Credit card processing fees can range from 0.5% to 3% of the total transaction amount, plus a flat fee of around $0.20 per transaction. For small businesses, these fees can add up quickly and cut into profits.
To help you better understand credit card processing fees, we’ve put together this guide. We’ll cover the different types of fees you may be charged, how these fees are calculated, and what you can do to reduce your processing costs.
What Are Credit Card Processing Fees?
Credit card processing fees are the charges imposed by credit card companies and processors for the use of their services. These fees typically include a percentage of the total transaction amount, plus a flat fee per transaction.
The percentage-based fee is called the “interchange rate,” while the flat fee is called the “assessment fee.” Together, these two fees make up the “merchant discount rate” (MDR).
In addition to the MDR, you may also be charged additional fees by your credit card processor, such as a monthly service fee, statement fee, or chargeback fee.
How Are Credit Card Processing Fees Calculated?
The interchange rate is set by the credit card companies (Visa, Mastercard, Discover, etc.), while the assessment fee is set by the card associations (such as Visa or Mastercard).
Your credit card processor will then add their own margin to these rates to arrive at the final MDR. For example, if the interchange rate is 1.5% and the assessment fee is $0.15, your processor may add a margin of 0.5%, resulting in an MDR of 2.5%.
Your credit card processor will then charge you this MDR as a percentage of each transaction, plus a flat fee per transaction. For example, if you process $100 in sales and your MDR is 2.5%, you will be charged $2.50 in fees ($100 x 2.5%).
In addition to the MDR, your credit card processor may also charge additional fees, such as a monthly service fee, statement fee, or chargeback fee.
What Are the Average it
The average credit card processing fee is around 2.9% + $0.30 per transaction. However, your processing fees will vary depending on the type of card you are accepting, the processor you are using, and your business’s size and industry.
For example, businesses that process a high volume of sales may be able to negotiate lower processing rates with their processor. Additionally, businesses that accept cards from lower-risk industries (such as grocery stores) will typically pay lower interchange rates than businesses in higher-risk industries (such as e-commerce).
How Can I Reduce My Credit Card Processing Fees?
There are a few things you can do to reduce your credit card processing fees:
1. Shop around for a processor with competitive rates.
2. Negotiate with your current processor for lower rates.
3. Avoid processing cards from high-risk industries.
4. Process a high volume of sales to qualify for lower rates.
5. Use a mobile it reader, which typically charges lower processing fees than traditional point-of-sale terminals.