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June 07, 2022

How Much Does Payment Processing Cost?

Jarett Theberge

Written by:

Jarett Theberge

How Much Does Payment Processing Cost?

Are you ready to do everything possible to maximize the bottom line as a business owner? While giving your customers more ways to pay with credit cards or mobile wallets is great, processing those payments comes at a cost.

Key Takeaways You Will Get From This Article

1. Interchange, assessment, payment processor, and miscellaneous fees are all variables when it comes to the cost of payment processing. 

2. Card issuers, card networks, and the payment processor all play a role when it comes to authorizing payments for merchants. Each party is compensated for their time and effort. 

3. Different companies might include more fees than others, so it’s best to speak about what you’re paying for with your merchant service provider. 

4. You can always tailor your processing package to your needs. 

Electronic Merchant Systems offers payment method solutions, creating a simple and seamless payment experience for your valued customers. We empower companies with mobile processing, web commerce, and POS Solutions

You might find that sales and revenue are through the roof, yet you don’t see the results you want because of the payment processing costs. Profits are slipping through the cracks, and you need to act.

Whether your current company wants to review your payment processor or it’s your first time opening a business, it’s imperative to research payment processing costs. 

If you want a short answer, the average payment processing fee for credit cards ranges from 1.5% to 3.5% of the transaction total. While that answer might satisfy you, you’ll be missing out on opportunities to cut costs and build beneficial partnerships with merchant services providers should you forego more investigating. 

Thankfully, at Electronic Merchant Systems (EMS), we know a thing or two about payment processing, and we want you and your business to thrive. 

In this article, we’ll go over what payment processing is, who’s involved, the types of processing fees, what models those fees apply to, and finally, what you can do to lower your costs! Let’s get started. 

  1. What is Payment Processing?
  2. Who are the Parties Involved in Payment Processing?
  3. What are the Types of Payment Processing Fees?
  4. Other Fees
  5. How to Lower Your Payment Processing Rates
  6. What’s Next?

What is Payment Processing?

Before we get into payment processing costs, we must briefly overview what payment processing is. In short, payment processing is the sequence of events that authorize and process credit and debit card payments. 

Payment processing from merchant services providers acts as intermediaries to verify sales as the money flows from the customer to your bank.

Read More: The Ultimate Guide to Payment Processing 

Who Are the Parties Involved in Payment Processing?

Processing credit card payments is a collective effort between separate institutions. Different parties use their authority and expertise to authorize payments for merchants from start to finish. Each party must be compensated for their time and effort. 

  • Card Issuers / Issuing Banks:

    This is the cardholder's banking institution or credit union. Chase and Citi Banks are examples of card issuers.
  • Card Networks:

    This is the credit or debit card brand used for any purchase. Visa® and Mastercard® are examples of card networks. 
  • Payment Processor:

    This is the merchant services provider merchants employ to process their card payments.

What Are the Types of Payment Processing Fees?

Wooden Blocks with the text Fees

There are several variables present that affect the price of these fees. The variables include the card type (debit or credit), business size and industry, where the card is issued (international or domestic), and transaction type (card-present transactions or card-not-present transactions).

Below, we’ll break down who charges which fee and how much you can expect to pay. 

Interchange Fees:

These are the fees charged by the card issuer. Interchange fees will be the most expensive fee that we’ll talk about in this article.

There are over 300 different interchange rates, but typically, this fee costs 1.15% to 3.25%. Issuers charge for routing money out of the card holder’s account. 

Assessment Fees:

Also referred to as “swipe fees,” are the fees charged by the card networks. This charge is also proportional to the transaction total but smaller than the interchange fee.

Rates for assessment fees vary but expect to pay between 0.10% to 0.15% except for American Express ®, which has a fee of 0.165%. American Express is a “closed network,” so only American Express can issue their card out.

This closed network status gives them more control over how much they charge for their fees. 

Breakdown of the Different Card Network Fees:

  • Visa = 0.14%
  • Mastercard = 0.1375%
  • Discover = 0.14%
  • American Express = 0.165%

Payment Processor Fees:

Also called merchant service provider (MSP) fees, or markup fees, are charged by the merchant services companies.

