No one enjoys paying additional payment processing fees, especially if those fees are avoidable.
Credit card processing fees are the fees that you, the business owner, pay to accept credit cards from your customers as a form of payment at your business. These fees consist of transaction fees, flat fees, and incidental fees. All together, they contribute to the total charges your small business accrues when processing payments.
Some credit card payment processing companies charge extra fees for everything from PCI compliance to setting up your account. Average credit card processing fees range from 1.5% for swiped card payments up to 3.5% for keyed-in transactions. As you can see, credit card transaction fees can be complex and difficult for business owners to understand.
So, how do you know when you’re paying too much for credit card processing? And what fees can be lowered? Here are 5 credit card processing fees small business owners should be aware of (and potentially avoid).
What credit card processing fees am I being charged?
Read through your statement carefully to see what you’re actually being charged. You can’t cut costs if you don’t know what they are, so it’s important to find and address your credit card processing fees. For instance, the transaction fee is an additional per swipe fee that is charged on top of the interchange and percentage markup. These card processing fees can range from $0.08 to $0.49.
Transaction fees
Transaction fees are made up of the interchange rate, the assessment fee, and the payment processing markup. These fees are charged per transaction.
When breaking down credit card transaction fees, it’s important to remember that assessment and interchange fees are non-negotiable because they’re set by credit card networks—i.e., Visa, Mastercard, American Express, and Discover.
These payment processing costs will vary based on several factors, including:
- The card brand
- Type of credit card (e.g., credit or debit card, personal, business, rewards, etc.)
- How a credit card is processed (card-not-present transactions generally incur higher fees)
Generally speaking, though, these are the average credit card processing fees for the 4 major credit card providers in the United States.
- Visa: 1.51% – 2.50%
- Mastercard: 1.50% – 2.60%
- American Express: 2.3% – 3.1%
- Discover: 1.56% – 3.5%
These do not include the markup of credit card processing companies. These are fees charged by your payment processor, and the amount will depend mainly on the company’s pricing structure. We’ll get into more detail about processor markups later on.
Recurring fees
These are typically monthly fees, and they depend on the payment services provider you currently use. It’s the cost you accrue for using their payment processing service. Most payment processing service providers make huge profits from the fact that the average small business owner is not aware of what they are paying and why. Keep an eye out for these credit card processing fees on your next statement.
- Monthly minimum fee
- Statement fee
- Batch fee
- Next-day funding fee
- Annual fee
- IRS report fee
- Misc. additional fees
One-off fees
One-off fees are charged starting with the set up of your merchant services account. After you pay a setup fee, you’re then charged additional one-off fees for PCI compliance, address verification, and additional payment gateway fees. You’ll also be charged chargeback fees and retrieval fees if your customer’s card payment is returned. The dreaded early termination fee is also included in the list of one-off fees your business could be charged. To avoid early termination fees, partner with a processor that doesn’t bind you with a contract, such as Stax.
How to lower credit card processing fees and avoid extra costs
1. Protect your devices
When choosing a processing service, the option to lease payment terminals so that you can accept credit card payments can be enticing. After all, you’re spreading the cost out over months instead of paying a lump sum. However, leasing can cost more in the long-run compared to buying your terminals. Many processors charge extra device fees while you lease their credit card processing terminals. And, if you want to switch processors, you’ll have to start all over again.
Instead, we suggest that small business owners buy their payment terminals and opt into a protection plan. Not only will you own your hardware, but you’ll be able to easily get a new system in cases of wear and tear or accidents. This is a great option for small businesses with high foot traffic. If your terminal gets knocked to the ground, you’ll be able to get a new one for just a few dollars a month.
2. Stay PCI compliant
PCI stands for Payment Card Industry. This means that the PCI compliance security standards are set by the credit card companies themselves–not your individual payment provider. All businesses that handle cardholder information have to be PCI compliant. That means that if you capture card payment information, the customer’s data is being securely stored.
Not complying with PCI Data Security Standards can incur costly fees and fines. Most credit card processors and payment service providers will help you become and stay PCI compliant. Some providers charge PCI “non-compliance” or “maintenance” fees as an additional profit center, even when the merchant has completed their SAQ (self-assessment questionnaire). Be on the lookout for this extra fee on your statements.
3. Find the best merchant services provider for your business
Choosing a credit card processor is a huge business decision. When you’re comparing merchant services, it’s more than calculating the per-swipe card fees. You also have to consider the payment structure of your provider.
A closer look at payment processing pricing structures:
Credit card processors have varying strategies for how they price their services.
Tiered pricing. Some processors use a pricing strategy called tiered pricing, which categorizes transactions into three groups: qualified, mid-qualified, and non-qualified. Qualified transactions incur lower rates, while non-qualified are subject to higher rates.
Tiered pricing is designed for opacity, allowing processors to hide their margins by “re-rating” low-cost cards into higher-cost tiers. What’s “qualified” to one processor may be considered “non-qualified” to another. In addition, the pricing structure lacks transparency because most processors don’t disclose their methods when categorizing transactions.
Interchange-plus pricing. Next, we have interchange-plus, which is a pricing structure that separates the interchange rates (i.e., non-negotiable costs) from the markup of the payment processor.
This method offers more transparency into the process because you, the merchant, can see the exact markup or percentage charged by your payment processing provider.
Flat-rate pricing. This method bundles the processor’s markup with credit card interchange rates, creating one flat fee that’s applied to all transactions. It makes processing fees easier to understand, though merchants typically end up paying rates that are higher than the average interchange.
