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January 19, 2022

A Detailed Guide to Card Processing Rates & Fees

As a business, when you accept credit and debit cards as payment, you have to factor in the associated costs. The fees you incur for credit card processing can eat a significant chunk out of your profits. How much you pay for card processing depends on different aspects, including the type of business, transaction volume, and type of payments. Processors offer competitive rates that cater to varying merchant needs. Whether putting up a new business or shopping for an alternative payment processor, you should be familiar with various rates and fees. This guide helps with that.

What Are Merchant Credit Card Fees?

Credit card processing requires you to use merchant services. A merchant account is an intermediary between your business and the card issuer. When customers pay using a card, a merchant service provider processes the transaction for a fee. Therefore, payment processing companies determine the costs your business incurs. Three main parts characterize every credit card payment.

Interchange makes up for the largest percentage of credit card processing fees. They refer to the charges card-issuing banks impose. Interchange fees are non-negotiable and fluctuate across a wide spectrum because cards issuers classify transactions differently.

Assessment charges go to the card network, such as MasterCard (News - Alert). These rates are also non-negotiable and depend on various factors.

Markup is what you pay to the MSP. Any charges that are not part of interchange or assessment count as markup. It's how a payment processor makes money. Per transaction, statement and annual fees are examples of markup costs.

Pricing Models

When searching for the most suitable card processor for your business, you must consider the overall costs. One element that determines processing rates is the pricing model. Because merchants have to pay several fees, processors bundle them up to make them less complicated for businesses. Depending on the pricing, credit card processing can be expensive or affordable. For this reason, you should learn about various pricing models and how well they cater to different businesses. Payment processing companies use three primary pricing models, which we explore below.

Tiered Pricing

As you might have guessed, this model separates payments into different categories. The tiers are qualified, mid-qualified and non-qualified, but some processors include other sections. Each group has a different rate, with qualified getting the lowest. Payments can also downgrade to the other two levels, leading to a rate increase. MSPs consider several factors when bumping off transactions from the qualified tier. A tiered pricing model provides uncomplicated statements that are easy to read. However, the prices tend to be high because a majority of processors charges payments in the mid-qualified and non-qualified categories. Comparisons between MSPs are also difficult since the model doesn't express the markup costs.

Interchange Plus Pricing

Many enterprises prefer interchange-plus pricing because it is the most transparent. It is also highly cost-effective. This model indicates the interchange rates, assessment and the markup a processor is charging. It categorises the different payments individually, thus, enabling you to see each component of your credit card processing fees. The advantage is that you can carry out an apples-to-apples comparison between MSPs. Initially, interchange-plus pricing was not available for small enterprises. However, now almost every business type can pay using this model. A downside of interchange-plus pricing is that statements can be too detailed and complicated for some merchants to keep up with.

Flat-Rate Processing

Simplicity is the biggest selling point of flat-rate pricing. The model calculates credit card processing costs on a percentage basis. It means you pay a specific amount for all transactions. So, all the different charges are compiled into one. Since fees don't change with the card type or other elements, you can quickly determine your processing expenses. Although the statements are simple, they are not transparent. You can't tell what you are paying as wholesale rates. Hence, finding a payment processor with the lowest markup can be challenging. A flat-rate pricing model works if your enterprise processes less than $3,000 in monthly card sales.

How to Select a Pricing Model

Given that pricing models influence your card processing costs, you have to be careful about choosing one. Merchant services have become quite expensive over the years, mainly because providers pile on hidden costs. Therefore, you should stick to MSPs that tell you what to expect. The best pricing model comes down to business needs. A high-risk merchant account doesn't have the same processing needs as a low-risk enterprise. Make sure you compare quotes from several credit card processing companies to find a cost-efficient solution.


Credit card processing can be complex, especially for new business owners. As a merchant that accepts credit cards, you have to be familiar with the different payment processing costs. Prices vary wildly across merchant service providers, and if you are not careful, they can eat away at your profits. Hence, you need to learn how processors charge various fees. Understand pricing models and how to pick the most appropriate one. Take the time to analyse your business requirements before comparing processing companies. The best card processing solution should not only save money but serve your customers adequately as well.

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