What merchants pay when customers use credit cards
When a customer swipes or taps a credit card at your register, you do not receive the full amount. The card network, the customer's bank, and your payment processor each take a cut before the money reaches your account. These fees typically range from 1.5% to 3.5% of the transaction, though the exact amount depends on your industry, the type of card used, and your processing agreement.
The three main components are the interchange fee (paid to the customer's bank), the assessment fee (paid to the card network like Visa or Mastercard), and the processing fee (paid to your payment processor). Understanding which fees you control and which you cannot negotiate is the difference between a processing contract that costs you thousands annually and one that does not.
Key Takeaways
- Interchange fees, set by card networks and paid to the customer's bank, make up 0.5% to 2% of each transaction and are the same for all merchants in your category.
- Your payment processor adds its own markup on top of interchange, and this is where negotiation happens — markup ranges from 0.25% to 1.5% depending on your volume and industry.
- Rewards cards and business cards carry higher interchange rates than basic cards, so a single transaction may cost you 2.5% instead of 1.5%.
- Monthly fees, batch fees, PCI compliance fees, and chargeback fees add hundreds of dollars annually on top of per-transaction costs.
- Requesting an itemized statement from your processor shows you exactly which fees are interchange (fixed) and which are markup (negotiable).
Interchange fees: the part you cannot negotiate
Interchange is the fee the card network charges your processor, who passes it to you. Visa and Mastercard set these rates by card type and merchant category. A standard Visa credit card might cost you 1.29% plus $0.10 per transaction, while a Visa Rewards card costs 1.79% plus $0.10. American Express and Discover set their own rates, which are typically higher than Visa and Mastercard.
These rates are published and identical for all merchants in your category — a grocery store pays the same interchange as every other grocery store. You cannot negotiate interchange down. What you can do is understand which card types your customers use most, because that determines your baseline cost. If 40% of your transactions are rewards cards, your average interchange will be higher than a business that sees mostly basic cards.
Interchange changes several times per year. Visa and Mastercard announce increases in advance, usually effective October and April. If your processor has not mentioned a rate change recently, ask for a current rate sheet so you know what you are actually paying.
Processor markup: where you have negotiating power
Your payment processor buys interchange at the published rate, then marks it up before selling it to you. This markup is where competition exists. A processor might add 0.25% to interchange for a high-volume restaurant, or 1.5% for a low-volume retail shop. The difference between a 0.5% markup and a 1% markup on $100,000 in monthly volume is $500 per month, or $6,000 per year.
Markup varies by your monthly card volume, your average transaction size, your industry, and how long you have been with the processor. A new merchant with $5,000 in monthly volume will pay more markup than an established merchant with $50,000 monthly. Restaurants and bars pay higher markup than grocery stores because chargebacks are more common. Online merchants pay more than in-person merchants because fraud risk is higher.
To find your markup, request an itemized statement from your processor that separates interchange from their fee. If they refuse or say "it is all bundled," that is a sign to shop around. Processors that hide their markup are betting you will not compare.
Monthly and per-transaction fees that add up
Beyond the percentage you pay per transaction, processors charge fixed fees that appear on your monthly statement. A monthly gateway fee ($10 to $30) covers the software that processes your transactions. A batch fee ($0.25 to $0.50) is charged each time you settle your transactions — usually once per day. A PCI compliance fee ($10 to $25 monthly) covers the security standard required to accept cards. A statement fee ($5 to $10) covers your monthly report.
A merchant processing $50,000 monthly might pay $200 to $400 in fixed fees alone, on top of percentage-based fees. These fees are negotiable, especially if you process high volume. Many processors will waive the monthly gateway fee or batch fee for merchants above a certain threshold. Some will bundle them into a lower overall rate.
Chargeback fees are separate and higher — typically $15 to $100 per chargeback. A chargeback occurs when a customer disputes a charge with their bank. If you have a high chargeback rate (above 1% of transactions), your processor may raise your percentage rate or add a monthly chargeback monitoring fee.
