Credit card processing fees can be pretty straightforward once the components are analyzed individually. With this article, your helpful team at SlashMyFees will explain all of the different components of credit card processing costs to give you a solid understanding of the charges and how you can do some cost control
Let's start by clearing a misconception; not all credit card processing fees are negotiable. The rate that you pay to process a credit card transaction is a combination of base costs and markups called merchant discount. Think of merchant discount as the retail price of credit card processing, base costs as raw material expenses and the markup as production costs.
Base costs usually account for the largest portion of expense (about 75% - 80%) followed by the markup (about 20% - 25%). In cases like this, there's a lot of room for savings. See the Cost Distribution section below to learn more about where your money goes.
Base credit card processing fees are made up of interchange fees and assessments, and they're the same for all processors. No processor can give you a lower rate or a better deal on base costs. For example, First Data - the largest credit card processor pays the same interchange fees and assessments as a small local bank.
Interchange fees account for the most significant portion of credit card processing expense, and they are paid to card-issuing banks. The processors and the card brands such as Amex, Visa, MasterCard, and Discover don't get any revenue from the interchange fees.
The card issuing banks decide how much they want to charge when you accept their credit cards. They consider factors such as processing method (swiped, keyed, e-commerce), card type (rewards, business, consumer), your business type (merchant category code), and a host of other variables to create a long, exhausting list of interchange fees.
Interchange fees are assessed net of refunds and chargebacks and mostly are made out of two parts consisting of a percentage and a flat transaction fee. For example, 1.51% plus $0.10 is the current Visa interchange fee for a swiped consumer credit card.
It's important to note that even though interchange rates don't vary among processors, it is possible to optimize interchange charges to achieve lower costs. Check out our information on interchange fees for more details on interchange optimization.
These institutions also make money by charging assessments on every transaction involving one of their credit cards. Like interchange, assessments are exactly the same for all credit card processors and no processor can give you a lower rate or a better deal on assessments.
However, assessments may be charged differently if you have a bundled pricing model. This flexibility is only possible because the processor has more control to manipulate pricing on a bundled pricing system.
The assessments for each card brand are listed below along with the details about when they apply. Assessments are changed periodically by the card brands, and this list is updated as changes are announced.
Caveat emptor: The only true assessment fee from each card brand is the percentage charge applied to volume. The various other fees such as network access, foreign handling, and so forth are charges incurred through processing behavior at the individual transaction level. The article refers to these fees collectively as assessments because these charges are consistent for all businesses. This simplification is done to help readers understand the high-level fee breakdown.
.11% - Debit Assessment - This assessment applies to gross Visa debit transaction volume.
.13% - Credit Assessment - This assessment applies to gross Visa credit transaction volume.
In January 2015, Visa raised its assessment on credit volume from 0.11% to 0.13%. The debit volume assessment did not change from 0.11%.
$0.0195 - Acquirer Processing Fee (APF) - Credit
The Acquirer Processing Fee applies to all U.S.-based credit card authorizations acquired in the U.S. regardless of where the issuer/cardholder is located. If
your business is based in the U.S., the acquirer processing fee will apply to all Visa credit card authorizations.
$0.0155 - Acquirer Processing Fee (APF) - Debit
On April 1, 2012, Visa began charging a separate lower APF of $0.0155 for transactions involving a debit card.
Transaction Integrity Fee (TIF)
Effective April 13, 2012, Visa began charging a Transaction Integrity Fee (TIF) of $0.10 on transactions involving Visa debit and prepaid cards that do not
meet CPS requirements.
Variable - Fixed Acquirer Network Fee (FANF)
Effective April 1, 2012, the FANF is a monthly fee that varies based on processing method, the number of locations and volume. See the Fixed Acquirer Network Fee calculator to determine the FANF for your business.
$0.0025 - Settlement Network Access Fee -- Also called a Visa Base II Fee
Applies to all U.S.-based settlement transactions. If your business is based in the U.S., the settlement network access fee will apply to all Visa settlement transactions.
