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If you currently accept credit cards for payment, and who isn’t, payment processing fees are eating into your bottom line!  How big of a bite? For many businesses, payment processing is typically one of the five largest expense items on a P&L. And costs keep rising, the major card brands (Visa, MasterCard, etc.) “review” their fees twice a year.

And, unless you’re a major eCommerce company or supermarket chain, these twice-annual reviews can and do equate to higher fees for you.

Breaking Down the Fees

The major card brands have two major classes of payment processing fees, interchange and assessment.  A high-level understanding of how each fee type works is essential first step in calculating what credit card transactions are costing you.

Interchange Fees

Interchange fees are the non-negotiable transaction fees that the merchant’s bank account must pay whenever a customer uses a credit/debit card to make a purchase. Interchange fees are designed to cover the costs of accepting, processing and authorizing card transactions. In most cases, the fee is a fixed dollar amount plus a percentage of the total sale and vary by type of card used, merchant category code associated with merchant’s business and the payment processor.  The current interchange fees for the two largest U.S. card networks are available in the links below.



However, interchange fees are not the only cost applied to a transaction.  There are also assessment fees.

Assessment Fees

An Assessment fee is non-negotiable and charged on your total monthly sales for each credit card brand and is paid entirely to the credit brand (Visa, Mastercard, etc.). The assessment fees merchants pay to cover the card network’s operating costs, i.e., Visa. Visa, American Express, Mastercard, and Discover, have their credit card assessment fees. Assessment fees are also known as Card brand fees, Network Access and Brand Usage (NABU) fees, card network, and card association fees. If assessment fees weren’t complicated enough, the fees change continuously, are hard to find on a card network website, and the networks don’t offer much assistance..

Card Brand Assessment Fees

Company                        Fee %              Fee Basis Points

Visa                                 0.14%              14

Mastercard                    0.13%             13

Discover                         0.13%             13

American Express        0.12%              12

Similar to interchange fees, assessment fees are reviewed twice a year by the card brands and are subject to change-read increase.

The combination of interchange and assessment fees is also known as “swipe fees” and makes up 80% to 90% of the transaction cost.

One interesting fact is that interchange fees and assessment fees are the same for every merchant no matter the size or processing volume.

Payment Processor Markup Fees

Mark-up fees are the payment processors margin on each transaction.  Mark-up fees are charged by third parties such as your software provider, acquiring bank, and other parties involved in each transaction and cover the processor’s operating costs and profit. Markup fees make up 20% to 25% of the transaction cost and negotiable.

Markup fees vary from processor to processor and depend on the fees your business charges, pricing model, and amount of transaction.

Internal Costs

Even after interchange, assessment, and markup, there are some hidden costs to consider.  These hidden costs are the costs you incur to process payments:  the purchase or rental costs of credit card terminals, internet and data connections, compliance requirements, software, supplies, IT support, accounting, and other related expenses that vary by location, industry, and business model.

And Its’ Only Getting Worse

In the past ten years, payment processing, particularly credit card processing fees, has increased by over 200%, primarily due to the overwhelming popularity of credit card rewards. Recent research estimated that over 92% of all credit transactions are made on a rewards card. How these trends impact your bottom line is in the mix of payments you receive.

For example, if five years ago, premium or reward credit cards were twenty percent of your payment mix, now they are ninety percent. These premium credit cards have up to 2x higher fees than traditional non-premium credit cards and debit cards to pay for the vacation and mileage perks.

So, if your cost structure, particularly the portion of your costs allocated to processing costs, hasn’t changed in the past five years, your credit card processing costs are eating into your margins.  These higher processing costs are largely due to the growing percentage of premium or rewards credit cards in your payment mix.

Net Effective Rate

The first step to calculating your processing cost is determining what you are currently paying per transaction or the net effective rate.  To find the effective rate for your credit card processing, you first need to add up all the fees on your merchant statement.

We’ll use the following merchant statement as an example:

In the example above, we have marked the total sales volume in green and the total fee in red.  The formula for calculating the net effective rate appears on the next page.

Calculating the net effective rate from the merchant statement example on the previous page, we find the net effective rate is 5.99%  or  $5907.03 / $98511.45 X100 = 5.99%

To complete this analysis, you’ll need to use the net effective rate calculation on your internal costs substituting your internal costs for the total deducted for processing in the formula.  Adding the two results will give you a more accurate view of credit card payment processing costs on your bottom line.

So What Can I Do? 

Now that you’ve got your head around the cost of accepting payments, especially rewards credit card payments, has on your bottom line, what do you do with this information?

Check to See if You Are Getting A Good Deal

First, you can use your effective rate to compare what you’re paying your current payment processor to other payment processors to see if you are getting a good deal.  That said, rates can vary by business type, percent of online transactions, and other factors.  Below, we examine three common factors that affect processing rates.

Low-Risk Businesses

Some businesses are inherently likely to qualify for more attractive rates. Typically, low-risk businesses or brick-and-mortar businesses with high transaction volumes will get the best effective rates on credit card processing. Why?  More transactions lead to more revenue for the processor, and the risk of fraud is minimized.

Online Transactions

Keep in mind that the more payments you accept online, the higher the effective rate will be.  Online transactions are considered riskier than in-person transactions and therefore have higher fees to compensate for the increased risk.

B2B Payments

If your business is with other businesses and most of your payments are on purchasing cards or business credit cards, look payment processor that processes payments with Level 2 and Level 3 credit card data. Level 2 and Level 3 transactions are processed with more data; the card brands see these transactions as more secure, less likely to be fraudulent, or contain errors and qualify for lower swipe fees.

