned to heighten fees on certain types of transactions in April 2021. While the new fees haven't been detailed, both payment networks were planning to charge more for online transactions.

Considering online spending has gone up significantly during the COVID-xix pandemic, that would take been a costly alter for merchants and one that may accept had businesses seething. (Especially as carte du jour issuers go on to encourage online credit carte spending with tactics like rewards for streaming services and food commitment bonuses)

Well-nigh merchants demand to accept credit card payments, which makes credit card processing fees similar these a cost of doing business. For more on how much those costs tin can be, we've collected all the latest information.

Key findings

The typical credit card processing fee ranges from about 1.iii% to 3.5%, plus the payment processor'due south cut, which varies depending on the menu processor and programme you choose.
To accept credit menu payments, merchants must pay interchange fees, assessment fees, and processing fees. These fees go to the bill of fare's issuing depository financial institution, the card'southward payment network, and the payment processor.
Payment processing fees are the only negotiable credit card transaction fees.
American Limited cards have the highest average fees, while Visa tends to be the lowest.
In that location are four types of pricing models that payment processors employ: interchange-plus, flat rate, subscription, and tiered.

Boilerplate credit carte processing fees: one.3% to iii.5%

Credit carte du jour companies charge betwixt approximately 1.3% and 3.5% of each credit bill of fare transaction in processing fees. The exact corporeality depends on the payment network (e.yard., Visa, Mastercard, Discover, or American Express), the type of credit carte du jour, and the merchant category code (MCC) of the business organization.

Note that debit cards have a different pricing model, and they usually price less for merchants. This is why you may only run into a convenience fee for a credit card and not a debit card purchase.

Here are the boilerplate credit card processing fees for the four payment networks (also chosen "carte du jour networks"):

Payment network	Average credit card processing fees
Visa	i.29% + $0.05 to 2.54% + $0.ten
Mastercard	1.29% + $0.05 to 2.64% + $0.10
Observe	ane.48% + $0.05 to 2.53% + $0.ten
American Express	1.58% + $0.ten to three.45% + $0.10

Sources: Visa United states Interchange Reimbursement Fees published on July 17, 2020, Mastercard 2019-2020 U.South. Region Interchange Program and Rates, Wells Fargo Merchant Services Payment Network Laissez passer-Through Fee Schedule, and Wells Fargo Payment Network Qualification Matrix effective Oct. xvi, 2020.

Those ranges include the two types of fees that payment networks charge for each transaction: interchange fees and assessment fees. They don't include payment processing fees, considering fee structures vary considerably depending on the credit card processor you cull.

Now, let's have a closer expect at the fees that go taken out of every credit carte transaction.

Types of credit card processing fees and costs

The two fees we looked at higher up, interchange fees and cess fees, are non-negotiable. They're often referred to as base of operations costs or the disbelieve rate. The payment network charges these fees on every transaction involving one of their cards. Hither are where those fees become:

Interchange fees

The bank that bug the credit card receives the interchange fee. For example, if you have a Chase credit carte du jour on the Visa payment network, Hunt receives the interchange fees on your transactions.

Assessment fees

The payment network receives the assessment fee. In the example higher up, Visa would receive the assessment fee on every transaction where yous used your Chase Visa card.

Payment processing fees

This is paid to the visitor that accepts the credit card payment and sends the transaction to the payment network, either through a physical card reader or an online payment gateway. Depending on the payment processing company, costs for this service could include whatsoever of the following:

A per-transaction fee
A monthly service fee
The price of the equipment used to process transactions

What makes Observe and American Limited dissimilar

Detect and American Express do double duty, because they issue credit cards and operate their own payment networks. Their cards may not be accepted at quite every bit many businesses as those of Visa and Mastercard, but they practice become to proceed both the interchange and assessment fees, giving them a much larger cutting of each transaction.

Boilerplate credit card interchange fees: 1.5% to three.3%

Payment network	Interchange fee range
Visa	i.15% + $0.05 to ii.40% + $0.10
Mastercard	1.15% + $0.05 to two.50% + $0.10
Notice	ane.35% + $0.05 to 2.40% + $0.ten
American Express	1.43% + $0.10 to 3.30% + $0.10

Sources: Visa USA Interchange Reimbursement Fees published on July 17, 2020, Mastercard 2019-2020 U.Southward. Region Interchange Plan and Rates, and Wells Fargo Payment Network Qualification Matrix effective Oct. 16, 2020.

Note: These aren't the highest and everyman interchange fees for each payment network. We've removed some of the outliers (like Discover's 0.00% + $0.75 for credit payments on utility bills) to make the table meliorate reverberate the average fee range.

