Typical credit card processing fees range from 1.5% to 3.5%, plus a flat rate per transaction. However, these figures don’t include other charges that might pop up on your statements, like those for payment gateways, monthly minimums, or equipment rentals.
Knowing how to calculate credit card processing fees to determine your effective rate ensures your business can maintain a healthy profit margin. It also lets you compare costs when negotiating rates with payment service providers. Explore the average payment processing fees, calculate your total expenses, and learn how to use this information to your advantage.
How are credit card processing fees calculated?
A payment service provider like Square or Clover offers flat-rate pricing, making calculating a credit card processing fee easy. Select the payment channel (in-person or online) and find the applicable rate. Multiply it by the sale amount, then add the flat cents per transaction fee. However, this calculation only shows one transaction at a time.
Moreover, interchange plus rates, membership models, or businesses that incur monthly statement fees take time to determine. Calculating your effective rate is more accurate and accounts for all costs regardless of your processor's pricing model. Before proceeding with the step-by-step instructions, let’s review the credit card processing terms and related fees that merchants must understand to make accurate calculations.
[Read more: What You Need to Know About Credit Card Processing]
What are credit card processing fees?
Swipe fees, payment processing fees, and transaction rates all mean the same thing — the price your business pays to accept electronic payments. These costs extend to taking credit and debit cards, PayPal, and mobile wallets like Apple Pay and Google Pay.
A credit card processing fee has two parts: a percentage rate based on the total order amount and a flat fee per transaction. Payment processors, credit card networks, and card-issuing banks impose merchant service rates. Card networks update programs and fee structures biannually in April and October. However, only charges from your credit card processing company are negotiable.
Types of credit card processing fees
Understanding credit card processing fees and the major players behind them helps businesses develop effective pricing strategies. For instance, after calculating transaction fees, you may encourage customers to pay through ACH (Automated Clearing House) or analyze why you have higher-than-expected card-not-present (CNP) transactions.
Interchange fees
These transaction costs comprise the most significant chunk of your processing fees, roughly 70% to 90%. Card brands like Visa, Mastercard, Discover, and American Express establish default rates but pay the collected amounts to the customer’s card-issuing bank. Interchange fees cover financial institutions’ risks and handling costs.
Card networks charge different rates based on the credit card type, merchant category code (MCC), and processing method. There are hundreds of groups between all of the card brands. For instance, Visa has over 150 classifications, whereas Mastercard has slightly fewer with different rates for business accounts and rewards cards.
Since risk affects pricing, in-person transactions are usually cheaper than those made without the card, such as over the phone or online. Also, American Express typically charges the highest interchange fees.
[Read more: What You Need To Know About Secure Payment Systems]
Assessment fees
Credit card associations set and collect fees to recover the costs of operating the card networks. Network Access and Brand Usage (NABU) fees are added to the interchange rate and are part of your total swipe fee. Some processors will itemize these prices on your statement.
Each card brand charges a fee based on various factors, such as the card type, transaction amount, or location (foreign processing). According to Fiserv, “This fee typically ranges between 0.13% and 0.15%.”
Payment processor fees
Merchant account and payment service providers charge fees in addition to those imposed by issuing banks and card networks. The rate varies, and some vendors negotiate terms, especially if your company has high sales volumes. It’s challenging to compare rates because pricing structures differ between processors, and not all providers share their markup details.
These companies provide credit card payment apps, software integrations, and customer support for merchants. Although there isn't a precise figure for processors' charges, we can estimate what percentage of sales some might collect.
The Merchants Payments Coalition (MPC) said, “Card companies charge merchants a percentage of the transaction, averaging a little over 2% but sometimes as high as 4%, to process the payment.” We know that at least 70% of this amount goes to the issuing bank, so the payment service provider might receive a maximum of 30%.
Tracking your effective rate and calculating processing costs gives you an edge when choosing payment processing services.
Credit card merchant fees explained
In addition to transaction rates, payment service providers may charge hidden or administrative fees. These are outlined in the fine print of your merchant agreement. Reviewing your statements and tallying all fees to determine your total credit card processing costs is essential.
Here are merchant fees for credit cards to look out for:
- PCI compliance fees: Some vendors tack on charges for assisting with the merchant’s Payment Card Industry (PCI) compliance and levy additional fees if you fail to maintain compliance.
- Termination fees: If you have a contract with the provider and cancel early, you may pay a flat rate or a fee based on future revenue estimates plus hardware expenses.
- Payment gateway fees: Processors may charge extra for payment gateway services, which allow merchants to process online payments and enter cards manually using virtual terminals.
