If your business accepts card payments, credit card processing fees are obligatory. These fees can cost vendors anywhere between 1.5% to 3.5% per transaction, but the rate depends on a variety of factors, including the credit card your customer uses, your chosen point-of-sale (POS) provider, and the size of your monthly fees.
As inflation rates continue to rise, transaction fees can be a huge cash drain for merchants — especially if they don't understand how they work. So, if you're looking to keep on top of your finances in 2023, this guide breaks down everything you need to know about processing fees, including where they go, the average price you will pay, and tips to find the best deal possible.
Scroll down to learn more about credit card fees, or jump to specific sections using the links below. Alternatively, if you're looking to cut costs further, you can also use our free POS comparison tool for tailored quotes from leading POS providers, such as Square and Zettle.
In this guide:
What Are Credit Card Processing Fees?
Credit card processing fees are the levy businesses need to pay every time they accept a card payment through a POS system. With typical charges ranging from 1.5% to 3.5% per transaction, transaction fees represent quite a small percentage of the overall sale. However, they add up quickly over time, especially if your business uses a free POS service.
But what does this look like on the ground? Well, based on these estimates, restaurants that take in $40,000 per month (the national average) can expect to pay anywhere from $20.25 to $47.25 in credit card processing fees per day. Alternatively, retailers that make $28,094 per month (the national average) will end up paying around $13.81 to $32.21 per day.
It's also important to note that while these fees are incurred while using point-of-sale systems, they're separate from the cost of POS software and hardware. If you're interested in learning more about the wider costs, read our detailed guide to POS prices.
But why do businesses need to pay for credit card processing fees, and where do they actually go?
Types of payment processing fees
Payment processing fees are determined by three parties: the card issuer, the payment processor, and the card network. We've summarised the different fees below:
- Interchange fee – Also known as a ‘swipe fee’, interchange fees are sent straight to the card issuer to cover the costs associated with accepting, authorizing, and processing card transactions. These fees represent the largest portion of the total charge and are typically lower for in-person transactions and sales using debit cards.
- Payment processor fee – A payment processor fee is a predetermined levy that is sent directly to the vendor's chosen payment processors, like Square, Shopify, or Stripe. In addition to charging per sale, payment processors can also require monthly payments.
- Assessment fee – These fees are paid directly to the credit card network and make up a much smaller percentage of the overall fee. Unlike interchange and payment charges, they’re based on monthly sales and not per transaction.
Who Pays Credit Card Processing Fees?
Card processing fees are paid for by the vendor, not the customer. However, since certain types of transactions will cost vendors more, businesses are allowed to add surcharges to select payment methods – unless it's restricted by state law.
To help you understand how much these payment options could cost your business, here's a breakdown of the main types of business transactions:
- Card-present transaction – Card-present (CP) transactions take place when a customer pays for goods or services in person. These transactions can be carried out by swiping a card, using contactless, or the chip and pin. It is worth noting that they incur lower fees because they're a low-risk form of payment.
- Keyed-in transaction – Keyed-in or ‘card-not-present' (CNP) transactions occur when you enter credit card information manually into a POS system to make a sale. Since the payment type is inherently riskier than CP sales, they typically come at a higher cost.
- Online transaction – As the name suggests, online transactions are business transactions that take place on the internet. The cost of online sales will depend on your POS provider but they normally cost somewhere in between CP and CNP sales.
- Over-the-phone transactions – Over-the-phone transactions are a type of CNP sale that is made, well, over the phone. Since they're more prone to fraud than other types of payment options, these forms of transactions typically cost businesses a premium.
- QR code transactions – QR code transactions are a contactless payment method that allows customers to pay for goods or services by scanning a code with their smartphones. Since this payment option is widely considered to be safe, they typically cost less than CRP and online transactions.
Typical Costs You Can Expect to Pay
As we’ve already emphasized, the price of card processing fees depends on a wide variety of factors. For instance, certain credit cards can run up higher fees. Banks like American Express charge merchants around 3% to accept their cards, while its competitors, Visa and MasterCard, charge closer to 2%.
The size of your business can play a notable factor, too. Small vendors typically have higher fees than national retailers with high turnover rates as the size of the fee is largely determined by transaction volume. The type of transaction can also play a factor, with keyed-in and online transactions typically costing businesses more than card-present sales.
Finally, the choice of your POS provider and plan can have a huge impact on your credit transaction fees as well. Taking this into account, our in-house team of researchers has collected the transaction fees of the major POS providers and identified the average range you can expect to pay for the three main transaction types.
See how the fees compare in our table below:
Type of fee
Card-Present Transaction Fees
Card Not Present Transaction Fees
Online Transaction Fees
1.99% + 20¢ to 2.99% + 15¢
2.6% + 30 ¢ to 3.5% + 15 ¢
2.99% + 20¢ to 3.5% + 15¢
Larger businesses with POS packages that are designed for higher turnovers will incur the cheapest fees in this bracket, whereas smaller businesses with cheaper free plans will be subject to heftier fees. For instance, Toast (our top-rated Android provider) charges 2.99% + 15 cents per transaction on its free Starter Kit plan, but this fee drops to 2.49% + 15 cents for businesses that pay monthly for its hardware and software packages.