Visa credit menu processing fees are the lowest overall, but Mastercard and Discover aren't far behind, and they fall into like fee ranges. For many merchants, processing fees will be almost the same whether the customer pays with a Visa, Mastercard, or Find credit card.

American Express has consistently been the most expensive payment network, which is one reason why it's accepted by fewer merchants. In 2018, American Express announced the largest drop in its fees in 20 years. That brought information technology more in line with other credit menu networks, although information technology however charges the nearly on average.

What determines your interchange fees?

With each payment network, there are several factors that affect where your interchange fees fall within the ranges above. Here are the most meaning:

Merchant category: Every merchant has a merchant category lawmaking (MCC) corresponding to its business concern type. Payment networks charge different interchange fees based on the business's MCC. For example, a supermarket has dissimilar fees than a restaurant.
Blazon of credit carte du jour used: Networks accept various types of cards with their ain sets of benefits. Cards that offer more benefits, such as travel rewards or purchase protections, normally have higher interchange fees. A World Elite Mastercard will tend to take college interchange fees than an Elite Mastercard, a Visa Signature Preferred Card usually has college fees than a Visa Signature Card, and so on.
Processing method: Interchange fees can modify based on whether the card was swiped/inserted (payments made through contactless credit cards are also grouped in this category for transaction fee purposes), keyed in, or not nowadays (in the case of online or phone transactions). This is in role because the take a chance of fraud varies based on the processing method. Bill of fare-not-present (CNP) transactions conduct a higher risk of fraud and/or chargebacks, and interchange fees are frequently higher on these transactions.

American Limited also uses transaction amounts to determine its interchange fees, with higher-value transactions costing merchants less.

How often do payment networks update their interchange fees?

Payment networks by and large update their interchange fees on a yearly basis. This doesn't mean they enhance rates every year. As mentioned before, American Express lowered its credit bill of fare processing fees in 2018.

Visa and Mastercard have been planning to increase credit card fees for certain types of merchants. They've postponed this for 2 years in a row because of the COVID-xix pandemic. There were reports that both were considering an increase of 0.05% to 0.10% for online transactions. While that didn't happen this year, information technology's a pregnant change that we could come across happen in 2022.

Although it may seem like the card networks benefit the nearly by raising fees, it's actually the banks. Remember that interchange fees get to the banking concern that bug a credit card. The banks that partner with Visa and Mastercard to issue their credit cards are the ones that will collect those additional fees.

Average credit card cess fees: around 0.xiv%

Visa	Mastercard	Notice	American Express
0.14%	0.1375% (for transactions under $1,000); 0.01% (for transactions of $1,000 or more than)	0.thirteen%	0.15%

Source: Wells Fargo Merchant Services Payment Network Laissez passer-Through Fee Schedule.

The assessment fee is the payment network's cutting, and it'south a much smaller portion of each transaction.

American Limited is in one case again the most expensive payment network, simply this time around, Discover has the lowest rate, at to the lowest degree for transactions under $one,000. For transactions of $1,000 and over, Mastercard is the clear winner. That being said, the differences in assessment fees betwixt each payment network are minuscule.

Credit carte processing fees and costs

While merchants must pay the interchange and assessment fees set by the payment networks, they have more flexibility with payment processors.

Not only are there many credit menu processors available, all with their own pricing strategies, but merchants may also be able to negotiate these rates.

The following types of payment processing models are available: interchange-plus, flat rate, subscription, and tiered. Here'south how each model works and the fees you'd pay with several pop payment processors.

Interchange-plus

Payment processor	Cost per swiped retail transaction	Cost per online transaction	Monthly fee
Helcim	Base costs + 0.thirty% + $0.08	Base costs + 0.50% + $0.25	$20
National Processing	Base of operations costs + 0.18% + $0.ten	Base costs + 0.29% + $0.15	$9.95
Payline	Base costs + 0.twenty% + $0.10	Base costs + 0.40% + $0.20	$10 (retail); $20 (online)

Sources: Helcim, National Processing, and Payline pricing pages.

The interchange-plus model keeps all your fees split. The payment processor charges y'all exactly what the payment network charges on the transaction, and information technology adds its own separate markup and requires a flat fee per month.

Annotation that fifty-fifty though this model is called "interchange-plus," the payment network'southward assessment fee is charged as well.

Let's say your retail business organization chooses Helcim. On each transaction, Helcim would deduct the interchange fee, the assessment fee, and its own fees of 0.30% plus $0.08.

This model is a pop choice because it's affordable for all types of businesses and it has a transparent fee construction. On every sale, you'll know exactly how much the card network and your credit carte processor charged.

Flat rate

Payment processor	Cost per swiped retail transaction	Toll per online transaction	Monthly fee
PayPal	ii.70% + $0.thirty	2.90% + $0.xxx	$0
Square	ii.60% + $0.10	ii.ninety% + $0.thirty	$0

Sources: Square and PayPal pricing pages.

