The rate advertised by payment processing companies is rarely the same as the rate the business will pay. In addition to payment processing fees, businesses often have to pay additional costs for transactions, such as transaction charges, gateway charges, account charges, chargeback charges, and more.
Understanding who receives each charge and which ones the business controls will allow for a better comparison between each payment processing company’s rates and the volume of transactions they can process for the business.
What Do Credit Card Processing Fees Cover?
Credit card processing involves several organizations. The cardholder’s bank issues the card, the merchant’s provider submits the transaction, the card network carries payment messages and the acquiring side settles funds to the business.
The total merchant discount commonly includes three core cost categories:
| Fee Component | Who Receives It | How It Usually Appears |
|---|---|---|
| Interchange | Card-issuing bank | Percentage plus a transaction charge |
| Network or assessment fees | Visa, Mastercard or another network | Small percentage and activity-based charges |
| Processor markup | Processor or merchant-services provider | Percentage, transaction fee, monthly fee or combination |
Visa explains that merchants negotiate and pay a merchant discount to their financial institution rather than paying interchange directly to Visa. Mastercard similarly describes interchange as one component of the merchant discount rate established by the acquirer.
Interchange can vary by card, merchant category and transaction method. Mastercard identifies factors such as merchant category, sales volume, transaction data and the timing between authorization and clearing.
Some debit-card interchange is regulated. Covered issuers are currently limited to $0.21 plus 0.05% of the transaction, with an additional $0.01 allowed for eligible fraud-prevention programs. That limit does not apply to every debit transaction or every fee on the merchant statement.
How Payment Processing Companies Structure Their Fees
The pricing model determines how interchange, network fees and processor markup appear on the statement.
| Pricing Model | How It Works | Best Fit | Main Tradeoff |
| Flat rate | One blended percentage and transaction charge | Smaller merchants prioritizing simplicity | Lower-cost cards may still receive the full blended rate |
| Interchange plus | Actual interchange and network costs plus disclosed markup | Merchants wanting more transparency | Monthly cost changes with card and transaction mix |
| Tiered | Transactions enter qualified, mid-qualified or non-qualified buckets | Merchants with clearly explained qualification rules | Downgrades can obscure the processor’s true markup |
| Subscription | Monthly membership plus transaction-level costs | Eligible higher-volume merchants | Monthly expense may outweigh savings at lower volume |
| Custom high-risk pricing | Terms reflect industry, volume, disputes and fulfillment risk | Specialized or high-risk merchants | May include reserves, additional fees or longer funding |
Square’s current Free plan illustrates flat-rate pricing. It lists 2.6% plus 15 cents for in-person tap, dip or swipe payments and 3.3% plus 30 cents for online or invoice card payments. Higher Square plans combine monthly subscriptions with lower rates for certain transaction types.
Interchange-plus pricing separates the provider’s markup from the underlying card cost. It can make the statement easier to audit, although transparent pricing does not automatically mean inexpensive pricing.
Tiered pricing becomes difficult to compare when a provider advertises only the qualified rate. Merchants should ask which cards and transaction methods receive that rate and what triggers a downgrade.
How to Read Your Payment Processing Statement
A merchant statement should display more than one processing rate. The transaction summary should include information about the pricing model, card categories, processor markup, and account charges.
Common entries within a merchant statement include:
- discount or percentage fees
- authorization and transaction charges
- gateway fees
- batch fees
- monthly minimums
- statement or account fees
- PCI-related charges
- equipment or software fees
- chargeback and retrieval fees
- international or cross-border charges
- currency-conversion costs
- accelerated-funding fees
- annual fees
- early termination charges
Some merchant service providers implement transaction-level fees for processes that do not result in a sale. For instance, Authorize.net publishes a gateway fee schedule that lists a charge for credit card transactions, whether they are completed sales, refunds, voids or declined transactions. Authorize.net also charges for batches of transactions and for updating merchant account records.
Stripe’s current pricing includes costs for optional services. Its published rates for the U.S. include a $15 dispute fee, fees for international sales, fees for currency conversion, and additional products such as fraud screening, invoicing, and subscription billing.
The simplest way to understand the processing rate is to calculate the effective rate.
Effective rate = total processing costs ÷ total processed volume × 100
If a merchant processes $80,000 and spends $2,800 on processing, the effective rate is 3.5%.
Use several different statements to calculate the processing rate. A merchant might have paid high fees for a specific year for certain types of cards or for large transactions in a single month. These high costs may skew the processing rate for that year.
Reserves should be reviewed separately from the processing costs. A reserve may impact a business’s cash flow. The money is typically released at a later date as specified in the merchant agreement. Unless the merchant is promised that the reserve money will be withheld or applied to any liabilities, it is not a processing cost.
Why Payment Processing Fees Vary Between Merchants
While transaction volume is one of the factors that determines a merchant’s payment processing fees, not all transactions are the same. Merchants that process manually entered or international transactions may experience different fees than merchants whose sales occur in-person with chip or contactless payments.
