Taking credit cards is essential for most businesses today. But those handy plastic cards come with fees that add up. As a business owner, you need to understand exactly what you are paying for.

cost of credit card processing

Understanding Credit Card Processing Costs

Multiple parties get a slice of the pie every time a card is swiped. We’ll break down the parties involved and every fee category so you know exactly what you’re paying to accept credit card payments.

Cracking the Credit Card Processing Ecosystem

Before we explore the nitty-gritty of processing fees, it’s essential to understand the roles of the various parties involved in this intricate process.

Merchants, the keystone of the equation, facilitate transactions by accepting credit card payments from customers. Issuing banks, on the other hand, are the financial institutions that issue credit cards to cardholders.

Bridging the gap between merchants and issuing banks are acquiring banks and payment processors. Acquiring banks establish merchant accounts, enabling businesses to accept credit card payments.

Payment processors, such as gateways and service providers, handle the technical aspects of processing transactions, ensuring seamless communication between all parties involved.

The card networks, including major players like Visa, Mastercard, and Discover, oversee this entire payment system. These networks establish the rules, set interchange rates, and facilitate the transfer of funds between issuing and acquiring banks.

The Breakdown of the Fees

Credit card processing costs involve various fees, each with a specific role. Let’s break them down:

Interchange Fees

These fees, set by the card networks, represent the actual cost of using the credit card. This is what the credit card companies (Visa, Mastercard, Discover) charge as the base cost of using their cards.

A few things affect how much the interchange fee is. As with fancier rewards, credit cards have higher interchange rates than basic, and larger purchases tend to have lower interchange rates.

Using certain payment gateways that capture more detailed transaction info can qualify you for lower interchange rates. For example, the Paytrace gateway is good for lowering B2B interchange costs.

If using a stand-alone card terminal, you need to enter the zip code and settle those charges within 24 hours. If not, you get hit with higher “downgraded” interchange rates.

Since the interchange rate is usually the biggest fee, it really pays to set up your processing so that it qualifies for the lowest possible rates based on the factors above. Optimization here can save a lot of money over time.

Assessment Fees

Card networks charge these fees to cover the costs of authorization and settlement services they provide.

Processing Fees

Payment processors charge these fees for their services, including authorization, settlement, and the provision of technology and infrastructure.

Merchant Account Fees

Acquiring banks typically charge monthly fees, statement fees, and potential early termination fees for maintaining and managing merchant accounts.

Midwest Payment does not charge any early termination fees.

Key Factors Influencing Processing Costs

While the fee breakdown gives a general idea, several factors can greatly affect a merchant’s processing costs. It’s important to understand these dynamics:

  • Industry Type: Different industries have varying risk profiles, which directly influence interchange fees. Industries perceived as higher risk, such as online gambling or adult entertainment, often face higher processing costs.
  • Average Transaction Size: Businesses with lower average transaction sizes, such as quick-service restaurants or convenience stores, may experience higher per-transaction fees due to the fixed nature of some cost components.
  • Card Type: Credit card transactions generally incur higher fees than debit card transactions due to reward programs and the increased fraud risk associated with credit cards.
  • Payment Method: In-person transactions (card-present) tend to have lower fees compared to online transactions (card-not-present) due to the increased fraud risk associated with the latter.
  • Processing Volume: High-volume merchants often have more leverage to negotiate lower rates with payment processors and acquiring banks due to the economies of scale

Pricing Models for Credit Card Processing

When it comes to pricing models, merchants have several options to choose from, each with its own set of advantages and considerations:

  • Interchange-plus Pricing: This transparent model involves paying the actual interchange fee set by the card networks plus a fixed charged by the payment processor. While offering clarity, this model can result in higher overall costs for businesses with smaller transaction sizes.
  • Tiered Pricing: Under this structure, fees are bundled into fixed based on factors such as average transaction size and industry type. While offering simplicity, tiered pricing can sometimes need more transparency, making it challenging to optimize costs.
  • Subscription Pricing: This model involves paying a flat monthly fee, along with a per-transaction rate. It can be advantageous for businesses with predictable sales volumes and transaction patterns, as it offers a degree of cost certainty.

Strategies to Minimize Credit Card Processing Costs

reducing credit card costs

Merchants can employ several strategies to reduce their credit card processing costs effectively:

  • Negotiate Rates: High-volume merchants often have significant leverage to negotiate lower rates with payment processors and acquiring banks. Regularly reviewing and renegotiating rates can lead to substantial cost savings.
  • Optimize Transaction Types: Encouraging customers to use debit cards over credit cards and considering offering discounts for larger purchases can help reduce overall processing costs.
  • Choose the Right Pricing Model: Carefully analyzing your business model, processing volume, and average transaction size can help you select the most cost-effective pricing structure for your unique needs.
  • Shop Around for Providers: Regularly comparing fees and features offered by different credit card processors can ensure you’re getting the best deal for your business.

Additional Considerations

While exploring the intricacies of credit card processing costs, it’s essential to be mindful of a few additional considerations:

  • Early Termination Fees (ETFs): Many merchant account agreements include clauses that impose penalties for cancelling the contract before the term ends. Thoroughly reviewing and understanding these clauses can help you avoid unexpected costs.
  • Hidden Fees: Some providers may include additional charges not explicitly mentioned in the initial quote, such as annual fees or minimum monthly processing fees. Carefully scrutinizing agreements and asking clarifying questions can help you avoid these hidden costs.


Understanding the intricate world of credit card processing costs can be a challenging task. Still, armed with the right knowledge and strategies, merchants can effectively optimize their expenses and maximize profitability.

By knowing the various fee components, key influencing factors, and pricing models, you can make informed decisions tailored to your business’s unique needs.

Remember, regularly reviewing and negotiating rates, optimizing transactions, and comparing providers can save you money over time. Stay informed, stay alert, and help your business succeed in the changing world of credit card processing.