Average Credit Card Processing Fees and Costs in 2022 | The Motley Fool (2024)

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For the first time in two years, Visa and Mastercard raised their credit card fees for merchants in April 2022.

Delayed by the pandemic, the move by the two largest payment networks to raise “swipe fees” was criticized by retailers. Businesses claim that hiking interchange fees, which are paid by merchants on each transaction made with a credit or debit card, could worsen inflation and pinch consumers because businesses could opt to pass the cost of higher interchange fees onto consumers.

Both payment networks raised fees on certain types of transactions and reduced fees for transactions in certain categories. Retailers say the reductions are narrow and do not balance out the increases in processing fees.

Most merchants need to accept credit card payments, which makes credit card processing fees a cost of doing business. For more on how much those costs can be -- and how they vary among credit card companies -- we've collected all the latest data.

Key findings

• Total credit card processing fees for merchants range from 1.15% + $0.05 to 3.15% + $0.10 in interchange fees plus an additional 0.14% to 0.17% in assessment fees.
• To accept credit card payments, merchants must pay interchange fees, assessment fees, and processing fees. These fees go to the card's issuing bank, the card's payment network, and the payment processor.
• The only negotiable credit card transaction fees are the payment processing fees.
• American Express cards have the highest average credit card merchant fees.
• There are four types of pricing models that payment processors use: interchange-plus, flat rate, subscription, and tiered.

What are the average credit card processing fees for merchants?

Credit card processing fees for merchants equal approximately 1.3% to 3.5% of each credit card transaction. The exact amount depends on the payment network (e.g., Visa, Mastercard, Discover, or American Express), the type of credit card, and the merchant category code (MCC) of the business.

Note that debit cards have a different pricing model, and they usually cost less for merchants. This is why you may only see a convenience fee for a credit card, and not a debit card purchase.

Here are the average credit card processing fees for the four payment networks (also called "card networks"):

Those ranges include the two types of fees that payment networks charge for each transaction: interchange fees and assessment fees. They don't include payment processing fees, because fee structures vary considerably depending on the credit card processor you choose.

Now, let's take a closer look at the fees that get taken out of every credit card transaction.

Types of credit card processing fees and costs

The two fees we looked at above, interchange fees and assessment fees, are non-negotiable credit card fees for merchants. They're often referred to as base costs or the discount rate. The payment network charges these fees on every transaction involving one of their cards. Here are where those fees go:

Interchange fees

The bank that issues the credit card receives the interchange fee. For example, if you have a Visa credit card issued by Chase, Chase receives the interchange fees on your transactions.

Assessment fees

The payment network receives the assessment fee. In the example above, Visa would receive the assessment fee on every transaction where you used your Chase Visa card.

Payment processing fees

This is paid to the company that accepts the credit card payment and sends the transaction to the payment network, either through a physical card reader or an online payment gateway. Depending on the payment processing company, costs for this service could include any of the following:

• A per-transaction fee.
• A monthly service fee.
• The price of the equipment used to process transactions.

What makes Discover and American Express different

Discover and American Express do double duty, because they issue credit cards and operate their own payment networks. Their cards may not be accepted at quite as many businesses as those of Visa and Mastercard, but they do get to keep both the interchange and assessment fees, giving them a much larger cut of each transaction.

Average credit card interchange fees

Note: These aren't the highest and lowest interchange fees for each payment network. We've removed some of the outliers (like Discover's 0.00% + $0.75 for credit payments on utility bills) to make the table better reflect the average fee range.

Visa credit card processing fees are the lowest overall, but Mastercard and Discover aren't far behind, and they fall into similar fee ranges. For many merchants, processing fees will be almost the same whether the customer pays with a Visa, Mastercard, or Discover credit card.

American Express has consistently been the most expensive payment network, which is one reason why it's accepted by fewer merchants. In 2018, American Express announced the largest drop in its fees in 20 years. That brought it more in line with other credit card networks, although it still charges the most on average.

What determines your interchange fees?

With each payment network, there are several factors that affect where your interchange fees fall within the ranges above. Here are the most significant:

• Merchant category: Every merchant has a merchant category code (MCC) corresponding to its business type. Payment networks charge different interchange fees based on the business's MCC. For example, a supermarket has different fees than a restaurant.
• Type of credit card used: Networks have various types of cards with their own sets of benefits. Cards that offer more benefits, such as travel rewards or purchase protections, usually have higher interchange fees. A World Elite Mastercard will have higher interchange fees than an Elite Mastercard, a Visa Signature Preferred Card will have higher fees than a Visa Signature Card, and so on.
• Processing method: Interchange fees can change based on whether the card was swiped or inserted (payments made through contactless credit cards are also grouped in this category for transaction fee purposes), keyed in, or not present (in the case of online or phone transactions). This is in part because the risk of fraud varies based on the processing method. Card-not-present (CNP) transactions carry a higher risk of fraud and/or chargebacks, and interchange fees are often higher on these transactions.

American Express also uses transaction amounts to determine its interchange fees, with higher-value transactions costing merchants less.

How often do payment networks update their interchange fees?

Payment networks generally update their interchange fees on a yearly basis. This doesn't mean they raise rates every year. As mentioned before, American Express lowered its credit card processing fees in 2018.

Visa and Mastercard skipped fee changes in 2020 and 2021 due to the COVID-19 pandemic, but updated interchange fees in 2022.

Those changes are difficult to parse. Fees depend on what type of merchant is party to the transaction, what type of credit card is being used, and whether the card is present or the transaction is done online. With dozens of merchant categories, multiple card types, and other variables that determine rates, it can be tough to determine the overall effect of interchange fee changes on merchants if fees increase in some categories and decrease in others.