Factors that impact a merchant’s rate may include:
- average and maximum ticket
- type of credit and debit cards processed (and the number of rewards cards)
- number of card-present versus card-not-present sales
- monthly processing history
- chargebacks and instances of fraud
- subscription billing
- future delivery
- international customers
- regulatory requirements
- refund and cancellation practices
Many merchants have unique sales environments that expose the acquiring bank and payment processor to higher risks of chargebacks, fraud, or fulfillment issues. As such, these merchants often have custom rate arrangements with their processors. Such conditions may include higher markups on the costs of processing payments, rolling reserves, delayed funding of those sales, minimum sales requirements for the month, and enhanced fraud control requirements.
The percentage rate quoted by payment processors for merchants may therefore be low. A merchant that incurs slightly higher fees but has more flexibility in relation to their sales and limits may be a better arrangement than a lower percentage but one that limits the merchant’s ability to support their business model.
The underwriting process of a merchant’s account should reflect the type of sales that the merchant plans to process. For instance, a retail merchant that is approved for in-person sales may not be able to process online or manually entered sales.
How to Reduce Your Payment Processing Costs
First, separate the negotiable costs from the pass-through costs for your payment processor. Most payment processors have little control over interchange and network fees but have control over their markup, account fees, and the equipment they offer to merchants.
Here are several ways to improve your processing costs:
- Review your statements for several months.
- Calculate the effective rate for your merchant account. Identify the markup for your processor.
- Determine the fees for refunds and declined payments.
- Compare the in-person, online, and keyed rates.
- Reduce your gateway and software service fees.
- Avoid long equipment leases. Improve your fraud and chargeback performance.
- Ask your payment processor for a review of their volume-based pricing.
- Compare ACH services for your larger invoices.
- Review the terms of your contract and the terms for terminating it.
- Find a payment processor whose pricing model works better for your mix of payment card types.
- Lowering chargebacks will also lower expenses beyond the processing rate. Beyond the chargeback fees are expenses like lost merchandise and staff work.
Ask for a written schedule of all fees from each merchant account service. This should include information about the fees related to the processor, the transaction volume, and any other expenses.
Payment Nerds’ prices depend upon the type of business, the volume of transactions, the size of the ticket, the payment methods used, and the risk associated with the business. Statement reviews allow businesses to review their current charges and potential savings with Payment Nerds. Payment Nerds does not charge businesses for its services. However, its partners may charge fees.
Payment Processing Fee Questions
Q: What are credit card processing fees?
A: Credit card processing fees are the costs associated with authorizing, transmitting and settling card payments. These include interchange fees, network fees and processor markup.
Q: What are payment processing fees?
A: Payment processing fees include the transaction fees and the other fees that are required for merchants to accept electronic payments. These fees can include payment gateway fees, monthly account fees, chargeback fees, software fees and equipment fees.
Q: What is interchange?
A: Interchange fees are the fees paid by the acquiring company to the bank that issued the customer’s credit card. It is one part of the total merchant discount.
Q: What is a good credit card processing rate?
A: Competitive rates depend on several factors including transaction volume, card type, sales channel, industry and risk. Each company will have a different rate based on the same transaction.
Q: What is the difference between flat-rate and interchange-plus pricing?
A: With flat-rate pricing, all costs are combined into one rate. With interchange-plus pricing, the first part of the rate is the cost of the credit card transactions, with the second part being the markup of the credit card processing company.
Q: Why are online payments more expensive?
A: Because online payments usually involve credit card fraud. There is no data from the chip or contactless payment system. Therefore, processing companies charge more for online payments due to these variables.
Q: Do refunds have processing fees?
A: Fee treatment depends on the processor, gateway and agreement. Some providers do not return the original processing cost, while gateways may charge transaction fees for refunds or voids.
Q: Are merchant account services separate from processing fees?
A: Some merchant account services are included within the transaction rate, while others appear as monthly, gateway, software or account charges. The merchant agreement should explain each cost.
Q: How often should merchants review their fees?
A: Review statements monthly and complete a broader pricing comparison at least annually or after a major change in volume, card mix or sales channel.
Understand and Control Your True Processing Costs
No merchant can accurately calculate the processing costs from the rate advertised by the provider. These costs include the interchange, network fees, processing house markups, and any additional services needed to operate the merchant account.
Calculate the effective rate, determine the fees that the provider controls and compare all the offers based on your transaction history. The best price will remain the most understandable, sustainable and compatible with your business as it grows.
Sources
- Visa. “Credit Card Processing Fees and Interchange Rates.” Accessed August 2026.
- Mastercard. “Interchange Fees and Rates Explained.” Accessed August 2026.
- Board of Governors of the Federal Reserve System. “Average Debit Card Interchange Fee by Payment Card Network.” Accessed August 2026.
- Square. “Processing Fees, Plans and Software Pricing.” Accessed August 2026.
- Stripe. “Pricing and Fees.” Accessed August 2026.
- Authorize.net. “Payment Gateway Pricing.” Accessed August 2026.
