Payment Processing Fees: Types and Factors That Affect Them


Payment processing fees are the costs a business incurs for using a credit card processor to accept customer payments. It is usually charged depending on factors like the type of card, the transaction’s level of risk, and the pricing model.

High-risk transactions like e-commerce and over-the-phone payments carry higher processing fees while lower-risk transactions like physical swapping at the terminal come with comparatively low processing fees.

In order to get the best merchant rates, you need to know the factors that affect these fees and what type of payment processing fee you are being charged.

Factors Affecting Your Payment Processing Fees

There are a variety of factors that affect a business’s payment processing fees.

1. Interchange Rate

Every time a customer pays with a credit card, the card issuer charges the receiving bank; this is called the interchange rate. For example, if you make the payment from your Chase credit card on the Visa payment network, Chase receives the interchange fee. It helps the issuing bank cover the credit card processor and handling charges that come with the transaction. It also helps cover any transaction fraud.

It usually takes into accounts three cost components:

  • The operating cost
  • The costs for the payment guarantee to the merchant
  • The costs of fraud prevention

The interchange fee is less if you swipe the card at the POS system while it increases when you make an online payment.

2. Merchant Account Provider Fee

To process credit card payments, the credit card network must be interlinked to a merchant account. The merchant account accepts the credit card payments and the merchant account provider deposits the payment in the bank account of the merchant at a regular interval.

Depending on the volume of transactions and business type, the merchant account provider charges a small fee in addition to the interchange fee. On top of charging a fee for every transaction, it might also charge monthly maintenance and an additional fee for transactions disputed by customers.

3. Card Processing

The processing fee amount also depends on how the card is processed. There is a different level of risk for different transactions like physically swiping the card, contactless payment, online transactions, and over-the-phone transactions.

Swiping the card at a POS is much less risky, so carries a lower processing fee. Online transactions and over-the-phone transactions, on the other hand, are considered much riskier because hackers can steal card information to make purchases. Similarly, lost or stolen cards can be used and hence carry a heavier processing fee.

What Are the Types of Payment Processing Fees?

What Are the Types of Payment Processing Fees?

1. Flat Fees

A flat rate fee is when the payment processor charges a fixed fee for all transactions, regardless of card type, brand, or payment method. They are charged either as a percentage of the transaction amount or as an additional fixed fee on top of a percentage of the purchase.

New businesses who don’t handle large transaction volumes prefer flat fees as they allow them to negotiate a fee with the payment processor. Also, they remain aware of the fees they incur when processing every payment.

2. Interchange Plus Pricing

As the name suggests, in this processing fee strategy, the payment processor charges a fixed fee or a percentage per transaction in addition to the interchange fee. These plans are more complicated than flat rate plans.

3. Tiered Fees

In this pricing model, the processor groups different interchange fees into three categories, depending on the risk level associated with the transaction. The different tiers include:

  • Qualified rate: To be in the qualified rate tier, the transaction must be low risk, like in-person transactions with a standard credit card at a physical terminal.
  • Mid-qualified rate: Those transactions that don’t fulfil all the requirements of the payment processors are classified as mid-qualified rates. They carry comparatively high risk, like gift cards, reward cards, or phone or mail orders, where physical cards are not available.
  • Non-qualified rate: E-commerce payments are pegged at the non-qualified rate because they are high risk and hence have a higher cost for accepting payment.

You may come across many types of payment processing fees. So, before you set your payment process, ask the company what fees you will incur and get all the necessary details. This will prevent any unpleasant surprises while accepting payments.