The Complete Guide to Credit Card Processing Rates & Fees

The Complete Guide to Credit Card Processing Rates & Fees

The WRA works hard to find credit card processing companies that work with their clients to provide the best products and services available to restaurateurs.  Making the right choices, whether you are a first time purchaser, or looking to upgrade, can be the key saving lots of over the long term.  Visit the WRA’s cost saving programs page.

Credit card processing fees are extensive, complicated, and somewhat overwhelming. Nevertheless, you have to pay them if you want to process credit cards through your business. Rather than paying these charges blindly, you might as well make an effort to understand them. This way, you can dispute any costs you think are unfair or have a better understanding of what your true overhead is. Hopefully this guide will help you do just that.

Parties Involved

Before you can begin to understand processing fees, you need to know about the parties involved with them. Consider these the financial “middlemen” between a customer and merchant. They include:

  • Credit Card Associations: These are obviously the companies that create the credit cards, like Visa, MasterCard, and American Express. These are the guys that set the rules.
  • Issuing Banks: These are the financial institutions that issue the credit cards, like Chase, Citi, and Wells Fargo. Some card associations take on the role of a bank as well, developing and issuing their own cards. Examples include Discover and American Express.
  • Acquiring Banks aka Acquirers: Also known as processors, these institutions act as messengers between merchants and credit card associations. They pass batch information and authorization requests along so that merchants can complete transactions in their businesses. A merchant may encounter several acquirers for one transaction – one that creates monthly statements, one that handles technical support, and one that issues money to a bank account.
  • Merchant Account Providers: These are companies that manage credit card processing (e.g. sales, support, etc…), usually through the help of an acquirer. They could be financial institutions, independent sales organizations, or double-duty acquirers, depending on the situation.
  • Payment Gateways: These are special portals that route transactions to an acquirer, usually in the case of an online shopping cart.

Keep these terms in mind as we go through the rest of this article.

Wholesale vs. Markup

Before we dive into each individual fee, there’s one thing that we need to clear up first. When it comes to merchant accounts, there are two types of fees: (1) wholesale fees, and (2) markups. Just remember, wholesale fees are non-negotiable, markups are negotiable.

Wholesale Fees
I’m using the term “wholesale” to help you picture the meaning behind this type of fee, but it can go by other names as well, like, “base fee” or “pre-markup” etc… Your wholesale fees are exactly like they sound – the wholesale cost of your sales transactions. These fees are determined by the credit card issuing bank and the credit card associations (VisaMasterCard, etc.). They are consistent regardless of which provider you choose. In other words, don’t try to shop around for lower wholesale fees or rates from various credit card processors. It’s just not going to happen.

Your markup fees are how your credit card processor is planning to make a profit from your business. With the right processor, these fees will be modest. With the wrong processor – you’re in trouble. What’s worse is that some processors make it as difficult as possible to know how much markup you’re paying by using bewildering terms and pricing models that would baffle even the most experienced business owner. Markup fees are different from processor to processor and are what you should be comparing when preparing to open a new merchant account.

Pricing Models

Speaking of pricing models, there are two ways your credit card processor can charge you your wholesale and markup fees.

Interchange Plus
The first is referred to as an interchange plus pricing model. This is the most transparent pricing model with the most understandable terms and fees. This pricing model itemizes wholesale fees and markups and clearly lists them on your monthly statement. It may make your statement a bit more difficult to read, but it’s worth it since you’ll know exactly what the difference between your wholesale fees and markups are.

If you aren’t lucky enough to be on interchange plus pricing, chances are you’re tied up in a tiered or ‘bundled’ pricing model. In fact, the vast majority of business owners are on a tiered plan, which may make it more difficult to review and understand some statement charges.

Tiered pricing plans categorize credit card transactions into three categories – qualified, mid-qualified and non-qualified Generally, qualified rates are the lowest, and the transaction rates increase for mid-qualified and are highest for non-qualified transactions. Qualified transactions must meet all of the processor’s criteria for processing, such as a swipe in-person with a batch settlement the same day. Failure to meet one or more standards may result in a ‘downgrade’ to mid-qualified or non-qualified tiers.

Although tiered pricing plans aren’t necessarily a bad thing, some dubious merchant account processors will take advantage of this more complicated price plan to charge merchants excessive fees. You may end up paying a lot more than you want to with little way of determining exactly what you are paying for. This is because processors often fail to disclose which tiers the merchant’s transactions are falling into, making it near impossible to determine the markup rates.