Who Has the Lowest Credit Card Processing Fees?
According to our independent research, SpotOn currently offers the cheapest credit card transaction fees on the market. The customizable point-of-sale system charges a very reasonable 1.99% + 20¢ for all card-present transactions, with its keyed-in rate costing slightly more at 2.99% + 20¢ per sale. However, with the POS scoring just 1/5 for help and support features, these affordable rates come with a trade-off.
Zettle by PayPal is another great value contender, too, especially if you're looking to shirk monthly costs. The point-of-sale charges a flat rate of 2.29% + 9 cents for every card-present transaction, and it doesn't impose any hidden or recurring fees either — making it one of the most cost-effective POS options for businesses that are watching their bottom line. Unfortunately, Zettle's feature set isn't as strong as rivals like Square and Clover, so if you're after a POS that can do it all, you may need to get to grips with paying slightly higher processing fees.
Real-life Example: Square Credit Card Processing Fees
To understand what credit card processing fees look like in action, let's break down the rates of Square, our POS frontrunner for small businesses.
For retail stores, Square's card transaction fees operate on a sliding scale that depends on the POS package. For instance, businesses using the provider's Free tier can expect to pay a fee of 2.6% + 10¢ for card-present transactions, while Retail Plus users can benefit from a slightly lower levy of 2.5% + 10¢ per sale.
However, Square's pricing model differs slightly for its Restaurant packages. Food businesses are required to pay a card transaction fee of 2.6% + 10¢ whether they're using the free or paid plan. Card-not-present and online transactions remain the same across the board, too, with Square charging a flat rate of 3.5% + 15¢ per sale.
Square's transaction fees are fairly representative of other leading POS providers. However, our research suggests it's the most competitive option out there for businesses with smaller turnovers — largely due to its affordable hardware and generous free tier.
Check out our table below for a detailed breakdown of Square's pricing structure:
$60 per month
$60 per month
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How Do Card Processing Fees Work?
If you're on the lookout for a new processing option, you can expect to find three different pricing models: flat-rate, interchange plus, and tiered. Here's a breakdown of the structures and suitability for different types of businesses:
Interchange plus pricing
Also known as “pass-through” and “cost-plus” pricing, interchange plus pricing is a payment structure that passes through the payment processor's wholesale costs directly to the merchant. Since this pricing option is dependent on current interchange rates, it tends to fluctuate from month to month. This makes it one of the best pricing structures for small businesses because they're able to benefit when interchange fees are lower.
Depending on variables, like card type and credit card, tiered pricing categorizes transaction rates into three tiers: qualified, mid-qualified, and non-qualified. When compared to interchange plus pricing, this is a relatively straightforward option because prices remain fairly consistent. However, since many transaction types land on higher price tiers, it's less suitable for businesses with tighter budgets.
Flat-rate credit card processing is the primary model used by payment service providers, such as Square, PayPal, and ApplePay. As the name suggests, this option imposes consistent charges and typically only distinguishes between CP, CNP, and online sales.
This makes this pricing structure ideal for budding and small businesses that are looking for a simple solution. However, since flat-rate processing doesn't account for a processor's wholesale costs, this option tends to be pricier than interchange plus pricing in the long run.
How to Save Money on Credit Card Processing Fees
Unfortunately, as we inch closer towards a cashless society, if your business wants to diversify its payment options shelling out for credit card processing fees is inevitable. However, there are steps your business can take to limit the cost of these charges:
- Select the right pricing model – While the card processing structure will likely be determined by your business's POS, if you're open to new options it's always worth considering which pricing model will incur the lowest costs. Interchange plus options tend to undercut tiered and flat-rate methods.
- Read the small print – Payment processors have a habit of hiding extra charges in their terms and conditions. To avoid getting caught out by add-ons like refunds and foreign card processing, sifting through the small print is essential.
- Negotiate with your card processor – If your business is experiencing higher transactions, you may be able to negotiate a better price with your card processor. The higher your transaction volume, the more leveraging power you'll have.
- Choose your POS wisely – POS providers charge wildly different transaction rates. Keep an eye on these charges before you move with a solution to make sure you secure the best deal possible.
- Collect customer data – For B2B businesses that rely on an interchange pricing model, collecting client data, like invoice numbers and Tax IDs, can reduce interchange costs by 20%.
Verdict and Next Steps
Selecting a cost-effective POS is another failsafe way to trim down on expenses, too. So, if you're committed to finding a provider that suits your budget, our comparison tool can provide you with tailored quotes in minutes, and it's completely free to use.
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