Ellen Cibula
Written by Ellen Cibula Payments, Finance, and AI Expert: Learn More

I worked for several years for a large payment processor, so today, I want to explain one confusing aspect of processing credit cards – all those dang fees!


There are three types of processing fees:

There are three types of fees structures:

  • Flat fee or blended fee
  • Tiered fee
  • Interchange Plus fee

Credit card processing fees can confuse business owners looking to accept digital payments. In this blog post, I’ll explain the most common credit card processing fees and why they exist. I’ll also discuss ways business owners can minimize transaction fees and maximize profits.

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Types of Credit Card Processing Fees

When you accept credit card payments, you need to be aware of three types of fees. These are interchange fees, assessment fees, and payment processor fees. Understanding the differences between these three fees will help you better understand how digital payments are processed and what charges you can expect to incur.

Interchange Fees

Interchange fees are the most significant component of credit card processing fees. They are set by the four major U.S. credit card networks (Visa, Mastercard, American Express, and Discover) and make up the majority of your credit card processing costs. 

Interchange fees vary depending on the type of transaction being processed. For example, a transaction involving a rewards card will have a higher interchange fee than a regular consumer credit card transaction. 

Interchange fees also vary depending on whether or not the customer is present at the time of purchase (card-present transactions) or if they are absent (card-not-present transactions). 

  • Card-Present (CP) Fees: In a card-present transaction, the customer physically hands over their credit or debit card to the merchant. This payment type may also be referred to as a point-of-sale or swipe transaction. Card-present fees are typically lower than card-not-present fees because there is less fraud risk associated with this type of payment. The fee for this type of payment usually consists of a percentage of the total sale amount plus a flat fee per transaction.
  • Card-Not-Present (CNP) Fees: A card-not-present transaction occurs when the customer does not hand over their credit or debit card to pay for something. This transaction could be done online, via phone, or by mail. Card-not-present fees are higher than card-present fees because there is more fraud risk associated with them—there’s no physical proof that the person making the purchase is indeed who they say they are. The fee for this type of payment usually consists of a percentage of the total sale amount plus an additional flat fee per transaction and a security fee to cover any potential fraud losses incurred by merchants.

Assessment Fees

Assessment fees are also known as “network access” or “acquiring” fees and cover the costs associated with accessing a particular payment network (for example, Visa or Mastercard).

Each network bases its assessment fee structure on transaction volume and type, merchant size, etc. Assessment fees typically range from 0%-1% per transaction but can be higher or lower depending on your situation.

Payment Processor Fees

Third-party payment processors like PayPal or Square charge payment processor fees to process credit card payments on behalf of merchants. These companies provide merchants with payment terminals and other services such as fraud protection and customer support in exchange for a cut of each transaction they process, known as the payment processor fee.

This fee varies depending on which service provider you use and the level of risk of your business. Therefore, shopping around to find the best deal for your business needs is essential since different companies offer different services at different prices.

Payment processor fees can be broken down into the following categories:

  • Per transaction – this fee is charged on each processed credit card transaction
  • Monthly service fee – some processors charge a monthly fee
  • Equipment costs – this is the cost of the equipment, whether you buy, rent, or lease your POS equipment

In addition to these three primary types of credit card processing fees, businesses may also have to pay service-related costs such as setup costs, monthly or annual maintenance costs, chargeback costs, or customer support costs.

Therefore, it’s essential to understand these different types of fees to ensure your business is paying as little as possible in transaction fees.

Optimizing Your Credit Card Processing Fees

The best way to optimize your credit card processing fees is to shop for a merchant services provider offering competitive rates and terms. Many providers will offer discounted rates for higher volume merchants or lower interchange rates for certain payment types (e.g., debit cards).

High-risk merchants may have to pay higher fees than lower-risk merchants. You can lower your expenses by keeping your chargeback ratio low, as processors do charge for excessive chargebacks.

Additionally, some providers will allow businesses to customize their plans based on their specific needs or provide specialized services such as fraud protection or tokenization technology that can help reduce transaction costs over time.

Lastly, it’s essential to review your statement regularly to spot any unexpected changes in your rate structure or other discrepancies that could result in additional charges down the line.

