By merchantservices December 20, 2025
Payment processing fees are very important for any business that accepts credit cards. Interchange fees, assessment fees, and markups put together reveal how much each transaction will cost you. It is essential that you understand how to interpret your merchant statements in order to identify hidden fees associated with payment processing and ensure you are getting a good deal in terms of financial management.
Understanding Payment Processing Fee
As a merchant who accepts credit card payments, you are essentially covering various small fees that are combined to form one bigger payment. Firstly, the interchange fees are charged to compensate the credit card companies for covering various risks associated with credit card issuance to merchants. These fees are charged based on various factors, including industry and the volume of transactions.
Secondly, assessment fees are the next, and these are direct fees from the credit card networks. The assessment fees are the cost of the infrastructure being used for the transfer of the transactions from the consumer to the merchant. The cost is set by the credit card companies and is updated twice per year. The percentage is small, around 0.12% to 0.15%, and is fixed and cannot be negotiated by the merchant.
Thirdly, the payment processing fee, also known as payment processor fees, refers to the cost that your payment processor charges for facilitating transactions on your behalf. Given that transacting directly with credit networks can be a pricey endeavor, most merchants actually outsource these tasks to a payment processor. It literally stands out as one domain where payment rates are negotiable to a degree, with factors such as sales, order amounts, refund and claim patterns, as well as offered product types.
Additionally, many online sellers are charged shopping cart fees by the online platforms they use. If the online platforms that you use are Shopify or Magento, for instance, they may charge you an additional fee for the integration with the payment processors they offer. This saves you the trouble of setting up the payment solution on your own, but may end up increasing the cost of processing.
Finally, there are the markup fees, which are added on top of the interchange and assessment fees. The markup fees pay for the profits as well as the expenses incurred by the processor. They are either flat fees, a percentage, or a combination of the two. It is crucial for you to know the impact the markup fees are having on your business because they are the most variable elements in your pricing structure. A proper breakdown of the various fees will leave the merchant well-equipped to evaluate the various providers and develop a pricing plan that will suit the business.
Common Fees Involved In Credit Card Processing
When you start receiving payments via credit/debit cards, you need to understand that several charges are involved. One such cost that you may incur is known as the Merchant Service Charge or MSC. It is a fee that you have to pay for every transaction that you make. Generally, the fee is dependent on the type of card that is used by your customer. The lowest charges are for debit cards, followed by normal credit cards, and the highest charges are associated with commercial or business cards.
Secondly, we have authorization fees; these fees are charges that are imposed per transaction in order to verify that the card used in making the transaction was valid and that there are sufficient funds in the account. This charge may look insignificant, but if businesses make huge transactions, this charge will significantly add up.
If you opt for card payments specifically, you may need to pay terminal costs. This depends on whether you decide to rent or buy your card machine and whether you opt for countertop, portable, or mobile card terminals. Most of the latest mobile card terminals are quite inexpensive and require little setup.
Finally, per transaction fees is a broad term that is essentially the sum of all the fees that go towards processing a transaction every time a card payment is made. Essentially, this is a combination of all the fees that were mentioned above, and this is mostly measured by way of a percentage of every sale that is made.
How Payment Processing Fees are Determined
Payment processing fees are not standard and rely on a number of factors, some of which you can control, while others are beyond your control. One such factor is the type of card your customers or clients are using. For example, different types of credit cards have different interchange fees, such as rewards or business credit cards, which have higher costs.
The card network is also important. Every credit card network, including Visa, Mastercard, American Express, and Discover, charges differently. Card network fees can also differ depending on whether it is a card-present payment or a card-not-present payment. Card-not-present transactions, including online purchases, usually incur higher fees because of the increased risk of fraud.
Another consideration is the “merchant category code” (MCC), which shows what type of business you have. If your industry is considered high risk (for example, travel or electronics), your rates might be higher because there is a higher chance of a chargeback.
Other factors include business size, as larger merchants usually have more negotiating power, and refund or chargeback rates. High refund or chargeback rates signal more risk, which may lead processors to raise your fees.
Examples of Payment Pricing Models
Understanding pricing models for payment processing is essential for managing expenses and preventing issues in payment processing.
In flat-rate pricing, the same percentage rate applies for all transactions, plus a minimal charge per transaction. It’s simple to understand, fixed, and perfect for businesses that are not massive or involve less activity in terms of transactions. But this may not be the cheapest pricing structure for high-activity businesses or those that involve less risky payments.
Secondly, we have the blended pricing option, which groups the cost of interchange rates, card network, processor, and gateway fees together under a unified fee system, with averages around 2.3%-2.9% + $0.30 per transaction. This option may seem very attractive and easy, especially for new startups or companies involved in high-value payments, but it can clearly not provide an accurate cost breakdown.
Finally, there is Interchange plus pricing, where there is a distinct breakdown for each fee:
- Interchange
- Card Association
- Processor/Gate Fees
Along with being transparent, this pricing strategy is also flexible and less expensive, especially for larger firms.
Payment Processing Fee for International Transactions
International transactions tend to be more expensive than local transactions because they involve additional procedures like currency exchange, and they also have a higher fraud rate.
