Credit Card Processing Fees and Rates Explained [2021]

In this guide, we explain what a credit card processing fee is, what goes into it, how fees affect your rate, and how you can reduce your transaction fees.

Table of Contents

Who decides on credit card processing fees?
What goes into credit card processing fees?
Three types of credit card fees that affect your rate
Processing American Express and other non-bank cards
Can you reduce your transaction fees?
Credit cards with the lowest processing fees
FAQ about Square’s competitive flat fees


Credit card processing fees, also known as qualified merchant discount rates, or just “discount rates,” are the fees a merchant pays for each credit card sale. This fee is predetermined by your merchant services provider and usually involves three components: interchange fees, assessment or service fees, and the payment processor’s markup.

Deep Dive

Who decides on credit card processing fees?

Generally, there are three parties involved in credit card processing — the card issuer, the card network, and the payments processor.

The card issuer is the bank or financial institution, that issues cards directly to consumers. RBC of Canada, Scotiabank, TD, and Bank of Montreal are examples of card issuers. The card issuers partner with networks such as Visa and Mastercard on credit cards. For each card transaction, the card issuer charges a merchant a commission for the ability to accept the card — typically, a percentage of the transaction amount plus a flat fee.

The payments processor is the financial institution that works in the background to securely process and complete a credit card transaction. To facilitate all of this, payments processors usually have partnerships with other companies or brands that work directly with consumers and merchants. Like card issuers, payments processors typically charge a percentage of the transaction amount plus a flat fee for each credit card purchase.

What goes into average credit card processing fees?

When it’s all said and done, the average cost of processing payments for businesses that do between $10,000 and $250,000 in annual payments volume is between 2.87 percent and 4.35 percent per transaction.

Many factors determine how much you may ultimately pay, including PCI-compliance fees, annual account fees, and chargeback fees (which we go into below). In fact, for businesses processing between $10,000 and $250,000 in sales per year, additional fees are on average 28 percent to 60 percent higher than the initial quoted rate (not to mention the cost of hardware leases and software subscriptions). So it’s important to educate yourself before you decide how you’re going to process card payments at your business.

Square has competitive, transparent pricing so you know exactly how much you’re paying to process credit and debit cards. It’s just 2.65% per tap, dip or swipe for Visa, Mastercard, American Express and international credit cards, 3.4% + 15 cents for each card not present transaction (like Virtual Terminal), and 2.9% + 30 cents for other transactions (like invoices paid online). For debit transaction, it’s a fee of 0.75% + 7c for every INTERAC insert and tap. There are no monthly or hidden fees, and PCI compliance and help from dispute experts are included in the rate.

Another benefit of using Square is that we charge the same rate for all major credit cards, including American Express. That way you can accept any payment method your customers prefer. With other POS solutions, credit card processing fees can vary from card to card.

Examples of average credit card processing fees for each major brand*

Mastercard 1.55% – 2.6%
Visa 1.43% – 2.4%
American Express 2.5% – 3.5%

These are estimates curated by Value Penguin
*Square charges the same rate for all major credit cards, so you don’t have to worry about the differences between major brands.

Credit card fees that affect rates

Interchange Fees

Every time a customer uses a credit card in your store, there’s a fee that is paid from the the acquiring bank (merchant account) to the issuing bank (customer account). It’s called an interchange fee. (There is an exception to this, see below.)

Interchange fees are set by each network. (You can see Mastercard’s and Visa’s interchange rates on their website). They change twice a year, in April and October.

The purpose of interchange fees is to help the card-issuing bank cover things like the risk of approving the sale, fraud, and handling costs. So it shouldn’t be surprising that the factors that influence these rates relate in some way to the risk taken on by the card issuer.

They include:

  • The card that’s used

    Credit cards with PINs are lower risk, so they typically have a lower interchange rate. And rewards cards (travel, triple points, etc.) and business cards typically have have higher interchange rates.

  • How the transaction is processed

    In-person card present transactions at the point of sale (POS) typically have lower rates compared to card not-present (CNP) transactions (online, over the phone, invoices, or mail order).

  • The amount being charged

    Merchants with small ticket sizes and a large amount of sales can qualify for lower interchange rates to help reduce their costs.

  • The type of business

    Every business that accepts credit card payments has a merchant category code (or MCC), a four-digit number that’s assigned to them by the acquiring bank or institution. The MCC is used to classify businesses into market segments that simplify tax reporting.

    The MCC also influences how much a bank or institution charges in interchange fees. Business types that are considered “higher risk” (like financial services, travel, gambling, and hospitality) often have to pay higher interchange fees.

American Express serves as both the card network and the card issuer and their fee structure varies from the interchange fees we’ve talked about. But if you use Square, we have the same processing fee for all major credit cards, including American Express.


Dues and assessments

Payments processors have to collect something called dues and assessments for the card networks. These are fees that are paid directly to the networks for the use of their card brand, as well as the ability to process transactions on their payments networks.

Assessment fees are different from interchange fees in that they’re charged based on total monthly sales and not individual transactions. They’re typically lower than interchange fees. But the how much you pay in assessment fees varies by network and depends on things like whether the cards used were credit or INTERAC debit, transaction volume, and whether foreign transactions were processed.

Similar to interchange fees, networks review their assessment fees twice a year. You can check your monthly credit card statement to see if there are changes to your assessment fee. Below are the most current (at the time of writing) assessment fees for Mastercard, Discover, and Visa.

