Credit Card Processing Fees and Rates Explained

Credit card processing fees are the fees a merchant pays for each credit or debit card sale. This fee is predetermined by your merchant services provider and can include fees such as interchange fees, assessment or service fees, chargeback fees, and more. 

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 payment processor.

The card issuer is the bank or financial institution that issues cards directly to consumers. Chase, Capital One, Citi, and Bank of America are examples of card issuers. The card issuers partner with networks such as Visa and Mastercard on credit and debit 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 payment processor is the financial institution that works in the background to securely process and complete a credit or debit card transaction. To facilitate all of this, payment processors usually have partnerships with other companies or brands that work directly with consumers and merchants. Like card issuers, they typically charge a percentage of the transaction amount plus a flat fee for each credit or debit card purchase.

Bring together your checking, savings, and loans

Learn more -/^

What goes into average credit and debit card processing fees?

When it’s all said and done, the average cost of processing payments for U.S. businesses is between 2.87%-4.35% per transaction. This is known as the merchant discount rate.

The merchant discount rate is the cumulative fee payment service providers charge merchants to facilitate credit card transactions. It includes several costs, such as interchange fees, assessment fees and the payment service provider’s fees that all go toward ensuring a swift and accurate 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). 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. 

• Card present or in-person transactions such as taps, dips, or swipes are 2.6% + 10 cents per transaction.
• Online transactions through Square Online Store or eCommerce API are 2.9% + 30 cents per transaction and Square Payment Links are 3.3% + 30 cents per transaction. 
• Manually entered or card-not-present transactions are 3.5% + 15 cents per transaction.
• Invoices sent to customers are 3.3% + 30 cents for cards or 1% with a minimum $1 per transaction for ACH transfers. Invoices can also be paid in person or online which would change the processing fees associated with those transactions. 

The fees above are ones associated with free tiers, these fees may vary if you have a paid tier. There are no monthly or hidden fees, and PCI compliance and help from dispute experts are included in the rate. You can also take extra steps to keep your business secure. For specific fee information, read more here.

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.

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 acquiring bank or merchant account to the issuing bank or customer account. It’s called an interchange fee. (There is an exception to this, see below.)

Interchange fees are set by each network. They change twice a year, in April and October. Interchange or “swipe” fees averaged 2.24% in 2023, rising to a record $172.05 billion, according to Merchants Payment Coalition. More than 80% of fees came from Mastercard and Visa (You can see Mastercard’s and Visa’s interchange rates on their website). 

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 to how much risk the card issuer takes on.

They include:

• The card that’s used: Debit cards with PINs are lower risk than credit cards, so they typically have a lower interchange rate. And rewards cards (travel, triple points, etc.) and business cards typically 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 IRS 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.

Examples of interchange fee ranges for each major brand*

_{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.}

Assessment or service fees

Payment processors have to collect something called dues and assessments for the card networks. These are service fees paid directly to the networks for the use of their card brand and the ability to process transactions on their payment networks.

Assessment fees are different from interchange fees: they’re charged based on total monthly sales and not individual transactions. They’re also typically lower than interchange fees. But the amount you pay varies by network and depends on things like whether the cards used were credit or 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) credit card assessment fees for Mastercard, Discover, and Visa.

Examples of assessment fee ranges for major brands*

_{* These are estimates curated by Value Penguin}

Easily accept and process payments with Square

See how -/^

Payment processor’s fee

A payment 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: 2.6% + 10 cents per swipe, dip, or tap, 2.9% + 30 cents per e-commerce transaction, 3.5% + 15 cents for each keyed-in transaction or card on file, and 3.3% + 30 cents for each invoice paid in-person, online, or via phone/app.

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

How can you reduce credit card transaction fees?

There are a 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). If you are a restauranteur or retailer, there are preventative actions you can take to minimize the occurrence of chargebacks. 

Require a minimum amount for credit card sales.

To offset processing fees, many businesses (especially those that tend to handle smaller transactions) choose to require a certain dollar threshold before they accept credit cards. If you decide to set a minimum for card purchases, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 allows businesses to set a credit card minimum up to $10 as long as that policy is clearly stated and visible to consumers. Some states may have additional regulations and restrictions on merchant limits. 

But this applies to credit cards only. It’s illegal to require a minimum purchase amount for debit cards.

Shop around for payment processors.

Choosing the right card payment processor depends on a lot of factors such as your industry, sales volume, and business size. 

If you process fewer transactions per month, finding a processor with a monthly fee but lower individual transaction fees might help you save. The opposite could be true if you have a higher sales volume. Weigh the different types of fees against each other and calculate your potential interchange, assessment, and processor fees for each option.

Be sure to factor in how you plan to do business in future and don’t be afraid to ask for better rates. If you have a history of high sales volume or low chargebacks, you might be able to negotiate terms.

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. Learn more about Square’s payment fees.

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. 

Is it legal for merchants to charge credit card processing fees to customers?

Passing on your credit card processing fees to customers, also known as a surcharge, has become more widely accepted since 2020. But it is still illegal in some states, including Connecticut, Massachusetts, and Puerto Rico. 

For states that do allow surcharges, there are a a list of regulations to follow, including:

• Disclosing all fees to customer prior to the transaction, including visibly posting a sign at point-of-sale
• Listing surcharges on sale receipts with both the percentage and the dollar amount of fee
• Capping surcharges at a maximum of 4% or the amount merchants are being charged for processing credit cards
• Avoiding surcharges for any debit cards

What is the difference between a surcharge and a convenience fee?

While a surcharge is when a business passes on credit card processing fees to a customer, a convenience fee is when a customer is charged extra for the ability to pay in what is considered a non-standard way for your business. For example, some businesses may charge a convenience fee for payments taken over the phone. Convenience fees are legal in most states, but they must be clearly communicated and can only be applied when the customer has the option to pay with the business’ preferred method to avoid the fee.

FAQs about Square processing fees and rates

How much will I pay in transaction fees?

Take a look at Square Payments Fee Calculator. You can estimate the fees you may incur depending on your average transaction size, monthly transaction amount, and card present vs. not-present transactions your business typically sees. 

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 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.

Not sure what your rate is with your current merchant services? Our rate calculator can help you better understand what you’re paying in card processing fees month to month.

How can Square help me run my whole business?

Payments are just the start. Square helps take care of the day-to-day stuff, too. From point-of-sale systems that integrate all sides of your business to tools that help you manage your staff and your payroll, Square has everything you need to save time and run your business more smoothly.