Firstly, currency conversion fees are a significant factor that contributes to an increase in costs. If the payment system adopts separate currencies for the payment, the payment processor might charge a foreign transaction fee, along with a currency conversion fee. Some merchants also use dynamic currency conversion for the convenience of charging customers in their local currencies, but the process also brings extra fees.
Secondly, high-risk markup is another component. Cross-border transactions are viewed as high risk due to fraudulent activities and failed payments, and therefore, the interchange, assessment, and processing fees are normally higher compared to local transactions.
Thirdly, cross-border card fees further escalate the costs. The card associations charge an additional fee for transactions conducted using foreign cards. For instance, Visa has an ISA fee of 0.8% to 1.2% for currency settlement, and acquirers also have to pay an IAF of 0.45%. Mastercards also have a cross-border processing fee of 0.40%, and the acquirer program support fee is 0.55%.
How to Read a Merchant Processing Statement
The first thing you need to do is find your effective rate, known as the average percentage you are paying for credit card processing. This requires you to divide your total fees by your total processed sales and then multiply the result by 100. For instance, if your processed sales were $10,345 and you incurred fees of $229, your effective rate stands at 2.21%.
The next thing you need to identify is the pricing structure your credit card processor is employing. In credit card processing, credit card processors use either the tiered pricing structure, the flat rate structure, or the interchange-plus structure. In the tiered pricing structure, different credit cards are classified into qualified, mid-qualified, and non-qualified cards, and rates are differentiated based on the risk. However, you will not get the opportunity to see the specific rates.
In the flat rate structure, the credit card processor will charge you the same percentage for all your transactions. This structure is simple but less transparent. In the interchange-plus structure, the credit card networks’ fees and the credit card markup are split and are fully transparent.
Thirdly, the next thing you need to identify is your base cost. These are the interchange fees and the assessment fees that are set by the credit card networks and are not negotiable. Subtracting the base cost from your total cost will give you your credit card markup charge, and this is something you can negotiate with the credit card companies.
Lastly, you need to identify what type of credit card processing discount structure your credit card company is employing. In the monthly credit card discount structure, the entire credit card fee is deducted in one go. In the daily credit card discount structure, the credit card fee is deducted per credit card batch. In this type of structure, you need to calculate the entire credit card fee for the entire month by summing up the individual credit card fees.
Why You Should Check Your Merchant Account Statement Often
It is necessary that you personally examine your statements for your merchant account. This way, you can be certain that you aren’t paying additional charges that may be unwanted or unnecessary. Even though your statements may include information that seems difficult to interpret, these statements spell out exactly why payment charges are made, which will help you spot hidden fees and ensure your budget is made accurately.
Hidden Costs: What to Watch Out for
While evaluating the statements from your merchants, you need to watch out for unexpected charges that can add up quickly. These could include monthly minimum fees, which apply if your sales don’t meet a set threshold or PCI compliance fees, which some processors charge separately.
Secondly, early termination fees that could add up quickly if you decide to switch before your contract term is complete, and statement fees that might accompany your detailed transaction statements each month. To avoid these surprises, carefully review your processor’s contract and pricing schedule, and don’t hesitate to ask questions about any unclear terms before signing up.
How to Reduce Merchant Fees?
First, you can try to negotiate with your merchant services provider. If you are a business that receives a lot of transactions each month or if you have a good record of minimizing your number of chargebacks, then you may be able to negotiate a better rate based on your record.
Secondly, you need to encourage your customers to choose payment options that are both cheaper for them and also for you. Some payment options, such as debit cards and cash payments, are significantly cheaper than credit card payments.
Thirdly, another way that you can cut your merchant fees is to ensure that you are minimizing the number of chargebacks. After all, Chargeback fees can be expensive, but they are also a source of bringing a bad reputation in front of your merchant services provider.
Additionally, utilizing an Address Verification System (AVS) is also a great way to cut your merchant fees and ensure that your business is profitable. Since this service can verify that you are not committing fraud, it can help to ensure that your business is rated as a low credit risk, which can cut your merchant fees significantly. Finally, ensure that you are using a merchant category code that accurately reflects your business, since certain codes can qualify you for better rates.
Conclusion
Regularly reviewing and comprehending payment fees can help to reduce overpayments as well as save money for a business. A basic awareness of factors such as interchange, mark-up, and other charges can help a business negotiate a better rate, select a suitable pricing option, and optimize payment transactions to keep a business financially fit and well-optimized.
FAQs
What are interchange fees?
Interchange fees are determined by card companies and are paid to the bank that issued the card used by the customer.
What is a processor markup?
The processor markup is an additional fee that your payment processor charges in addition to the base fee.
How can I lower merchant fees?
Negotiate with your processor, promote low-cost payment options, minimize chargebacks, and address verification through AVS.
What is the difference between tiered pricing and flat pricing?
In tiered pricing, the transaction or service has been categorized based on different rates, while in the case of flat pricing, the same rate applies to all transactions.
Why should I review my merchant statement regularly?
Regular review is helpful in determining hidden charges and maximizing your payment processing rates.