Mastercard Visa
0.08% (Credit transactions < $1,000) 0.09% (Credit transactions < $1,000)

source: Visa and Mastercard

Payments processor’s fee

A payments processing fee is what you pay your credit card processor for use of the product. Typically, this fee is charged per transaction, in hidden fees, and monthly fees.

Square doesn’t have monthly or hidden fees and it has the same processing fee for all major credit cards: 2.65% per insert, tap, or swipe, 3.4% + 15 cents for each keyed-in transaction, and 2.9% + 30 cents for each invoice or e-commerce transaction. Our debit fees are just 0.75% + 7c for every Interac insert and tap.

Our flat payment processing fee includes any fees incurred by interchange, as well as additional dues and assessments or other fees that come from processing cards such as American Express

Other miscellaneous credit card fees and costs you might be paying

Types of Fees What Is It? Square’s Fee
Payment Gateway The conduit that passes money between your merchant account and your payments processor Free
PCI Compliance The security standard all businesses that accept credit cards must comply with Free
Chargeback The fee incurred when a customer issues a chargeback for a payment Free
POS software (monthly SaaS fees) The amount you pay monthly to use your POS software Free
POS hardware rental The monthly costs to rent your POS terminal hardware and other accessories associated with your POS hardware N/A
Batch fees Charges for the settlement/closing out of your deposits each day (also called batch header fees) Free
Hosting fees Fees charged for traditional server-based POS systems N/A
Wireless access fee A fee that can be charged for using a cloud-based POS terminal vs. a traditional phone line Free
AVS The Address Verification System is for keyed-in transactions and matches a customer’s billing information to the card on file, incurred on a per-transaction basis Free
Monthly statement / support / service fee Some payment processors charge a flat monthly fee for support-related services, including the preparation and mailing of your monthly statement, as well as general customer support Free
Monthly minimum fee The fee between your monthly GPV (credit card dollars processed) and the agreed-upon monthly minimum Free

How can you reduce credit card transaction fees?

There are number of ways to reduce your credit card transaction fees. Here are a few:

When possible, accept cards in person.

Online, keyed-in, invoices, or mail-order transactions (also known as CNP or card-not-present transactions) have higher processing fees than in-person (POS) transactions because they’re more susceptible to fraud. They can also fall into the “mid-qualified surcharge” bucket, which bumps up the interchange fee for those transactions.

Try to accept cards in person whenever possible if it makes sense for your business.

Reduce your risks of chargebacks.

If your business incurs a lot of chargebacks (when a customer disputes a charge from your business and asks the card issuer to reverse it), banks consider you a higher risk and may hike up processing fees. So it’s important to take steps to reduce your chargeback risk.

There are a number of simple ways to minimize chargebacks, but one of the most effective is to use a credit card authorization form. This is a document the customer signs, giving you permission to charge the card on an ongoing basis. With this document in place, your chances of winning a chargeback case with the card issuer are much more likely (not to mention less complicated). Download a credit card authorization form.

Accept payments with Square.
  Credit Card Processing Rates
Square 2.65% for all in-person inserted, tapped, or swiped payments
Them Averages between 2.87% and 4.35%

Square’s credit card processing fees are simple and transparent. There’s just one low rate for every type of card and dollar amount. We never charge any monthly fees, PCI-compliance fees, cancellation fees, or POS software fees. It’s all included in our rate.

Credit cards with low processing fees

There’s a large range of card processing fees. Fees are dependent on card functionality (debit, credit) as well as the card distributor (American Express, Visa, Mastercard). Often credit cards are more expensive to process than debit cards.

A debit card with a PIN tends to be less expensive to process because its funds are available and verified right away, so there’s lower risk. Many banks charge a flat fee to process debit card transactions, regardless of the amount charged.

According to Visa, MasterCard and American Express merchant rules, merchants generally cannot charge you a service fee when consumers use their credit card. However, Visa, MasterCard and American Express permit eligible merchants to charge a service fee (also known as a convenience fee) for certain types of transactions.

Visa, MasterCard and American Express all require that the fee be clearly disclosed to cardholders before the transaction is completed and that cardholders are able to cancel the transaction without penalty.

Note that under the Code of Conduct for the Credit and Debit Card Industry in Canada, merchants may choose to offer discounts for different payment methods, but they are not required to do so.

Card surcharge permissions may vary by regulatory or card network rules. Visa and Mastercard updated their rules for Canada on October 6, 2022 to allow merchants to apply a surcharge on credit card payments. The card networks have strict rules that must be followed by merchants before permitting surcharging. In terms of surcharge enablement, Square is looking to launch a feature to enable credit card surcharges for merchants in the future, but does not support surcharging functionality at this time.

FAQ about our rates:

How does Square offer credit card processing with no monthly fees?

We believe credit card processing should be as easy and affordable as possible. That’s why we offer simple, clear pricing that includes everything you need to securely process credit cards at your business. Learn more about Square’s merchant services here.

What can I save in credit card processing fees?

If you have an annual card processing volume above $250,000 per year and have an average ticket size of $15 or more, your business may qualify for a competitive custom rate. Contact our sales department to learn more.

If you sell above $250,000 per year and have an average ticket size of $15 or more, your business may qualify for a competitive custom rate. Contact our sales department to learn more.

Payments are just the start

Square helps take care of the day-to-day stuff, too. From point of sale to payroll, we have all kinds of services to help you save time and run more smoothly.