Credit Cards

For merchants, it can be almost impossible to run a business without taking credit cards. However, the fees from these transactions can eat into profits, making it hard for some merchants with a small spread to stay afloat.

The average credit card processing fee ranges between 1.5% and 3.5%. 

That quickly becomes a problem when processing B2B orders. It’s not uncommon for some businesses to place high-value orders routinely—every week, month, or quarter.

For example, a company accepting B2B payments via American Express faces a 2.5% to 3.5% processing fee on each transaction. Assuming the higher rate of a $10,000 order, you’d still need to pay $350 in transaction fees—while losing out on the extra profit you’d get.

What parties are involved in credit card processing?

When customers use their credit cards, a lot goes on behind the scenes. There are many parties at work, including:

• Card issuer: This is the credit card company that provides the credit card to consumers, such as Chase or Bank of America (among others). The banks work with Visa and Mastercard (the brand) to process the transactions. The interchange fee covers these banks and credit card companies’ operations and risk.
• Credit card network: This is the brand of the card, such as Visa, Mastercard, Discover, and Amex. The assessment fee is charged by the card networks for using their card brands.
• Merchant: The store or business accepting the credit card, either in person or online.
• Acquiring bank: Also called a "merchant bank". This is the bank that maintains the merchant account. The merchants actually don't get direct access or contact with this bank. The processing provider is the one who facilitates this relationship.
• Merchant account provider or payment processor: The third-party that sets the payer up with a merchant account and processes the transactions. This is the intermediary that connects with the banks. A few common examples are Square and Stripe.
• Payment gateway: This is necessary if you conduct business online. The payment gateway encrypts the data and sends the request for authorization to the card issuer (through the merchant account provider).

Credit Card Fees

When trying to understand the complexity of credit card fees, it helps to remember that credit card transactions are essentially loans. The issuing bank is loaning funds to your customer to pay you, and you, in turn, are borrowing funds from the acquiring bank to receive those funds sooner than the customer has paid their card balance. Because there is risk being assumed on both sides of the transaction, there are legal and underwriting costs built into processing fees, which vary depending on the nature of the merchant’s business. There are multiple types of fees associated with each transaction, and fees can vary depending on the type of credit card accepted.

Interchange Fees

The interchange fee is a payment made directly to the card issuer for the swiped transaction. Fees may vary based on the type of card being used, the amount of the transaction and the industry the business is in. For example, credit card companies may charge higher interchange fees for online purchases since fraud is a bigger problem with these types of transactions.

Payment Processor Fees

The merchant services processor, also called a payment processor, can also charge a fee to facilitate the transaction. Merchant services fees include monthly fees, per-transaction fees, equipment lease fees and statement fees. This is how a processor makes its money since it gets none of the interchange fees.

Assessment Fees

Assessment fees are fees paid directly to the credit card network so that the merchant can use certain credit cards. This fee is based on monthly sales, not per transaction. When combined with the interchange fee, merchants refer to the total as a swipe fee.

Typical charges from major credit card companies

The costs for credit card processing

The costs for credit card processing will depend on the merchant services provider. There may be an interchange-plus scenario where the interchange and assessment fees are charged along with a flat monthly and per-transaction fee. The monthly fee may range from $9.95 to $20. The per-transaction fee can range from 0.18% plus $0.10 to $0.50% plus $0.10.

Let’s take a look at some examples from popular payment processors from Forbes’ list of the best credit card processing companies.

Some companies prefer to use flat rates that combine all required fees into one simple transaction fee. This is often seen with online processors such as PayPal and even Stripe. The online fee may be different than a retail transaction because the card is presented to the cashier.