The Settlement Network Access Fee (Visa Base II Fee) and Acquirer Processing Fee will both apply to the vast majority of credit card transactions for U.S.-based businesses bringing the total fee to $0.022
$0.0047 - Kilobyte (KB) Access Fee
Visa's kilobyte fee is charged on each authorization transaction submitted to Visa's network for settlement.
$0.045 - Misuse of Authorization Fee
The Misuse of Authorization Fee applies to Visa authorizations that are not followed by a matching clearing transaction (or in the case of a canceled or timed out authorization, not properly reversed).
$0.10 - Zero Floor Limit Fee
Visa's Zero Floor Limit applies to cleared transactions that can't be matched to a previously approved or partially-approved authorization. In short, it
applies to settlement transactions submitted without a proper authorization.
$0.025 - Zero Dollar Verification Fee
The Zero Dollar Verification fee applies to Zero Dollar Verification messages (approved and declined). Zero Dollar Verification messages include the verification of the card account number, address verification (through AVS), Card Verification Value 2 (CVV2) and Single Message System (SMS) acquired Account Verification authorizations. The Visa Misuse of Authorization Fee does not apply to these requests. The fee applies when you want to verify a cardholder's information without actually authorizing an amount of their card.
.80% - International Service Assessment Fee
The International Service Assessment Fee applies to U.S. acquired transactions paid for with a card issued outside of the U.S.
On April 18, 2015, Visa raised the International Service Assessment from 0.40% to 0.80% on transactions settled in U.S. dollars, and to 1.20% on transactions paid in currencies other than U.S. dollars.
.45% - International Acquirer Fee
The International Acquirer Fee applies under the same circumstances as the International Service Assessment Fee noted above.
The International Service Assessment Fee and International Acquirer Fee often both apply to the same transaction bringing the total charge to 0.85%.
.12% - Assessment for transactions less than $1,000
The assessment applies to gross MasterCard transaction volume.
In January 2015, MasterCard increased its assessment by 0.01% on all signature debit and credit transactions with an amount of $1,000 or less from 0.11% t0 0.12%.
.13% - Acquirer Brand Volume Fee for transactions greater than $1,000
Effective January 15, 2012, MasterCard's Acquirer Brand Volume Fee increased from 0.12% to 0.13%. This assessment applies to consumer and business credit volume on transactions of $1,000 or greater. This assessment does not apply to signature debit transactions regardless of size.
.01% - Digital Enablement Fee - Effective January 2015, MasterCard began charging a Digital Enablement Fee. This fee will be assessed on MasterCard card-not-present sales volume involving signature debit, consumer credit, and commercial credit transactions.
$0.0195 - Network Access and Brand Usage Fee (NABU)
Effective January 8, 2012, the NABU fee will apply to U.S.-based authorization transactions regardless of whether the transaction is settled or not. Before January 8, 2012, the Network Access and Brand Usage Fee applied only to U.S.-based settled transactions.
Effective June 30, 2013 the NABU fee is increased to $0.0195, and it will apply to both authorization and refund transactions.
$0.0044 - Kilobyte (KB) Access Fee
MasterCard's kilobyte fee is charged on each authorization transaction submitted to MasterCard's network for settlement.
.0045% - Acquirer License Fee (ALF)
Effective April 2012, MasterCard began charging 0.0045% as an Acquirer License Fee assessed on gross MasterCard processing volume. This fee is also referred to by several processors as a License Volume Fee.
.60% - Cross Border Assessment Fee (Domestic)
The domestic Cross-Border Assessment Fee applies to U.S. acquired transactions paid for with a card issued outside of the U.S. and settled in USD. On April 18, 2015, MasterCard raised the Cross-Border fee from 0.40% to 0.60%.
1.00% - Cross-Border Assessment Fee (Foreign)
The foreign Cross-Border Assessment Fee applies t
o international transactions settled by U.S.-based merchants in a currency other than USD.
