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It goes without saying that every modern company needs to accept credit card payments. As the Wall Street Journal recently pointed out, credit cards capture the majority share of consumer dollars.
In 2017, card payments accounted for 62.3% of consumer payments by dollars spent, while cash accounted for 15.5%. Meanwhile, electronic payments and checks had 14.2% and 7.5% respectively.
Numbers like that tell us that the ability to accept credit card payments isn’t just nice to have, it’s a necessity.
That said, accepting credit cards does come with certain fees, and it’s important to be aware of the fees that you’re paying, so you can assess your profitability and performance.
It’s also helpful to know what other companies are paying. When you have an idea of where you stand in terms of credit card fees, you can work to minimize your costs and improve your bottom line.
So, how much do merchants pay on average? The short answer is it depends. As you’ll learn more below, there are several factors that go into the merchant’s credit card fees. We break down these factors in the following paragraphs and we suggest reading through them so you can understand how much you and other businesses are paying and what you can do to lower your rates.
But if you’re just looking for a general overview, the average costs for credit card processing ranges from 1.5% to 2.9% for swiped cards, and 3.5% for keyed-in transactions.
Here is a recent breakdown of average costs for four major networks:
There’s a common misconception that credit card processing fees are determined solely by the credit card companies themselves.
That’s not the case.
In order to determine the average credit card processing fees you’ll need to pay every month, you must begin by understanding the three parties that decide how much a business has to pay:
Generally, most businesses have to pay a fee (called an “interchange rate”) on the total of the transaction and a flat fee to the credit card company. One reason it’s so hard to predict the credit card fees companies will have to pay is because interchange fees aren’t static.
For example, Mastercard and Visa adjust their rates twice a year. Interchange fees aren’t small, either. They usually account for between 70% and 90% of the total amount merchants have to pay the financial institution. More than one may apply, as well. Visa’s Interchange Reimbursement Fees include more than 150 different classifications.
Furthermore, businesses typically owe a commission and flat fee to the payment-processing company, too. Again, there’s no easy way to average this out, because your processor’s fees will vary depending on factors like your credit card processing volume, the type of business that you have, and the payment model that the processor is using.
Here’s a breakdown of what these fees mean:
As we touched on above, interchange fees represent the largest percentage of the total processing fee you’ll need to pay every time a customer pays with their credit card.
These fees can vary greatly based on a number of factors:
Like Visa, you can download Mastercard’s interchange rates to get a sense of what it might cost your business. As you’ll see, there are categories for everything from “Program Type” to U.S. region and more.
Other companies are a little less helpful. For example, you can only review Discover’s interchange fees after you first partner with an MSP. Without the verification code the MSP provides, you can’t access the breakdown.
Now let’s talk about the fees that you’re paying to your credit card processor. While interchange rates are dictated by the card networks and issuers, your payment processor fees are determined by the provider you choose.
There are 3 different types of pricing models that payment processors use to determine your rates. They include:
1. Tiered pricing – This pricing model charges you based on three main tiers — qualified, mid-qualified, and non-qualified.
Transactions that fall under the qualified category have lower fees, while your processor will charge higher rates for non-qualified transactions. Debit cards and non-reward credit card transactions typically fall under the qualified rate, while transactions involving corporate cards and higher rewards cards would be under the non-qualified category.
2. Blended pricing – With blended pricing, the processor charges a flat rate for all transactions. So, whether a customer pays using a credit card, a debit card, or a rewards card, the rate will be the same.
3. Interchange-plus pricing – With interchange-plus pricing, your processor breaks down your rate into two components:
So, when a credit card processor uses an interchange-plus pricing model, it means that they’re charging a markup on top of the card issuer’s fees.
These rates are typically expressed as the interchange fee plus the markup — e.g., 2.1% + $0.10 per transaction.
Another reason why the average cost of credit card processing is such a moving target is that there are a host of other factors that can determine your fees. Some of them include:
Whether or not the card is swiped or keyed-in – Swiped cards incur lower fees than keyed-in transactions. As mentioned earlier, merchants typically pay an average of 1.5% to 2.9% for the former, and 3.5% for the latter. This is because keyed-in transactions have more risk associated with them.
In the same vein, card not present transactions also have higher fees.
The type of card used – Your customer’s card choice is also a big factor, especially if you’re using a payment processor that implements tiered pricing. Generally speaking fancier credit cards — such as those that come with rewards or are used exclusively by businesses — have higher fees.
With all of that being said, there’s no one average fee for all credit cards. As you have now seen, even fees for individual credit cards may differ based on the type of business you run, where you run it, the kinds of cards being used, the amount of transactions you need serviced, and can even change throughout the year.
In the end, the simplest way – the only way, really – to figure out what you’ll owe in credit card processing fees is to shop around.
Start by choosing a reputable MSP with affordable rates. They should be able to help you make the right decision for your company’s unique needs. As we mentioned above, in the case of Discover, it’s literally the only way you can review their interchange rates.
Then, it’s just a matter of keeping an eye on the average credit card processing fees you’re being charged every month. If they start getting out of control, it might be time to reevaluate which ones you accept.
If you’re having trouble identifying the information we’ve outlined above, feel free to send us your merchant statement and our payment consultants will analyze it for you.
Our email is email@example.com or you can call us at 888-650-6444.
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