One estimate found that the 2022 swipe fee changes from Mastercard and Visa will increase merchant fees by $475 million despite fees being reduced in some categories.

Although it may seem like the card networks benefit the most by raising fees, it's actually the banks. Remember that interchange fees go to the bank that issues a credit card. The banks that partner with Visa and Mastercard to issue their credit cards are the ones that will collect those additional fees.

Credit card assessment fees

The assessment fee is the payment network's cut, and it's a much smaller portion of each transaction.

American Express is once again the most expensive payment network, but this time around, Mastercard has the lowest rates, especially for transactions of $1,000 and over. That being said, the differences in assessment fees between each payment network are generally minuscule.

Credit card processing fees and costs

While merchants must pay the interchange and assessment fees set by the payment networks, they have more flexibility with payment processors.

Not only are there many credit card processors available, all with their own pricing strategies, but merchants may also be able to negotiate these rates.

The following types of payment processing models are available: interchange-plus, flat rate, subscription, and tiered. Here's how each model works and the fees you'd pay with several popular payment processors.

Interchange-plus

The interchange-plus model keeps all your fees separate. The payment processor charges you exactly what the payment network charges on the transaction and adds its own separate markup. This model also requires a flat fee per month.

Note that even though this model is called "interchange-plus," the payment network's assessment fee is charged as well.

Let's say your retail business chooses Helcim. On each transaction, Helcim would deduct the interchange fee, the assessment fee, and its own fees of 0.30% plus $0.08.

This model is a popular choice because it's affordable for all types of businesses and it has a transparent fee structure. On every sale, you'll know exactly how much the card network and your credit card processor charged.

Flat rate

The flat-rate model is all about simplicity. You're charged the same rate on every transaction, which makes it easy to predict your payment processing costs. And you can use this model without paying a monthly fee.

That simplicity comes at a cost, though. Under the flat-rate model, credit card fees can be much higher.

There is one key advantage PayPal and Square offer over some interchange plus competitors, which is that they don't have monthly fees. They could be more affordable if your business has very low sales volume and wouldn't save enough in credit card transaction fees to offset the monthly cost of a monthly interchange-plus processor fee.

Subscription

With the subscription model, you sign up for a membership with the payment processor and pay a monthly fee. You'll then pay the base costs on each transaction plus a very small payment processor fee.

You may be wondering what separates the interchange-plus and subscription models, considering their similar fee structures. In this case, it's a difference of degrees. The subscription model has much more expensive monthly fees in exchange for much cheaper transaction fees.

This model is best suited for businesses with high sales (at least $10,000 per month). You'll likely get the lowest credit card processing fees, and that helps justify your payment processor's monthly fee.

Tiered

In the tiered model, each transaction is grouped into one of the payment processor's tiers, and each tier has a set fee amount. The payment processor determines which transactions go into which tiers, and it often bases this on a transaction's interchange fees, which are included in the rate.

One popular setup with this type of payment processing has the following tiers: qualified, mid-qualified, and non-qualified. The qualified tier has the lowest transaction fees, followed by the mid-qualified tier, and the non-qualified tier is the most expensive.

The tiered model usually isn't a good choice, because it tends to be more expensive than other options. Since many types of transactions are grouped into a limited number of tiers, some transactions will have much higher processing fees than they would under other pricing models.

Equipment costs

In addition to the costs above, merchants that accept in-person transactions also need equipment. Costs vary significantly depending on the merchant's needs.

Basic mobile readers are available for $20 to $50, although some payment processors (Square included) offer one for free. Terminals and registers are more expensive, as a standard terminal can cost $150 and an advanced register can cost $1,000.

How much do credit card companies charge merchants?

When your business processes credit card payments, there will be multiple fees taken out of the total transaction amount (you may also pay a fee when a customer pays with a debit card, but these are usually less). The non-negotiable credit card network fees can vary:

• From 1.15% + $0.05 to 3.15% + $0.10 in interchange fees.
• From 0.14% to 0.17% in assessment fees.

The most important factors in what your business pays will be its MCC and the type of credit card the customer uses.

Next, your payment processor will take its cut, unless you've chosen a processor that charges one flat rate to cover all the fees in the transaction.

With credit cards growing more and more popular, the typical merchant doesn't have much of a choice but to pay a processing fee to the card issuer and payment processor. By knowing how much you'll pay on each transaction, you can price your products appropriately and ensure you're making enough money on each sale.

Some businesses also charge a credit card convenience fee (or offer a cash discount) to cover the cost of the processing fees above.

Sources

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• CMSPI (2022). “US Card Swipe Fees are Changing in April - Is Your Business Prepared?”
• Helcim (2022). “Pricing”.
• Intuit QuickBooks (2022). “Get started with QuickBooks Payments and QuickBooks Checking”.
• Mastercard (2022). “Mastercard 2022–2023 U.S. Region Interchange Programs and
• Rates.”
• National Processing (2022). “Pricing”.
• Payline (2022). “Pricing and Interchange”.
• Payment Depot (2022). “Pricing Plans”.
• PayPal (2022). “PayPal Merchant Fees”.
• Square (2022). “Understanding our fees”.
• Stax (2022). “Pricing.”
• Visa (2022). “Visa USA Interchange Reimbursem*nt Fees”.
• Wells Fargo (2022). “Payment Network Pass-Through Fee Schedule”.
• Wells Fargo (2022). “Payment Network Qualification Matrix”.