MSP fees are the least uniform of the three types mentioned in this list because they can be negotiated. You might be able to save on processing if you bundle services with the MSP you’ve contracted to process your payment. 

Different Payment Processor Fee Models: 

  • Interchange Plus:

    This model sees the interchange fee and a mark-up fee set by the MSP per transaction.

    For example, if the interchange fee from the card issuers is 5.0% and the mark-up fee is $0.05, the interchange plus fee is represented as 5.0% + $0.05. This model would work for most businesses. 

  • Flat Rate:

    All transactions, big or small, will have the same flat-rate fee.  Unlike the interchange plus, where the mark-up is added from the processor separately, the flat rate is handled under one roof by the processor.

    This model is the most predictable but can become costly with more transactions. It best serves smaller merchants with low sales volume or if you take in more cash than card sales. 
  • Tiered:

    This fee for processors concerns three main tiers; qualified, mid-qualified, and non-qualified. The type of card used will determine the rank in the tier.

    So, debit cards are considered eligible and cheaper than high reward credit cards that are non-qualified. This model is best for those businesses that can count on qualified payment methods. Otherwise, it can become very costly.

Other Fees

Below is a list of additional miscellaneous fees that a payment processing company or merchant service provider might charge you. These fees are negotiable, and its best to find a processing partner that requires as few of these fees as possible:

  • Equipment Fee
  • IRS Reporting Fee
  • PCI Compliance Fee
  • Statement Fee
  • Account Fee
  • Contract Cancellation Fee
  • Payment Gateway Fee
  • Chargeback Fee
  • Service Fee
  • Technology Update Fee

Different companies might include more fees than listed here, so it’s best to speak about what you’re paying for with your merchant service provider. 

How to Lower Your Payment Processing Rates 

There isn’t a cookie-cutter package for payment processing, and that’s a good thing because you can try to tailor your processing package to your needs! Here are five ways you can save money on your payment processing. 

  1.  Negotiate, Negotiate, Negotiate


    When dealing with your merchant services or payment processing provider, make sure you’re only paying for what you need. Ask about hidden fees and if they’re required. If you’re handling a high sales volume, payment processors will be more inclined to negotiate in your favor. 
  2. Encourage Your Customers to Swipe or Dip


    Sales are less risky if the transaction is completed with a credit card present at the point of sale. Card issuers, card networks, and payment processors put more fees on card-not-present transactions like online sales through a payment gateway or taking orders over the phone. The more times your customers swipe or dip their card, the more money you could be saving. 
  3. Verify Customer Address Information: 

    Card issuers like seeing online merchants using an Address Verification Service (AVS) to prevent fraudulent purchases. Card issuers may reward you for being proactive with lower rates or incentives. 
  4. Know If You Need Flat Rate


    If your company sees a high monthly sales volume and you use flat-rate pricing for processing, you’ll see the results in a less than ideal bottom line. While getting a flat rate fee for payment processing is a simple and quick way to do business, you could easily pay way more than you should. As we mentioned before, the flat rate is generally best for smaller merchants.
  5. Pass the Fee Off to the Customer: 


    While not common, this is still an option. Many stores will add a premium to a transaction if the customer is paying with a card. The merchant is passing the processing fee off to the customers. Consider this the “convenience fee,” if you will. Cash would be cheaper for the customer, but who is carrying around cash nowadays

What’s Next?

In this article, you learned about what influences processing fees. 

So, hopefully, you now understand why we needed to explain the cost of payment processing a little more than simply stating “1.5% - 3.5%”. Each aspect of the cost that we went over provides you with opportunities to save money. 

We want to ensure that you are equipped with the best payment processing solution possible as a merchant. At EMS, we hold our partnerships with merchants in the highest regard, and we’d love to start a conversation about your payment processing needs. 

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With over 30 years of experience and a 4.7/5 stars Google Review rating from over 1,000 actual customers, there’s a reason why merchants all over the country choose EMS as their merchant services provider. 

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