Credit Card Merchant Fees Explanation and Comparisons [2022]

As a business owner, you know very well that sometimes you have to spend money to make money. This is the case when it comes to merchant credit card fees. For every sale you make that is paid for via credit card, you will need to pay a credit card processing fee. These fees are made up of several different components and may vary from credit card to credit card and from payment processor to payment processor. 

You can’t get away with not paying any merchant credit card fees, but you can educate yourself and understand what the fees are made up of and shop around to find the best deal that makes the most sense for your business. 

What are the Average Credit Card Merchant Fees?

Different companies set their own credit card processing fees, so the total cost can vary significantly depending on the card network, the type of card used and the business’ merchant category code (this is a 4 digit code used by credit card companies to categorize businesses by type of goods or service they sell). 

For this reason, it is hard to provide an estimate of what you can expect to pay in credit card merchant fees. Below is a list of the average range of fees of the 4 major credit card companies:

• Visa: 1.4-2.5%
• Mastercard: 1.5-2.6%
• Discover: 1.55-2.5%
• American Express: 2.3-3.5%

Keep in mind that the above is the average range, but your actual costs will be determined by your specific situation. 

How are Merchant Credit Card Fees Calculated?

Each payment network calculates their fees, taking into account a number of different factors, including:

• Merchant category - your business is assigned a merchant category code based on your business type and your merchant credit card fees are partially based on that. Riskier businesses will have higher fees, for example.
• Credit card type - within a credit card network there are different levels and types of cards, each with their own sets of benefits. Typically, cards that provide more benefits will also come with higher fees. 
• Processing method - the risk of fraud is correlated with how a card is processed. For example, a card that was physically swiped at a store is likely more secure than an online transaction in which the merchant doesn’t see the actual card. Less secure processing methods come with higher credit card processing fees. 

Credit Card Merchant Fees - Pricing Models

While the credit card companies get to choose their own fee structure, you also have to account for fees that you will need to pay to the credit card processor, which also get added to your total merchant credit card fees. Processors offer merchants different pricing plan models, so you can choose the one that best suits your needs. The common pricing plans include:

• Tiered Pricing - in this model, transactions are separated into different categories (or tiers) and each tier is priced at a different level. This is a good choice for a business that would be likely to process most of its transactions in the lower tiers. 
• Flat Rate Pricing - in this model, the merchant is charged a fixed percentage of each transaction plus a small fee, that is usually between $0.20-$0.30 per transaction. If you choose this model, you can easily estimate what your credit card processing costs will be over a given period of time based on your sales estimates. 
• Interchange Plus Pricing - the interchange rate is a standard transaction fee (described below), and in this model a merchant would pay that rate plus a predetermined additional percentage or fixed fee per transaction. This is a transparent and easy-to-use choice, and is the most common.
• Subscription Pricing - for a monthly fee, a merchant signs up for a membership with a payment processor  and then pays just the base transaction costs (charged by the credit card company) plus a small transaction fee. The monthly fee is higher while the transaction fee is lower, making this different from the interchange-plus model. This is a good choice if you have a high volume of sales and can then justify the monthly fee. 

Visa Merchant Fees

Visa sets and publishes its interchange rate each year, which is what the processor has to pay per transaction - it is this amount that the processor passes on to you, the merchant, as part of the merchant credit card fees. 

Mastercard Merchant Fees

Same as Visa, Mastercard also sets its fees each year, which are generally fairly similar to Visa. 

American Express Merchant Fees

American Express works slightly differently from Visa and Mastercard because it is a closed network. This means that only American Express itself can issue its credit cards (as opposed to Visa and Mastercard where other banks can also issue cards), giving it much more control over fees. American Express tends to charge higher fees simply because they can. Some merchants choose not to accept American Express because they don’t want to pay the higher fees that cut into their profits. 

Types of Credit Card Processing Fees

There are many types of credit card processing fees that all add up to your total merchant credit card fees. The first two types are non-negotiable and are set by the credit card company and must be paid on each transaction:

• Interchange Fees - this fee is also known as the discount rate and is paid to the issuing bank of the credit card. For example, if a consumer pays with a Visa card issued by Chase Bank, your interchange fee will be paid to Chase. This fee might be higher or lower depending on the perceived risk of the transaction. The interchange fee is usually the biggest part of your total merchant credit card fee, but you have no control over how much it will be. 
• Assessment Fees - this fee goes to the payment network (i.e. Visa in the example above) and is based on monthly sales rather than per-transaction. The assessment fee is typically much lower than the interchange fee. 

The other main fee is the payment processing fees. This fee goes to the company that actually processes the credit card payment, which could be either via a card reader or an online payment gateway. This fee may be per-transaction or monthly. This is where you can negotiate and shop around to find the processor that is the best match for you. 

The fees that a payment processor may charge include:

• Payment gateway - if there is a conduit between your merchant account and the payments processor, you will have to pay an additional fee.
• PCI Compliance - to ensure that security standards are met.
• Chargeback - fees when a customer requests a chargeback for a payment they made.
• SaaS Fee - monthly fee for the payment processing software.
• Hardware - if you need a physical card reader or other hardware, you may need to pay a monthly fee.
• Batch Fee - for the settlement of daily deposits.
• Hosting Fee - if the payment processor is server-based.
• Wireless Access Fee - charged for a cloud-based payment terminal as opposed to using a phone line.
• AVS - address verification system is used to match billing information provided by a customer to the card on file.
• Monthly Service Fee - flat fee for any support services including a monthly statement and customer support as needed.

Credit Card Merchant Fees Comparison

As explained above, the rates charged by the credit card companies can vary and are determined by the companies themselves. Below is a table that lays out the average rates of the main credit card companies and the two main fees that they charge. You can use this table to get a general idea of what your credit card merchant fees would look like on a monthly basis. Keep in mind that this is only meant to serve as an estimate and the real costs will vary and will also include payment processor fees. 

What are the Lowest Credit Card Merchant Fees?

Of the credit card payment networks, Visa tends to have the lowest fees, although Mastercard and Discover are similar. Once you add in the payment processor fees, your total merchant credit card fees are likely to be close regardless of whether the customer uses a Visa, Mastercard or Discover.

It’s only American Express users who may make your costs creep up, although even they have lowered their fees in recent years to be more in line with the others. The place where you can really lower your costs are in choosing your payment processor. 

Debit Card vs. Credit Card Merchant Fees

Fees are charged for debit cards as well, but because the interchange rate is based on transaction risk, the fees for debit cards tend to be lower because they are lower risk than traditional credit cards.