.85% - Acquirer Program Support Fee (Increased to 0.85% from 0.55% on April 1, 2013)
The Acquirer Program Support Fee applies under the same circumstances as the Cross-Border Assessment Fee (Domestic) noted above.
On April 18, 2015, MasterCard raised the Cross-Border fee on non-US currency transactions from 0.80% to 1.00%.
$0.0075 - AVS Fee (Card-Not-Present)
MasterCard charges a fee each time a merchant access the address verification service when processing a transaction. MasterCard's AVS fee is a little higher for card-not-present merchants than it is for card-present merchants. MasterCard's AVS for card-present businesses is listed just below.
$0.005 - AVS Fee (Card-Present)
$0.0025 - Card Validation Code Fee
Effective October 21, 2013, MasterCard has implemented a Card Validation Code 2 (CVC2) transaction fee of $0.0025. This fee will be charged on transactions acquired in the United States with the three-digit code on the back of the customer's card (CVC2) included in the transaction for authorization and the CVC2 response value equals 'M' (Match) or 'N' (Invalid/did not match). The fee will not apply to Account Status Inquiry (ASI) requests.
$0.025 - Account Status Inquiry Fee
The account status inquiry fee is charged for transactions where a merchant does not authorize an amount on a cardholder's account, but instead, validates aspects of her account. Account status inquiry transactions may include requests for address verification service (AVS), card validation code (CVC2), or both. MasterCard implemented the account status inquiry service on June 14, 2011, in place of support for AVS-only transactions.
$0.055 - Processing Integrity Fee (Card-Present, Card-Not-Present, No reversal)
Effective June 14, 2011, MasterCard began charging acquirers a Processing Integrity Fee of $0.045 to encourage merchants to abide by proper transaction authorization standards. MasterCard increased the Processing Integrity Fee by $0.01 to $0.055 on November 1, 2011. The Processing Integrity Fee will apply in the following instances:
Card-present: Transactions are not settled, cleared, or reversed within 24 hours of the original authorization transaction/request
Card-not-present: Transactions are not settled, cleared, or reversed within 72 hours of the initial authorization transaction/request
No reversal: An authorization transaction cannot be matched to a corresponding settlement record after a period of 120 days
Exempt merchants: Travel and entertainment merchants classified as MCC 3351-3441, 3501-3999, 4411, 7011 and 7512 are free from the Processing Integrity Fee The Cross-Border Assessment Fee (Domestic) and the Acquirer Program Support Fee often both apply to the same transaction bringing the total charge to 1.25%.
0.11% - Assessment
The assessment applies to gross Discover card transaction volume.
In April 2015, Discover's assessment increased from 0.105% to 0.11%.
$0.0185 - Data Usage Fee
The Data Usage Fee applies to all U.S.-based authorization transactions.
$0.0025 - Network Authorization Fee
Discover began charging a Network Authorization Fee effective October 1, 2013. This fee applies to all Discover network authorizations and has replaced the previously assessed Data Transmission Fee, which applied only to settled Discover transactions. The amount of the Network Authorization Fee and the Data Transmission Fee are the same, but the Network Authorization Fee applies to a greater number of transactions.
$0.0025 - Data Transmission Fee (No longer charged)
The Data Transmission Fee applied to all settled Discover transactions, and was replaced by the Network Authorization Fee is October 2013.
.40% - International Processing Fee
The International Service Fee applies to U.S. acquired transactions paid for with a card issued outside of the U.S.
.55% - International Service Fee
The International Service Fee applies under the same circumstances as the International Processing Fee noted above.
The International Processing Fee and the International Service Fee often both apply to the same transaction bringing the total charge to 0.95%
The advent of American Express Amex OptBlue introduced in early 2015 allows us to start listing Amex pricing on this page, as well. Like card brand charges for Visa, MasterCard and Discover, the charges listed below are paid to American Express.
0.15% - Assessment / Sponsorship Fee
The assessment applies to gross American Express card volume.
