Understanding Credit Card Processing Fees

By Steve Hane

  • Overview

    Retailers or other merchants are charged a variety of fees when they accept credit cards. Some are monthly fees, such as service and statement/invoice fees, while others are charged per transaction (i.e., discount rate and transaction fee). These fees are usually reflected in a statement sent by the merchant service provider to the merchant. The merchant may also receive statements from the credit card companies they accept cards from, such as Discover and American Express.
  • Service Fee

    Many merchant service providers charge a fixed fee for having an account with them. These fees are to cover administrative costs related to maintaining each account. Fees generally average $20 per month. Some providers may charge no monthly fee, such as PayPal. However, this is typically balanced by having higher discount fees, which we will discuss later.
  • Statement/Invoice Fee

    A merchant service provider may charge a statement or invoice fee, particularly if a merchant receives a paper bill. These fees are typically $5 per month. If a provider charges this fee, the provider may waive it if the merchant opts for paperless statements that are emailed and/or accessible on the provider's website. Some credit card companies, such as American Express, may send a separate statement and charge for a paper statement. Logging onto a provider's website generally will enable a merchant to opt for electronic statements for no fee.

  • Discount Rate

    This is the percentage of each sale the merchant pays back to the merchant service provider. Often for Visa and MasterCard purchases, the fee ranges from 1.7 percent to 2.5 percent. Fees vary between service providers, so shop around for the best deal. Discover and American Express have higher discount rates up to 4.5 percent. A merchant will generally pay a lower discount rate for a swiped transaction (having the card present at the point of sale) rather than a keyed-in transaction (such as for a telephone order). A merchant will pay more to buy a credit card machine, but with a high number of transactions, the machine should pay for itself and more.
  • Transaction Fees

    With each transaction, the merchant is charged a flat rate, typically around 30 cents. This fee isn't much if the sale is hundreds of dollars, but if the sale is $3, the fee would be 10 percent of the sale, plus the discount rate. If a merchant expects to have many small transactions, such as a coffee shop would, it may be beneficial to look for the lowest transaction rate possible to save money.
  • Still Confused?

    Contact customer service of your merchant service provider if you already have an account, or ask a salesperson to explain what you don't understand. If shopping around, be sure to compare the fees along with your expected transactions. Below is a link to a Basic Rate Comparison Calculator that can help compare the rates of different merchant service providers so you can find the best deal.
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