Add a Fee

Second, you could consider adding a fee to every high-cost premium credit card transaction. Your customers likely have no clue that you are paying for the perks they receive.  Most customers will assume the bank or the company that issued the card is paying for the airline miles or cashback they receive.

Why are you paying for someone else’s perks, primarily when they use a credit card for the rewards?

You shouldn’t.  It is not uncommon or illegal to pass a fee among the customer.

Modern payment platforms like IntelliPay provide merchants with customer pays the fees options. The customer (user) pays for the processing costs options that automatically add a flat fee or a percentage (3% as of April; 28, 2023) to the customers’ total cost.

A Word About Fees

Customer fees can be tricky. Some fees can only be added to credit card purchases, with the customer having the option to avoid paying the fee by paying with debit or cash before check-out.  Under this fee scenario, the customer pays the processing costs for transactions where they choose to use a credit card while the merchant pays the lower processing costs of debit cards, usually 1.5% or less.

Other fees can be added if you have a select merchant category code (MCC) or payment is through an alternate payment channel. Card brand rules and legal regulations can determine the type of fee your business could add and how you add it.

In the next section, we’ll take a higher-level look at the most common flex-fee, or the customer (User) pays for the processing costs.

Other Customer/User Pays For Processing Fee Options

Convenience Fee

A convenience fee is another user pays the processing costs option that allows the merchant to add a flat fee to credit or debit transactions.  The difference is that the transaction is made outside of the traditional way they accept payments, i.e., a movie theater offering online ticket purchases where a fee can be charged versus in lobby, their traditional method where a fee cannot be added.

Service Fee

Service Fee is a VISA term for a fee-based program that enables government and educational institutions with the following merchant category classifications or MCC’s 8211; 8220; 8244; 8249; 9211; 9222; 9311; and 9399 to charge a service fee on credit and debit transactions.

Mastercard calls their government program a “convenience fee.” Mastercard’s use of convenience fee to describe its government program adds a layer of complexity. Since their rules regulating their government’s “convenience fee”  program differ from the convenience fee available to all businesses mentioned previously.

American Express has a government fee option under its OptBlue program; Discover does not have a government fee option program.

When Adding a Fee Makes Sense

Deciding to add a fee is a strategic decision and should not be taken lightly. Applying fees can be complicated, not only because the rules and regulations are continually changing but also because adding a fee can affect the systems and processes the business may already have in place.

Further, competitive situations, geographies, your industry, and customers all should be factored into your decision.

That said, adding a fee may be the right decision if your primary business is:

  • B2B products, warehouse or distribution
  • Charity or non-profit
  • Business or professional services
  • Consumer services
  • Auto
  • Legal
  • Construction/restoration
  • Towing
  • Veterinary

You might NOT want to add a fee if:

  • If a consumer can get a similar product or service for the same or lower price, that merchant doesn’t add a fee.
  • Your typical transactions are higher dollar amounts. The higher the ticket price, the more likely a surcharge fee will be an objection.

Not a DIY Project

VISA, Mastercard, and the other card brands have rules about how, when, and what type of additional fee can be added to a customer bill. Certain types of added fees, like surcharge fees, are prohibited in four states, while other fee types have limitations on how and when they can be applied. These rules are in a constant state of flux, so if you have multiple locations or do business across state lines, compliance may be cumbersome.

For these reasons, we recommend consulting legal counsel for regulations affecting where you do business before attempting to add a fee.  We also using a payment processor who has experience in all types of user pays the processing cost or fee-based payment options.


IntelliPay has offered a range of fee-based payment options to private and public sector merchants for over 12 years.

Our PCI DSS Level 1 compliant payment suite and proprietary payment gateway, combined with our robust API, make transitioning to IntelliPay and integration with existing systems easy.

Accept It All

Our payment suite enables payment acceptance from virtually any source and every major credit and debit card brand, PayPal, Venmo, eChecks, and eCash.  If you opt for adding a fee, our payment suite automatically handles the details behind the scenes, so you are always 100% compliant with card network rules and applicable regulations.

More Customer Facing Options

Our twelve customizable front-end options, from hosted payment pages to customer portals to a email and text payment link portal, allow your company to give your customers more ways to pay.  Research has shown that offering more ways to pay speeds payments from customers reduces late payments and receivables while improving customer satisfaction.  Our Google cloud-based suite makes all this functionality accessible from anywhere you need it to be.

Centralized Control and Management

Our parent/child reporting structure supports multiple locations, users, and fee-based models, giving you complete control over overpayments.  Reporting is highly customizable to your business’s processes, while real-time data flow between our payment suite and your systems via our API simplifies payment management and reconciliations.

Superior Reliability and Unlimited Capacity

Because our payment suite is hosted in the Google cloud, the same provider as YouTube and Gmail, you can rest assured you’ll have not only the capacity you need to meet not only today’s needs but tomorrow’s as well.  Even more importantly, we will be there when you need us, with superior reliability – no services outages in 2020 despite unprecedented demand.  IntelliPay has you covered no matter what comes next.

Payments for All

We also support Paysafe ecash payments for those who are either un or underbanked.  Unbanked or underbanked customers download the Paysafe app onto a web browsing device.  Using the app, create a QR code on that device, take the code to one of the thousands of convenience or retail locations nationally and pay the staff.  Payments are then quickly transferred to your business bank account.

IntelliPay’s payment suite is the only PCI DSS Level 1 compliant platform you will need to reduce your payment processing fees. To learn more, call or email our sales team at 855-872-6632 or  You can also visit our website to schedule a free, no-obligation demo.