Businesses that want their payment systems to sustain healthy, long-term profit margins need a firm understanding of the fees for payment processing and credit card processing. In 2022, US businesses paid more than $160 billion in processing fees, a 16.7% increase from the previous year. With customers increasingly embracing digital transactions and diverse payment methods, businesses need to remain agile and accommodate popular payment methods for their target markets. This includes understanding the fees for different types of transactions.

This article covers what payment processing fees are and how they work, offering insights that businesses can use to refine their payment strategies and choose the right payment solutions to power all of their key sales channels. Here’s what you need to know.

What’s in this article?

• What is payment processing?
  
• What fees are associated with payment processing?
  
• Credit card processing fees per card network
  
• How are payment processing fees determined?
  
• Can you negotiate payment processing fees?
  
• How to reduce credit card and payment processing costs
  

What is payment processing?

Payment processing refers to the transactional procedures that enable the secure transfer of funds between a payer and a payee. Typically, payment processing involves the use of electronic payment methods such as credit cards, debit cards, and digital wallets. The process includes the authorization, clearing, and settlement of transactions between various entities including the cardholder, business, acquiring bank, issuing bank, and payment networks.

As part of payment processing, payment gateways and payment processors act as intermediaries to facilitate communication and data exchange between these entities, ensuring that the transaction is efficient, valid, and secure.

What fees are associated with payment processing?

Fees associated with payment processing can vary depending on the payment processor, the type of transaction, and the business’s specific arrangement with the processor. Some common fees involved in payment processing include:

• Transaction fees
  Transaction fees, which are charged for each transaction processed, may comprise a percentage of the transaction value and a fixed fee per transaction. Rates can vary based on factors such as the type of card; whether the card is swiped, dipped, or manually keyed in during the transaction; and the industry or business type.

• Monthly fees
  Some payment processors may charge a fixed monthly fee for their services, which can cover account maintenance, reporting, and customer support. Stripe doesn’t charge any monthly fees or setup fees. Read more here for detailed information on Stripe’s transparent, flat-rate, pay-as-you-go pricing.

• Terminal or equipment fees
  Businesses may need to purchase or lease payment processing equipment, such as credit card terminals or point-of-sale (POS) systems, which can incur one-time or recurring fees.

• Payment-gateway fees
  For online transactions, businesses may need a payment gateway, which can come with its own set of fees. These fees may include setup, monthly, and per-transaction fees.

• PCI-compliance fees
  To ensure that they handle cardholder data securely, businesses must adhere to the Payment Card Industry Data Security Standard (PCI DSS). Some processors charge a fee for helping businesses maintain compliance or for noncompliance penalties.

• Chargeback fees
  When a customer disputes a transaction and requests a chargeback, payment processors may charge a fee to cover the costs of processing and investigating the dispute.

• Early termination or cancellation fees
  If a business decides to terminate its contract with a payment processor before the end of the agreed-upon term, the processor may charge them an early termination fee.

• Miscellaneous fees
  These may include fees for additional services, such as account-setup fees, statement fees, or batch fees.

Payment processing providers vary in their approach to fee structures. When narrowing down your list of potential providers, you should carefully review their payment processing agreements to understand the fees associated with their specific arrangement and compare different processors to find the most cost-effective solution for your needs. Further below, we’ll cover which credit card processing costs and fees can be negotiated and how to negotiate them effectively.

Credit card processing fees per card network

Credit card processing fees are a subset of payment processing fees that specifically apply to transactions involving credit cards. Parties that charge credit card processing fees include card networks, issuing banks, and payment processors.

Credit card processing fees can be broken down into three main types:

• Interchange fees
  Interchange fees are set by the card networks—Visa, Mastercard, Discover, and American Express in the US—and are paid to the cardholder’s issuing bank. Typically, interchange fees are a combination of a percentage of the transaction value and a fixed per-transaction fee. They vary depending on factors such as the type of card (credit, debit, rewards, corporate, etc.), the type of transaction (swiped, dipped, keyed in, or submitted online), and the business’s industry.