How card type affects what you pay
Not all credit cards cost the same to process. Visa and Mastercard divide their cards into tiers based on the cardholder's benefits. A basic card with no rewards might have an interchange rate of 1.29% plus $0.10. A rewards card might be 1.79% plus $0.10. A business card or premium card might be 2.25% plus $0.10 or higher.
American Express and Discover do not use the interchange model — they charge a single blended rate that includes everything, typically 2.5% to 3.5% per transaction. Because of this, many small merchants do not accept American Express. Discover has lower rates but fewer cardholders, so acceptance varies by region and industry.
You cannot control which card a customer uses, but you can track which cards your customers prefer. If 30% of your transactions are rewards cards, that is costing you roughly 0.5% more per transaction than if they were basic cards. Over $100,000 in monthly volume, that is $500 monthly.
Industry-specific rates and risk categories
Payment processors assign merchants to risk categories based on industry. Grocery stores and gas stations are low-risk and pay lower rates. Restaurants, bars, and hotels are medium-risk because chargebacks are more common. Online merchants, subscription services, and travel are high-risk because fraud and disputes are higher. Adult entertainment, gambling, and telemarketing are very high-risk and pay the highest rates or are declined entirely.
Your category is determined by your merchant category code (MCC), a four-digit number assigned by the card networks. You cannot change your MCC, but you should verify it is correct. A restaurant incorrectly coded as a bar might pay higher rates. A retail shop coded as online might pay more than it should. Asking your processor to review your MCC takes five minutes and can lower your costs.
If you operate multiple business types — for example, a restaurant with a retail shop — you may be able to open separate merchant accounts for each, each with its own MCC and rate. This is worth exploring if one part of your business has significantly higher volume than the other.
Comparing processors and negotiating your rate
To compare processors fairly, you need the same information from each: the interchange rate they are charging (should be the published Visa/Mastercard rate), their markup percentage, all monthly fees, and any volume discounts. Ask each processor for a sample statement showing a $10,000 transaction day, so you can see the exact dollar amount you would pay.
Once you have quotes, use your current processor's numbers as a baseline. If a new processor quotes you 0.3% lower markup, that is meaningful. If they quote you 0.05% lower but add a $50 monthly fee you do not currently pay, the savings disappear. Calculate the annual difference in dollars, not percentages, because percentages hide the real cost.
If you have been with your processor for a year or more and your volume has grown, contact them and ask for a rate reduction. Mention that you have received quotes from competitors. Many processors will match or beat a competing quote rather than lose you. This conversation takes one phone call and can save you thousands annually.
Frequently Asked Questions
Can I pass credit card fees to my customers?
Visa and Mastercard rules prohibit surcharging customers for using their cards, though American Express and Discover allow it. Some states have laws against surcharging. A legal alternative is offering a cash discount — a lower price for cash payment — which is allowed everywhere. The discount must be clearly posted and applied at the point of sale.
Why did my processing rate go up if I did not change processors?
Visa and Mastercard raise interchange rates several times per year, usually in October and April. Your processor is required to pass these increases to you. Additionally, if your chargeback rate has risen or your business category has changed, your processor may have raised your markup. Request an itemized statement to see which fees increased.
What is the difference between flat-rate and interchange-plus pricing?
Flat-rate processors charge one percentage for all cards — typically 2.7% to 3.5% — with no per-transaction fee. Interchange-plus processors charge the published interchange rate plus their markup, usually lower overall but variable by card type. Flat-rate works for low-volume merchants; interchange-plus is cheaper for high-volume merchants processing $50,000 monthly or more.
Do I have to accept all card types?
No. You can choose not to accept American Express or Discover if their rates are too high. You cannot legally refuse Visa or Mastercard if you accept any credit cards. Many small merchants accept Visa and Mastercard but not American Express to keep costs down, though this limits your customer base.
What happens if a customer disputes a charge?
The customer's bank investigates and either sides with you or reverses the charge. If reversed, you lose the sale amount plus a chargeback fee ($15 to $100). If your chargeback rate exceeds 1% of transactions, your processor may raise your rate or require you to use a chargeback management service. Detailed receipts and clear refund policies reduce disputes.