- Minimum monthly processing fees: Your agreement may require your business to process a certain amount of credit card sales monthly. If you fail to meet this threshold, the vendor will add a fee to your statement.
- Chargeback fees: When customers dispute a charge with their credit card company, your payment service provider may charge your business a chargeback fee.
- Administrative fees: This category could include charges for generating statements, maintaining your account, or providing miscellaneous services.
- Batch and settlement fees: Providers may charge merchants a small fee each time they send nightly authorization codes or settle monthly accounts.
- Hardware lease fees: These charges appear on your monthly statements if you lease or rent to own point of sale (POS) equipment or credit card machines.
[Read more: How to Reduce Your Credit Card Processing Fees]
How processor pricing models affect transaction fees
The two most common pricing structures are flat rate and interchange plus. Companies using either model may charge monthly fees; both systems have advantages and disadvantages.
MPC reported that credit and debit card swipe fees “are most merchants’ highest operating cost after labor.” Therefore, it’s vital to understand how to calculate credit card processing fees for each structure when comparing providers.
Flat rate pricing
This fee structure is predictable and popular among small businesses, startups, and freelancers. Regardless of the card brand or type, you pay one rate based on the payment method — online, keyed-in, or in-person. The credit card processor gambles that merchants will accept more cards with lower interchange fees, allowing the payment processing service to earn a profit.
The flat rate includes interchange and markup costs. This structure can be more expensive than interchange-plus rates, especially for companies with higher processing volumes. Stripe, PayPal, Square, and Chase offer flat-rate pricing. Clover has flat-rate pricing with a monthly fee.
Interchange plus pricing
This pricing model offers transparency and negotiable rates, key benefits for established and growing businesses. You pay the variable interchange fee for each transaction and a separate, itemized markup from the processor. Merchant account providers may also charge monthly membership fees.
While interchange plus pricing is harder to calculate and budget for, it’s typically the most cost-effective. Payment Depot and Merchant One use interchange plus models but may have monthly fees, whereas Helcim charges a flat-rate markup that automatically decreases as your volume increases.
Membership model
This subscription pricing structure is best for high-volume sellers. You pay the variable, direct-cost interchange rates, cents per transaction, and a monthly fee. Stax is the most well-known credit card processing provider offering memberships.
[Read more: Small Business Guide to Accepting Recurring Payments]
Tiered pricing
This processing model transfers the risk-related expenses to the merchant. Consequently, industry experts recommend tiered or bundled pricing structures for enterprises, not small and mid-size businesses.
Rates vary by tier: qualified, mid-qualified, and non-qualified. While the proposed rates may sound like great deals, many SMBs find that their transactions don’t qualify for the lowest rates and may pay much more than if they used the flat rate or interchange plus pricing structures.
How to calculate credit card processing fees
Tracking your effective rate and calculating processing costs gives you an edge when choosing payment processing services. If you don’t have statements, use a credit card processing fee calculator or ask vendors if they provide complimentary statement audits.
For instance, Helcim offers a free processing fee calculator. Adjust the expected transaction size and monthly sales volume to see average costs and Helcim’s margin.
[Read more: Payment Gateways vs Payment Processors Guide]
Calculate your effective rate for credit card processing
Use this method to see your average monthly costs of processing credit cards. Grab a calculator and your merchant account statement. Find the total amount deducted for processing and your total monthly sales. Remember to include any additional monthly fees your processor charges for administration.
- Use this formula: (Total transaction fees / Total sales) x 100 = Effective rate.
- Example: ($234.71 / $7521.22) = 0.0312 x 100 = 3.12%.
Estimate costs for payment processing
Suppose you want to compare rates between providers or calculate differences between flat rate and interchange plus pricing. To do this, predict your expected monthly credit card sales, broken down by in-person, online, or keyed-in transactions. Also, determine the typical transaction size so you know how many payments you process monthly.
Then, request quotes from merchant account providers like Payment Depot, Helcim, and Merchant One. Ask if they can estimate the average interchange rates for in-person and online transactions. If not, professional software reviewers and industry experts put this figure at roughly 1.7% for in-person sales and 1.9% for online and keyed-in transactions.
Here’s how to calculate the processing costs for each vendor:
- Add the estimated interchange rate to their markup for online and in-person sales.
- Multiply your sales figure by the processing fee for that channel.
- Multiply the number of transactions by the cents per payment.
- Do these steps for online and in-person sales, then add them together to get your total monthly costs.
Companies like Stripe, Square, and PayPal, which offer flat-rate models, charge similar fees to all businesses and display these online. You can pull up their rate lists, use the standard formula to add online and in-person transactions, and calculate monthly costs.
[Read more: How to Write a Financial Forecast for Your Business]
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