0.30% - Card-Not-Present (CNP) Surcharge
The American Express card-not-present surcharge applies to gross card-not-present volume, such as keyed and e-commerce transactions. The CNP surcharge is charged in addition to to the sponsorship fee of 0.15%, making Amex's total assessment on card-not-present volume 0.45%.
0.40% - International Assessment
The American Express international assessment applies to gross sales volume involving a card issued outside of the United States.
The markup over interchange and assessments is the only area where you have the ability to negotiate credit card processing costs. The markup isn't all profit. It's split among all of the organizations that facilitate the processing of your business's transactions such as the acquiring bank, processor, ISO(s), gateway or software provider and others. The markup must cover the costs as well as profits for all of these entities.
Markups differ significantly from one processor to the next both by amount, pricing model and the types of fees charged. These differences are why it's difficult to accurately compare credit card processing on the open market. Here at SlashMyFees, we only work with processors that are transparent and fair, offering competitive pricing that can be accurately compared by our users.
Interchange and assessments are the same for all processors. The method the processor uses to pass these costs to you is what is important. The two most common types of pricing are interchange plus and bundled also referred to as pass through and tiered, respectively. Each pricing model is outlined below, and there's also a detailed post comparing interchange plus vs. bundled pricing here.
With interchange plus pricing, the processor's markup isn't dependent on interchange qualification. This separation of costs keeps the processor's markup the same regardless of the type of card you accept, or how your process it. These are not segmented as qualified, mid-qualified or non-qualified rates as they would be with the bundled model.
The processor earns a fixed percentage regardless of the underlying interchange. For example, 0.25% is a case of an interchange plus rate quote. No fancy tiers, no qualification at the processor level -- just one single rate that gets added to actual cost (interchange).
Interchange plus allows for interchange credits on refunded transactions. For example, when you issue a customer a refund, you are supposed to receive a partial credit of the interchange fee paid on the original transaction. This refund credit is not granted in bundled pricing models, but processors are capable of issuing interchange refunds on interchange plus pricing.
Another benefit of interchange plus is that it allows businesses to reap the benefits of decreases in interchange fees. For example, companies with interchange plus pricing will benefit from lower debit card charges from the Durbin Amendment of October 1, 2011.
Like with bundled pricing, processors are capable of manipulating costs under an interchange-plus pricing model, too. For example, interchange plus pricing does not guarantee that a processor will pass assessments at the real cost, issue interchange credits, or refrain from applying a discount to refund volume. This article goes into more detail about the dangers of becoming pricing model-complacent.
The main reason we are sharing all this information with you is the importance of having expert guidance on your side. SlashMyFees wants to ensure that you secure a genuinely competitive processing solution for your business.
Tiered pricing, also referred to as bundled or bucket pricing, is named for the way a processor categorizes interchange fees into three pricing groups called qualified, mid-qualified and non-qualified. Although these three are the most common, this pricing model can have separate sets of tiers for various types of cards. For example, six-tier pricing where credit and debit cards each have their three tiers is gaining in popularity.
On a bundled pricing model the processor uses something called an interchange qualification matrix to route interchange fees to the qualified, mid-qualified, or nonqualified tiers.
A significant problem with tiered pricing is that interchange fees are often not disclosed on your merchant processing statement, and the processor may not disclose into which tier individual interchange fees are being routed. This reporting leaves you with no way to calculate exactly how much you're paying above the actual processing costs of interchange and assessments. This opacity in tiered pricing has led to the processing industry's shady reputation.
Inconsistent buckets are the processing industry's term for, "there's no way to compare credit card processing quotes that are based on tiered pricing."
Tiered pricing allows a processor to manipulate charges behind the scenes. Mainly, they can raise your cost without having to raise your rates. They do this by routing more interchange fees to the mid and non-qualified pricing tiers. Since there's no consistency regarding interchange qualification, it's impossible to compare tiered pricing among different processors.
