Editorial · July 5, 2023
Credit Card Processing Fees: How Merchants Can Cut Them
Credit card processing fees are the price a business pays each time a customer taps, swipes or types in a card, and most of that price is set by rules you can read. A sale of $100 on a rewards credit card can cost a merchant about $2.20 in interchange alone. On a regulated debit card, the cap is about 26 cents. This guide shows where those numbers come from and how to check your own statement.
What you are really paying for
Every card sale has three layers of cost. The first is interchange, a fee that moves from the merchant's bank to the bank that issued the customer's card. The second is the fees the card networks, such as Visa and Mastercard, charge for running the system. The third is the markup your payment processor adds on top for its own service.
Visa explains in its published rate document that merchants do not pay interchange directly. Instead, a merchant pays a "merchant discount" to its own financial institution. That one rate can bundle many services, and Visa describes it as typically a percentage of each transaction. In plain terms, the line on your statement is a blend, and you may not see the layers unless you ask.
Interchange is published, and it varies a lot
Visa and Mastercard both publish their U.S. interchange schedules. The rates depend on the type of card, how the card was used and the kind of business. A card that is present at the counter usually costs less than a card number typed in by hand or entered online.
Here are a few real examples from the schedules in force in spring 2023. On a Visa credit card in the top retail performance tier, which is meant for the very largest retailers, the fee is 2.10% plus 10 cents for a Signature Preferred or Infinite card. The same tier is 1.43% plus 10 cents for a Traditional Rewards card. Mastercard's consumer credit schedule shows key-entered sales at 1.95% plus 10 cents on a Core card, rising to 2.60% plus 10 cents on a World Elite card.
The lesson is simple. Premium rewards cards cost the merchant more, and keyed-in sales cost more than card-present sales. Neither is a mistake. It is how the schedules are written.
Debit cards follow a federal cap
Debit is different. In June 2011, the Federal Reserve Board issued a final rule under Regulation II. It set the most that a large card issuer may receive on a debit sale at 21 cents plus 5 basis points of the sale value. A basis point is one hundredth of one percent. The cap took effect on October 1, 2011. The Board also approved an upward adjustment of no more than 1 cent for issuers that meet fraud-prevention standards.
On a $100 debit sale, that works out to 5 cents plus 21 cents, or 26 cents, and up to 27 cents with the fraud adjustment. Visa's schedule lists the same 0.05% plus $0.21 for regulated debit cards. Certain small issuers, government-administered programs and reloadable prepaid cards are exempt, so the exempt debit rate can be higher. Visa's retail debit rate for an exempt card was 0.80% plus 15 cents.
How processors price it, and where markup hides
Processors package these costs in different ways. Some charge one flat rate for every card. Stripe, for example, lists 2.9% plus 30 cents per successful card charge on its public pricing page, and says the price is the same for all cards. It adds 0.5% for manually entered cards and 1.5% for international cards. For businesses with large volume, it offers custom pricing.
A flat rate is easy to plan around. It can also be higher than the true cost on a low-cost debit sale and lower than the true cost on a premium card. That gap is the processor's margin. With interchange-plus pricing, the merchant pays the published interchange plus a stated markup. That makes the markup visible, so you can compare it between offers.
How to read your statement
Pull your last three monthly statements and work through these steps.
Find your effective rate. Divide total fees by total card sales. If you pay 2.9% on a mix of debit and credit, you can see how it compares with the figures above.
Split the fees by layer. Ask your processor to show interchange, network fees and its own markup as separate lines. If it cannot, that is worth knowing before you renew.
Look at your card mix. Count how many sales are card-present, how many are keyed in and how many are debit. A shop that keys in many sales by hand pays more than one that reads chips and taps.
Check for extras. Look for monthly minimums, statement fees and early termination fees. These do not depend on your sales, so they hit small merchants hardest.
Practical ways to bring the cost down
First, take card-present sales through a chip or tap reader where you can. The schedules above show lower rates for those sales than for keyed-in ones. Second, ask for interchange-plus pricing and compare the markup from at least two processors, in writing. Third, ask your current processor to review your statement with you. Stripe's own page says its team will review the current statements of larger businesses, and other processors may offer the same.
Fourth, do not assume the lowest headline rate is the lowest cost. Add every fee, then divide by your sales. Last, recheck once a year. Visa and Mastercard update their schedules on a regular cycle, and your volume and card mix change too.
Sources
- Visa, Visa USA Interchange Reimbursement Fees (rates effective April 23, 2022), usa.visa.com
- Mastercard, 2022-2023 U.S. Region Interchange Programs and Rates (effective April 22, 2022), mastercard.us
- Federal Reserve Board, press release on the final rule on debit card interchange fees, June 29, 2011, federalreserve.gov
- Federal Reserve Board, Regulation II (Debit Card Interchange Fees and Routing), federalreserve.gov
- Stripe, Pricing, stripe.com/pricing