Fee Structures

Choosing the best payment processing fee structure can be difficult for a business owner. Still, ensuring your company is on track to meet its financial goals is essential. Payment processors typically offer three pricing structures: flat-rate, tiered, and interchange plus.

Ultimately the goal should be to look carefully at each pricing structure to determine which option best suits your business needs in terms of cost and services offered.

Flat-rate or blended fee

A flat fee structure for credit card payments is becoming increasingly popular as an efficient payment option for businesses across the board. With flat fees, you will pay a set charge for each transaction regardless of size or number, making it ideal for streamlining costs.

In addition, it simplifies the cost structure and allows businesses to gain better insight into their payment processing expenses. This insight helps you quantify spending ahead of time with this fee structure.

Furthermore, using a flat fee format helps promote economies of scale by bypassing merchant fees and assisting those who process numerous micro-transactions to achieve more significant savings.

This type of fee is beneficial if you have higher volume transactions since costs won’t change regardless of the size of the transaction. However, flat fees are usually the highest of the three fee structures.

Square, PayPal, and Stripe all use this fee structure.


Credit card companies commonly use a tiered pricing structure when processing payments, which can be confusing and daunting. Tiered pricing structures are based on your processor’s qualified and non-qualified rates for every transaction type.

Like flat-rate fees, tiered fees are a set charge for each transaction; however, that charge differs depending on the transaction type.

It’s important to note that understanding the differences between each tier allows merchants to reduce credit card processing fees. You can achieve this by setting up rules or thresholds associated with each payment tier, thus ensuring merchants can assess the risk involved before processing a particular transaction.

In addition, understanding the fee structure helps reduce costs and improve any business’s bottom line over the long term.

Processing companies use a three-tier system when classifying each transaction.

  • Qualified rates: card-present debit cards and non-reward credit cards
  • Mid-Qualified rates: loyalty cards, membership rewards cards, and any manually keyed-in transactions
  • Non-Qualified rates: high-reward credit cards, corporate cards, international cards, and card-not-present transactions

With this categorization system, processing companies can ensure they offer the most effective rates for their customers.

Host Merchant Services (HMS) uses a tiered pricing structure.

Interchange Plus

The interchange plus fee structure for credit card payments is a popular option among businesses, as it considers each credit card transaction when setting fees. This structure offers a predictable and transparent pricing structure, which can help companies to manage the associated costs better. Interchange plus rate is also called cost-plus pricing or pass-through pricing.

With this option, merchants will pay a predetermined flat fee per transaction plus an additional interchange rate based on the type of card and processing networks involved in each purchase. In addition, the debit rates could be even lower since debit cards typically use fewer processing networks than credit cards.

As a result, prices are generally lower with this fee structure than with a standard fixed fee structure or tiered fee structure.

As a result, interchange plus fee structures are ideal for businesses looking for more transparency and control over their transaction costs.

This price structure can help ensure transparency in fees and allows merchants to seek out the lowest rate possible. The interchange rate is based on card brand, issuing country, product type, and transaction volume.

While some industry trends will generally determine the cost of any given interchange fee, there is also an opportunity to minimize expenses through negotiation with payment providers.

Durango Merchant Services uses an interchange plus pricing structure.

Typical Costs

Average InterchangeAverage Assessment
Visa logo
1.15% + $0.05 to 3.15% + $0.100.14%
MasterCard logo
1.15% + $0.05 to 3.15% + $0.100.1375% (transactions under $1,000); 0.01% (transactions $1,000 or more)
American Express logo
1.35% + $0.10 to 3.30% + $0.100.15%
Discover card logo
1.35% + $0.05 to 3.05% + $0.100.13%


Understanding how credit card processing works is an integral part of running a successful business today – especially when it comes to knowing what kind of charges you can expect to incur when accepting digital payments from customers. It can come with a hefty price tag if you don’t take steps to optimize your credit card processing fees.

As we’ve seen here, there are three main types of credit card transaction fees- interchange, assessment, and payment processor – that all contribute to the total cost per transaction for merchants.

Knowing which charges apply where will help ensure that you get the best deal possible when accepting digital payments from customers.

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