The flat-charge per unit model is all about simplicity. You're charged the aforementioned charge per unit on every transaction, which makes it easy to predict your payment processing costs (note that information technology's the same rate, not the same fee, which is why this is a "apartment charge per unit" instead of a "flat fee"). And you can use this model without paying a monthly fee.

That simplicity comes at a cost, though. Under the flat-charge per unit model, credit card fees tin can be much higher.

There is ane key advantage PayPal and Square offer, which is that they don't have monthly fees. They could exist more affordable if your business has very low sales volume and wouldn't salvage enough in credit card transaction fees to beginning the monthly cost of an interchange-plus processor.

Subscription

Payment processor	Cost per swiped retail transaction	Cost per online transaction	Monthly fee
Fattmerchant	Base costs + $0.08	Base costs + $0.15	$99
Payment Depot	Base costs + $0.07	Base costs + $0.07	$99

Sources: Fattmerchant and Payment Depot pricing pages.

With the subscription model, you lot sign up for a membership with the payment processor and pay a monthly fee. Y'all'll then pay the base of operations costs on each transaction plus a very small payment processor fee.

You lot may be wondering what separates the interchange-plus and subscription models, considering their similar fee structures. In this case, it's a divergence of degrees. The subscription model has much more than expensive monthly fees in substitution for much cheaper transaction fees.

This model is best suited for businesses with high sales (at least $10,000 per month). You'll likely go the lowest credit carte processing fees, and that helps justify your payment processor'south monthly fee.

Tiered

Payment processor	Price per swiped (retail) transaction	Cost per invoiced transaction	Toll per keyed (online) transaction	Monthly fee
Intuit QuickBooks	2.4% + $0.25	2.9% + $0.25	3.iv% + $0.25	$25

Source: Intuit QuickBooks pricing page.

In the tiered model, each transaction is grouped into one of the payment processor'south tiers, and each tier has a gear up fee amount. The payment processor determines which transactions go into which tiers, and it often bases this on a transaction's interchange fees, which are included in the charge per unit.

Ane popular setup with this type of payment processing has the post-obit tiers: qualified, mid-qualified, and non-qualified. The qualified tier has the everyman transaction fees, followed past the mid-qualified tier, and the non-qualified tier is the most expensive.

The tiered model unremarkably isn't a proficient pick, because information technology tends to be more than expensive than other options. Since many types of transactions are grouped into a limited number of tiers, some transactions will have much higher processing fees than they would under other pricing models.

Equipment costs

In addition to the costs in a higher place, merchants that have in-person transactions likewise need equipment. Costs vary significantly depending on the merchant'due south needs.

Basic mobile readers are bachelor for $twenty to $50, although some payment processors (Square included) offer ane for costless. Terminals and registers are more expensive, every bit a standard last tin cost $150 and an avant-garde register can cost $1,000.

The cost of accepting credit bill of fare payments

When your business processes credit card payments, there will exist multiple fees taken out of the total transaction corporeality. The non-negotiable credit bill of fare network fees can vary:

From i.15% + $0.05 to 2.50% + $0.10 in interchange fees, although this could be every bit high as 3.30% + $0.10 if the client uses an American Limited bill of fare.
From 0.13% to 0.15% in cess fees.

The nearly important factors in what your business concern pays volition be its MCC and the type of credit card the client uses.

Next, your payment processor will take its cut, unless you lot've called a processor that charges one flat rate to cover all the fees in the transaction.

With credit cards growing more and more popular, the typical merchant doesn't have much of a choice only to pay these fees to the card issuer and payment processor. By knowing how much you'll pay on each transaction, yous can price your products appropriately and ensure you're making plenty coin on each sale.

Some businesses as well charge a credit card convenience fee (or offering a cash discount) to cover the toll of the processing fees in a higher place.

Sources

Fattmerchant (2021). Plans & Pricing.
Helcim (2021). Fees.
Intuit QuickBooks (2021). Get started with Payments and Greenbacks.
Mastercard (2019). Mastercard 2019–2020 U.S. Region Interchange Programs and Rates.
National Processing (2021). Feel Transparency.
Payline (2021). Payline Pricing and Processing Fees.
Payment Depot (2021). Pricing Plans.
PayPal (2021). PayPal Merchant Fees.
Square (2021). Understanding Square processing fees.
Visa (2020). Visa United states of america Interchange Reimbursement Fees.
Wells Fargo (2021). Payment Network Pass-Through Fee Schedule.
Wells Fargo (2020). Payment Network Qualification Matrix.

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Source: https://www.fool.com/the-ascent/research/average-credit-card-processing-fees-costs-america/