What Is a Merchant Charged for Credit Card Use?

By Steve Hane

  • Overview

    Merchants are charged a range of discount rates (most ranging from 1.7% to 4.5%) and transaction fees (about 30 cents) each time their customers use a credit card. The principal factors that go into determining the fees are the merchant service account, credit-card issuer, volume of transactions monthly and swiped versus keyed-in transactions. The merchant processing service may also apply additional fees such as a minimum charge, monthly maintenance, and invoice/statement fees. This article will briefly discuss the main factors that determine the charges to a merchant for credit-card use.
  • Merchant Service Account

    In order to accept credit cards, a merchant must have a merchant service account. A merchant service account consists of a contract with a merchant service provider, also referred to as an acquiring bank. This contract authorizes the merchant (i.e. business owner) to process credit-card payments through the provider in exchange for fees defined in the contract. The merchant service provider pays the merchant directly, typically through an electronic deposit in the merchant's bank account. Often the fees are deducted from that same bank account. Two of the most typical fees related to credit-card transactions are the discount rate and the transaction fee. The discount rate is the percentage of the transaction paid to the merchant service provider. This rate is defined in the contract that establishes the merchant service account. Some companies, such as Costco, may offer lower fees to members of their shopping club. Others such as PayPal offer no monthly fees, but higher transaction rates, up to 3.5% even on Visa and MasterCard purchases. In addition to the discount rate, the merchant service provider will charge a fee per transaction. Typically this is a fixed fee of about 30 cents or less.
  • Credit Card Issuer

    Visa and MasterCard are the most prolific issuers of credit cards and are accepted at more locations than any other cards. They also charge some of the lowest discount rates to merchants who accept them, often under 2% per transaction. Discover and American Express are the next most popular credit-card issuers and often charge higher discount rates, up to 4.5%. Actual discount rates will vary by the merchant service account you choose.


  • Volume of Transactions

    Credit-card processing companies may charge lower rates if the merchant charges a certain amount each month. This works like a bulk discount. As the merchant has a higher volume of credit-card sales, he pays a lower transaction fee.
  • Swiped Versus Keyed Transactions

    Lower discount rates and transfer fees are charged for merchants who swipe a card at the point of sale (POS) versus keying the card in (often done by phoned in orders).
  • Additional Fees

    Depending on the issuer of the merchant service account, the merchant may have a monthly minimum (for instance, a minimum of $20 in transaction-related fees). If the merchant does not meet this minimum with transaction fees, she will pay the difference. There are also commonly fixed fees for account maintenance and sometimes a fee to receive the invoice. Some companies may waive the invoice fee if the merchant opts for an electronic (e.g. emailed) invoice.
  • Which Fees Apply to My Merchant Service Account?

    Check with your merchant service provider. There should be an agreement that states the terms regarding the fees and rates above. Review this carefully and ask about any part you do not understand. If you are shopping around for a merchant service account, be sure to get all these terms in writing first so you can compare each fee and find the best deal for you. For instance, if you don't process transactions each month, you will want an account with low monthly fees and no minimum to save on your monthly fixed cost for processing credit cards. If you process a high dollar amount of transactions each month, you will want lower transaction fees. Click the "Basic Rate Comparison Calculator" link below to run the numbers from an offer you have received to see which will be the best for you.
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