Next up, we’ll break down each fee.

Breakdown of Fees

Now that we’ve covered all the parties involved, the difference between wholesale vs. markup fees, and the different pricing models, let’s breakdown each fee to make them easier to identify on your monthly statement.

Transactional Fees
This is pretty straightforward. These are the fees that are assessed every time you run a transaction.

  • Interchange Reimbursement Fees Assessments: These are the fees the card-issuing banks and the credit card associations charge for each transaction, and they represent the largest expense merchants (should) pay per sale and per month. Interchange fees typically consist of a percentage of each transaction accompanied by a flat per transaction fee (2.10% + .10). Assessments are typically based on a percentage of the total transaction volume for the month. Examples of these non-negotiable interchange and assessment fees on merchant account statements include: Merit 1/ecommerce/CNP fees, NABU/APF/data usage fees, Dues and assessments. Each card association publishes their interchange and assessment fees online (e.g. Visa, MasterCard, Discover,American Express). Remember, these are the wholesale rates. Now, let’s say you’re on an interchange-plus pricing structure. Your processor will quote you something like (.25% + .10). THAT is their markup. That is the amount that they will add to the wholesale rates. But, if you’re on a tiered pricing plan, you’ll get a quote with the Qualified, Mid-Qualified, and Non-Qualified rates that we talked about earlier. Those quotes have the margin baked right into the quote, thus making it more difficult to tell what the processors margin is.

Flat Fees
The below mentioned flat fees all fall under the markup category. These fees can be negotiated all day. :) They may vary by name, value, and applicability, but at least some of them will probably show up on your credit card processing statements each month. It is your job as a merchant to understand them and dispute any fees you feel unnecessary to pay.

  • Terminal Fees: These are charged to merchants who have physical stores, where they directly swipe a customer’s card. If you run a business online, you will not have to worry about this. Some providers try to lock merchants into terminal leases, but as we’ve mentioned before, don’t lease a terminal.
  • Payment Gateway Fees: These are similar to terminal fees, but they are applied to ecommerce businesses instead. Some processors have in-house payment gateways that are free of charge (CDGcommerce). You can learn more about payment gateway’s here.
  • PCI Fees: These are fees paid to the Payment Card Industry, either for noncompliance or compliance. In the case of noncompliance, you have to pay because your business is not upholding PCI standards, which could cost you even more money in the long run. In the case of compliance, you have to pay the merchant account provider to make sure you remain in line with the regulations at all times. Unfortunately, some providers charge for this service without actually providing it, so you need to make sure you are being cared for at all times.
  • Annual Fees: These are fees charged every year to cover the basic use of a provider’s services. In my opinion, this is a bogus fee. Most of the better merchant account providers will not charge it.
  • Early Termination Fees: This is pretty self-explanatory. It is a fee that is charged if you cancel your contract early. Another fee you definitely want to avoid.
  • Monthly Fees: These are fees that are charged each month, usually for the purpose of covering call center costs. Ironically, most of the phone calls that come in are the result of mistakes made by the merchant account providers, making them the cause of their own fees.
  • Minimum Fees: These are fees charged to merchants who do not reach a certain transaction total for the month or year. The minimums will vary by provider, but most of them are around $50,000 a year. This is another fee that is not charged by some of the better providers like Dharma Merchant Services.
  • Statement Fees: These are fees charged to cover printing and mailing costs for credit card statements. Some merchants bypass these costs by using electronic bill statements, but others pay as much as $15 a month for miscellaneous processing costs.
  • IRS Report Fees: These are fees that merchant account providers charge in exchange for reporting transaction information to the IRS (1099-K). Most of these charges range from $2 to $5, depending on the provider.
  • Online Reporting: These are alternatives to statement fees, charged to merchants who choose to view their statements online. Most providers will not charge this kind of fee, and those that do often lump it together with others.


Every credit card and merchant account provider has a different set of costs associated with its services. Some of them are unavoidable, but others can be negotiated. Remember to choose interchange-plus, and keep in mind that most of the flat fees can be negotiated. If you process a lot of transactions, don’t be afraid to bargain with your processor. With that in mind, there are several processors out there that are very transparent with their fees and are more than happy to place you on interchange-plus.

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