Let's look at an example to illustrate inconsistent buckets. Let's pretend that we have the following quotes from two different processors:
Qualified Rate: 1.49%
Mid-Qualified Rate: 2.59%
Non-Qualified Rate: 2.99%
Qualified Rate: 1.69%
Mid-Qualified Rate: 2.25%
Non-Qualified Rate: 2.49%
Look only at the qualified rate; Processor A is offering a much better deal. What you don't know is how many interchange categories are being routed to the qualified tier. Processor A may be routing the majority of transactions to the mid and non-qualified tiers making Processor B the better option. Of course, there's no way to tell just by looking at the numbers.
Credit card processing fees are either flat fees, transaction fees, or based on volume. Assessments are listed above, and interchange fees (or, at least, a portion of them) are published by Visa and MasterCard. The only inconsistent portion of cost is the processor's markup. Unfortunately, the scope of different fees and pricing models utilized in the marketplace makes accurately comparing markups a daunting task.
This is the reason why we try to simplify things for you at SlashMyFees. All our quotes are simple to understand and accurate comparison of costs.
When comparing processing quotes, it's easier and more useful to break fees down into three general categories and then compare each offer based on the estimated effective rate.
With interchange plus pricing, the volume fee will be a single number such as 0.25%. With tiered pricing, the volume fees will be in the form of a qualified, mid-qualified and nonqualified rate, and there may be more than one set of tiers.
Volume-based fees are levied on your business's sales volume. The competitiveness, consistency, and transparency of the volume-based markup are dependent on the pricing model that your merchant account utilizes.
Credit card transaction fees often contribute more to total cost than volume fees. So, don't ignore transaction fees to focus just on the volume markup (processor's rate over interchange).
Transaction fees are charged each time your machine or gateway contacts the processor to get or give information, and they are a predetermined fixed dollar amount regardless of the type or size of the transaction.
Flat fees are consistent regardless of sales or transaction volume. Monthly and annual charges are examples of flat charges.
PCI Compliance Fee
PCI Non-Compliance Fee
With competitive pricing the majority of credit card processing costs are paid to your customers' issuing banks through interchange. The remaining costs are split among a varying number of layers such as the acquiring bank, processor, ISO(s), and equipment or software provider. Exactly how many layers there are depends on the vendor and your business's processing needs.
Here's an example that illustrates how credit card processing costs are distributed. Let's pretend that you're processing a $50 transaction by swiping a customer's (consumer, non-reward) Visa credit card through your credit card machine. For this example, we'll assume that you used SlashMyFees to obtain a competitive interchange plus merchant account with rates of 20 basis points and $0.10 per transaction.
1.54% plus $0.10 = $0.87 goes to the issuing bank
0.11% plus $0.0195 to Visa when the transaction is authorized and another $0.003 when it's settled = $0.07 goes to Visa
.20% plus $0.10 to the processor = $0.20 goes to the processor
You are left with:
$50 - $0.87 - $0.07 - $0.20 = $48.86 (2.28% overall effective rate)
Getting the Lowest Rates
Now that you know where processing fees come from, you know that the best credit card processor is the one that offers you the lowest markup over interchange and assessments. As we outline in this article, you shouldn't be shopping for the lowest rates. Instead, you should be shopping for the lowest overall markup over base cost. Furthermore, you want to look at the whole picture and consider the effective rate. Don't just focus on the interchange markup or another single fee.
Interchange and assessments account for the majority of processing expense, and they're not negotiable. Different costs into interchange, assessments and markups when shopping for a merchant account and focus solely on getting the lowest markup.
Of course, you can make your life easier by letting SlashMyFees do the vetting for you. Sign up for free here at SlashMyFees to get instant interchange plus quotes from multiple processors.
Simplicity is expensive when it comes to credit card processing. Companies like Square and PayPal Here are making nice profits by offering flat rate pricing to businesses that don't spend the time to learn how processing fees work.
For most companies, credit card processing fees are second only to rental and real estate expense. All business people and entrepreneurs are busy, but the time invested in learning about credit card processing fees will pay off in spades.
Straightforward and competitive are two very different things, and for most businesses, credit card processing fees are either one or the other.