• Assessment or network fees
  These fees are also set by the card networks and cover the costs associated with operating and maintaining the card network infrastructure. Assessment fees are usually a small percentage of the transaction value and may vary slightly between different card networks.

• Processor or merchant services fees
  The payment processor or merchant services provider charges these fees for their role in facilitating credit card transactions. The processor’s fees can be a fixed per-transaction fee, a percentage of the transaction value, or a combination of both.

Credit card processing fees can vary by card network, as each network sets its own interchange fees and assessment fees. While the specific fees for each card network can be complex and are subject to change, here’s an overview of the fees associated with the major card networks:

• Visa
  Visa’s interchange fees depend on various factors, including the type of card, the transaction method, and the business’s industry. The fees can range from around 1.15% + $0.05 to 2.4% + $0.10 per transaction.

• Mastercard
  Similar to Visa, Mastercard’s interchange fees vary based on multiple factors. The fees can range from approximately 1.15% + $0.05 to 2.5% + $0.10 per transaction.

• Discover
  Discover’s interchange fees also depend on the type of card, transaction method, and industry. The fees generally range from around 1.4% + $0.05 to 2.4% + $0.10 per transaction.

• American Express
  American Express operates in a slightly different way from the other card networks: it often acts as both the issuing bank and the card network. American Express’s fees are typically around 1.43% + $0.10 to 3.30% + $0.10 per transaction.

Keep in mind that these are ranges, and the exact fees for a specific transaction can vary. Businesses should consult their payment processor and the card networks’ fee schedules for the most up-to-date information on credit card processing fees.

How are payment processing fees determined?

Payment processing fees aren’t uniform for all businesses and all use cases. Here are some ways that different types of fees can vary:

• Interchange fees
  Set by the card networks, interchange fees are paid to the cardholder’s issuing bank. These fees are determined by factors such as the type of card (credit, debit, rewards, or corporate), the method of transaction (swiped, dipped, tapped, keyed, or online), and the business’s industry. Interchange fees typically consist of a percentage of the transaction value and a fixed per-transaction fee.

• Card network fees
  Card networks also charge assessment or network fees to cover the costs of operating and maintaining their infrastructure. These fees can vary slightly between different card networks and are usually a small percentage of the transaction value.

• Payment processor fees
  Payment processors charge fees for their role in facilitating transactions. These fees can be a fixed per-transaction fee, a percentage of the transaction value, or a combination of both. Processors may also charge additional fees for services such as account maintenance, customer support, or chargeback handling.

• Payment method
  The fees associated with different payment methods—such as credit cards, debit cards, and digital wallets—can vary. Credit card transactions generally have higher fees compared to debit card transactions, and transactions involving premium or rewards cards may have higher interchange fees.

• Transaction type
  The method of transaction can also affect processing fees. In-person transactions in which the card is swiped or dipped typically have lower fees compared to card-not-present transactions, such as online or keyed-in transactions, due to the increased risk of fraud.

• Business’s industry and transaction volume
  Businesses that operate in industries with higher instances of fraud or chargebacks may be subject to higher processing fees. Additionally, businesses with a higher transaction volume or larger average ticket size may be able to negotiate lower fees with their payment processor.

• Payment processor’s pricing model
  Payment processors may use different pricing models, such as flat-rate pricing, tiered pricing, interchange-plus pricing, or subscription-based pricing. The pricing model chosen by the processor can impact the overall fees charged to the business.

Given the numerous factors affecting payment processing fees, it’s important for businesses to understand each provider’s specific fee structure and compare different payment processors to find the most cost-effective solution that meets their needs.

Can you negotiate payment processing fees?

The short answer is, yes, you can negotiate payment processing fees with your payment processor or merchant services provider. The long answer is more complicated. While certain fees—such as interchange fees and card network fees—are set by the card networks and cannot be negotiated, it’s possible for other fees—such as processor fees and additional service charges—to be reduced.