While basic interchange rates used to hover around 1.8%, the surge in high-value rewards cards means most merchants now see a wholesale average closer to 2.1%.
Subscription-based pricing. With subscription-based pricing, you’re charged a flat monthly fee in exchange for access to the direct cost of interchange. Rather than marking up your per-transaction fees, the provider you get the direct wholesale cost of interchange (what the banks charge) plus a small, transparent per-transaction fee, with $0 percentage markup.
Other factors to consider:
When selecting your payment processor, it’s also important to consider the types of credit card payments you will want to accept. Studies have shown that the more payment options you accept, the more customers you’ll be able to accommodate. A payment processor with multichannel card-present and card-not-present payment solutions will provide you all the payment tools you need to grow your business, whether you’re selling in person or via ecommerce.
4. Consider surcharging or cash discounts
Credit card surcharging is the practice of passing on credit card processing fees to the customer. This works by tacking on a surcharge to any transaction that’s paid for using a credit card. For example, if you add a 3% surcharge, a $10 purchase would cost the customer $10.30.
Cash discounts, on the other hand, enable shoppers to save money when they choose to pay with cash. You’ll need to decide on a cash discount rate and apply that to your cash transactions.
Let’s use a similar example to the above. Suppose you decide to implement a cash discount program by giving customers a 3.5% discount when they pay with cash. In this instance, a product that’s priced at $10.35 would end up costing customers just $10 if they choose cash over credit cards.
Ultimately, both surcharging and cash discounts help you avoid credit card processing fees altogether. One caveat here is that these programs must comply with your state laws and regulations. In many instances, you’ll need to reprogram your credit card readers to support surcharging programs. Proper signage must also be displayed.
Remember: Surcharging is only legal on credit card transactions. Applying a surcharge to a debit card—even a “Signature Debit”—is a violation of federal law.
Be sure to work with a payments platform that supports these initiatives to ensure that they’re carried out properly. Stax, for example, has a surcharge-friendly program that enables you to pass credit card processing costs onto customers directly through our all-in-one payment platform.
5. Avoid cancellation fees
Contract cancellation or early termination fees can be costly, especially for business owners. When you’re locked into a year-long contract with a processor and want to switch, you could face a steep fee. At Stax, our monthly subscription means you don’t have to worry about being locked into a contract for a year to avoid paying a fee. You pay a flat, monthly rate and can process as much as you want.
Extra processor fees and hidden costs can bring down what seemed like a great deal on credit card processing, but you can avoid them with the right processor. Stax’s innovative subscription pricing gives you access to the direct cost of interchange. There are no extra markups or fees, and you don’t have to sign a contract. Plus, our easy-to-read statements are transparent and clear on what you’re paying for.
Your business can process as much as you need to without worrying about the hidden fees of traditional merchant service providers. That means no PCI compliance fees, statement fees, or cancellation fees. Put dollars back in your bottom line and take the hassle out of trying to find out what exactly you’re paying for and why.
Interested in learning more? Request a demo and see how Stax’s innovative technology and transparency are changing the payments experience for businesses like you.
Quick FAQs about avoiding credit card processing fees
Q: What are credit card processing fees?
Credit card processing fees are the charges that business owners need to pay to accept credit cards from their customers. It includes transaction fees, flat fees, and incidental fees.
Q: How are credit card processing fees calculated?
Credit card processing fees are typically a percentage of each transaction. The exact percentage can vary depending on several factors, including the card brand, the type of credit card, and how the credit card is processed.
Q: What is the average range of credit card processing fees?
The average range of credit card processing fees is from 1.5% for swiped card payments up to 3.5% for keyed-in transactions. However, this can vary depending on the credit card provider.
Q: What are the different types of credit card processing fees?
There are several types of credit card processing fees including transaction fees, recurring fees, one-off fees, and extra charges like PCI compliance fees, account setup fees, and more.
Q: How can I identify the credit card processing fees I am being charged?
To identify the credit card processing fees you are being charged, you need to carefully review your merchant services bills and statements. Look for line items related to transaction fees, recurring fees, one-off fees, and any additional charges.
Q: Can credit card processing fees be negotiated?
Some components of credit card processing fees are non-negotiable, as they’re set by credit card networks. However, the markup of credit card processing companies, which are fees charged by your payment processor, may be negotiable depending on the company’s pricing structure.
Q: What are some strategies to lower credit card processing fees?
Strategies to lower credit card processing fees include buying your payment terminals instead of leasing, staying PCI compliant, finding the best merchant services provider for your business, considering surcharging or cash discounts, and avoiding cancellation fees.
Q: How can surcharging and cash discounts help reduce credit card processing fees?
Surcharging is the practice of passing on credit card processing fees to the customer by adding a surcharge to any transaction paid for using a credit card. Cash discounts allow customers to save money when they pay with cash. Both strategies can help you avoid credit card processing fees.
Q: What are the average credit card processing fees for major credit card providers in the U.S.?
Visa: 1.51% – 2.50%
Mastercard: 1.50% – 2.60%
American Express: 2.3% – 3.1%
Discover: 1.56% – 3.5%
Q: How can a subscription-based pricing model benefit my business?
A subscription-based pricing model can be beneficial because you’re charged a flat monthly fee in exchange for access to the direct cost of interchange. Instead of marking up your per-transaction fees, you get the direct wholesale cost of interchange (what the banks charge) plus a small, transparent per-transaction fee, with $0 percentage markup, allowing you to keep more of your profits.
