Credit card processing fees: How do they work?

When you use your credit card to pay for something at the store, you might feel the effects of credit card processing fees. But how do the fees work, how much do they cost businesses and how do fees relate to customers?

Sometimes referred to as credit card transaction fees or credit card merchant fees, credit card processing fees are often inevitable for any vendors who accept credit card payments. Learn more about different types of fees.

Key takeaways

  • Credit card processing fees are paid by the vendor, not by the consumer.
  • Businesses can pay credit card processing fees to the buyer’s credit card issuer, to their credit card network and to the payment processor company.
  • On average, credit card processing fees can range between 1.5% and 3.5%.
  • Fees can be charged per transaction, per month or per year depending on the credit card network a business works with and the network’s pricing model.

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What does credit card processing mean?

When a credit card transaction takes place between a business and a consumer, a credit card processing service completes the transaction behind the scenes. Payment processors facilitate the payment and serve as the middleman between consumers, vendors, card issuers and card networks.

Then, for completing this service, the business is charged small fees by the merchant account or the payment service provider involved in the transaction.

Types of credit card processing fees and how they work

There are three main types of processing fees vendors are likely to encounter as part of their credit card transactions: interchange fees, assessment fees and payment processor fees. It might help to understand these fees prior to opening a credit card.

Interchange fees

An interchange fee is charged by the business’s credit card network to help cover the costs of processing the transaction. Offline credit card processing, where the payment is made in person, can be pricier than online processing.

Assessment fees

An assessment fee is charged by the vendor’s credit card network based on the vendor’s total monthly sales. These networks can sometimes differ from the buyer’s credit card issuer. Most businesses work with four main credit card networks in the United States: American Express®, Discover®, Mastercard® and Visa®. The former two companies can issue their own credit cards. To get a Mastercard or Visa, consumers must apply through separate issuing banks or financial institutions.

Payment processor fees

The payment processing company the vendor works with—usually separate from a consumer’s credit card issuer or a vendor’s credit card network—might charge an additional fee for managing transactions. These fees can be charged monthly, annually or upfront when the transaction goes through.

Average credit card processing fees

According to analysts, the average cost of credit card processing fees for vendors ranges between 1.5% and 3.5%. However, these rates can vary depending on the credit card network a business operates through and the type of pricing model offered to the business.

Three main types of pricing models are commonly used to determine credit card processing fees: tiered pricing, flat rate pricing and Interchange Plus pricing.

Tiered pricing model

Under this pricing model, credit card processing companies categorize their fees by different transaction types. Certain qualified transactions can receive lower rates, while other transactions might receive higher rates.

Flat rate pricing model

With flat rate pricing, credit card processors charge businesses a certain percentage of the transaction plus a small per-transaction fee—typically $0.20 to $0.30.

Interchange plus pricing model

Under Interchange Plus pricing, businesses pay their credit card network’s interchange rate as well as a predetermined transaction fee.

Credit card processing fees in a nutshell

Credit card processing fees are a common component of business transactions. And if you’re a consumer who makes credit card payments, it helps to understand how the fees that vendors pay may also impact you.

Learn more about how credit cards work and a few ways you might be able to avoid common credit fees.

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