To successfully negotiate payment processing fees, consider the following steps:

• Understand your current fees: Review your current payment processing fees and statements to gain a clear understanding of what you’re paying. Knowing where you stand will give you a solid starting position for negotiations.

• Research other processors: Compare the fees and services offered by different payment processors to familiarize yourself with the industry standards and identify rates that are more competitive. Use this information as leverage during negotiations.

• Evaluate your transaction volume and history: Payment processors may be more willing to negotiate fees with businesses that have a high transaction volume or a good track record with low chargebacks and fraud. Demonstrating your business’s value and reliability can help strengthen your position.

• Be prepared with specific details: When you approach your payment processor for negotiations, thorough preparation is key. Communicate your concerns clearly, focusing on specific fees or services you’d like to discuss. No matter how much or how little negotiating room you have, being prepared with your research and data will be worth the effort.

• Consider multiyear contracts: Some payment processors may offer better rates if you agree to a long-term contract. If you’re satisfied with the processor’s services, this can be an effective way to secure lower fees.

• Ask for a pricing review: Request that your payment processor conducts a pricing review to ensure you’re receiving the best possible rates based on your business’s transaction volume and history.

Negotiating payment processing fees may not always result in lower fees, but any ground you can gain in this area will help you reduce costs.

How to reduce credit card and payment processing costs

While some costs and fees are fixed, businesses and platforms can take several steps to reduce some credit card and payment processing costs. Here are some strategies to consider:

• Shop around and negotiate
  Compare different payment processors and their fee structures to find the most practical option for how you handle payments now—and for how you plan to grow your business in the future. As we covered above, don’t hesitate to negotiate with payment processors for better rates, especially if you have a high transaction volume or a good track record with low chargebacks.

• Opt for the right pricing model
  Choose a payment processor that offers a pricing model that suits your business. For example, interchange-plus pricing is often more transparent and cost-effective than tiered pricing, while flat-rate pricing can be beneficial for businesses with smaller transaction volumes.

• Reduce the risk of fraud and chargebacks
  Implementing security measures such as address verification (AVS) and card verification value (CVV) checks can minimize the risk of fraudulent transactions and chargebacks, which can lead to lower processing fees. Read more here about how to reduce chargebacks.

• Choose secure processing methods
  Whenever possible, use the most cost-effective processing method. For example, in-person transactions using a card reader typically have lower fees than card-not-present transactions. Make sure your payment terminals are updated to support EMV chip cards, which can help reduce liability for certain types of fraud.

• Take advantage of lower-cost payment methods
  Encourage customers to use lower-cost payment methods when possible, such as debit cards or digital wallets, which can have lower processing fees than credit cards.

• Regularly review your processing fees
  Periodically review your payment processing fees and statements to ensure you’re not being charged unnecessary fees or higher rates than you initially agreed to. Keep watch for any changes in fee structures or additional fees that your processor may have introduced without your knowledge.

• Batch transactions
  Process transactions in batches at the end of the day instead of processing each transaction individually. This can minimize per-transaction fees and reduce overall labor costs.

• Maintain PCI compliance
  Ensure your business is compliant with PCI DSS to avoid noncompliance fees and reduce the risk of security breaches, which can lead to costly fines and potentially higher fees from your payment processor.

• Use industry-specific programs
  Some card networks offer programs tailored to specific organizations—for example, certain types of nonprofits and educational organizations—that provide reduced processing rates. Check if your business qualifies for these programs.

Credit card processing fees can meaningfully impact a business’s bottom line. As your volume of card payments grows alongside your business, this impact is compounded. It’s well worth your time to determine the most efficient, cost-effective approach to payment processing, one that will give you the strongest, most agile capabilities for your investment. To learn more about Stripe’s fee structure and how it’s designed to help businesses grow efficiently, read more here.