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Two things are true about credit card payments. First, your customers expect you will accept card payments. And second, there is a cost to you as a merchant for every payment. While card acceptance requires a merchant account, some equipment, and software, it is a relatively straightforward process.

Understanding your total costs of processing a credit card transaction can be a challenge but is essential since credit card processing costs are a significant expense and one area a merchant can look for savings.

What are Credit Card processing fees?

There are three general types of fees charged to merchants.

Interchange Fees: Non-negotiable fees are charged by the card networks (Visa, MasterCard, American Express) and vary based on the transaction type and type of card used.

Interchange fees cover handling costs and account for the risks involved in approving the payment. Online and card-not-present transactions are considered riskier than in-person card-present payments since there is no opportunity to verify the cardholder’s identity.

Interchange rates vary by card brand network and are often a percentage of the transaction amount and a flat fee.

Transaction types also determine the rate charged, so the rate for a supermarket purchase is often lower than airline transactions.

Payment processor fees: Fees set by your payment processor- per transaction or monthly

Assessment fees: These are non-negotiable, charged on your total monthly sales for each credit card brand, and are paid entirely to the credit brand (Visa, Mastercard, etc.).

What factors determine the Interchange Fees merchants pay?

Interchange fees are a percentage of the sales and a flat fee on every credit card transaction. They are set by the four major credit card brands or networks:

  • Visa
  • Mastercard
  • American Express
  • Discover

Interchange fees can change at any time. Visa and Mastercard “review” (change) their interchange rates twice yearly, typically in April and October.

Interchange fees can be affected by:

Card type

Debit cards are tied to bank accounts and generally have lower rates than credit cards because the risk is lower.

Industry and business size

Some industries and businesses can pay higher interchange rates. For example, supermarkets and grocery stores get heavily discounted interchange rates since these types of sales are rarely disputed. Larger businesses such as Walmart and Amazon also pay lower fees because they can negotiate lower rates.

Transaction type

In-person and Point-of-sale (POS) transactions usually have lower fees than card-not-present (CNP) transactions since the cardholder’s identity can be verified. Conversely, online purchases are charged a higher interchange rate because they are classified as CNP transactions.

How Is Interchange Pricing Better Than A Flat Rate?

Since interchange pricing changes, wouldn’t flat-rate pricing be better? You need to know how flat-rate pricing works to understand why it isn’t.

The percentage, usually 2-3%, is the same regardless of the type of credit card used.

And as you recall, all credit and debit card-present transactions don’t cost the same process. In other words, the processing company pays less on some transactions, and you pay the same flat fee on all transactions.

Bottom line, while flat-rate pricing is easy to understand, it prevents you from taking advantage of lower interchange rates for which you may be eligible.

So, you’re likely overpaying for your credit card processing if you are on flat-rate pricing. Interchange-plus pricing is more transparent and allows you to take advantage of lower interchange fees.

What is an Effective Rate?

The effective rate is essential in determining your credit card processing cost.

Essentially the effective rate is – Total processing fees / total sales volume.

Your effective rate usually appears on your merchant statement as a percentage and should be in the 3-4% range.

That said, rates can vary by business type, percent of online transactions, and other factors. Below, we examine four common factors that affect processing rates.

Low-Risk Businesses

Some businesses are inherently likely to qualify for more attractive rates. Typically, low-risk 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

Remember that the more payments you accept online, the higher the effective rate will be because online transactions are considered riskier than in-person transactions and 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.

High-Risk Businesses

High-risk businesses have irregular, high-ticket sales, high chargebacks, or sell in highly controlled industries, or the rules and regulations are unclear at best. Other factors could be poor credit ratings, a location outside the United States, or simply not meeting specific standards.

Examples of high-risk businesses:

  • Health & supplements
  • Travel agents
  • Call centers
  • Debt collection
  • Online gaming
  • Payday loan companies


Another option – add a Fee.

You could consider adding a fee to every credit card transaction when looking to reduce or eliminate credit card processing costs. With ninety percent (90%) of all credit transactions on credit cards tied to rewards, you are paying higher interchange fees due to the card type.

Your customers love their perks and likely have no clue that you are paying for them through higher processing fees. Most customers will assume the bank or the company that issued the card is paying for the airline miles or cash back they receive.

IntelliPay, for example, allows merchants to charge the cardholders who choose a credit card to pay for the processing costs of their payment. When the merchant selects, the fee is automatically added based on card type and geography.

Fees can be a flat fee or a percentage (2% to 3%), covering some or all the merchant’s processing costs. The cardholder can accept and pay the fee or switch to a lower-cost payment option where the merchants absorb or pay the payment costs, usually 1.5% or less for debit cards.

A Word About Fees

It is not a DIY project. Adding a cardholder fee is not as easy as adding sales tax. For example, some fees can only be added to credit card purchases, not debit or ACH transactions.

Other fees can be added if you have a select merchant category code (MCC) or the 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.

Next, we’ll take a high-level look at other fee-based processing options.

Other 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 the traditional way they accept payments. For example, a movie theater offering online ticket purchases can charge a fee for online purchases versus in lobby; their traditional method isn’t traditionally added. Convenience fees are added to the cardholder’s invoice total and are not separated at the time of deposit.

Under the IntelliPay site fee model, IntelliPay, not the merchant, bills the customer the site fee for using its web-hosted services, software, maintenance, and customer support. Fees collected are deposited in IntelliPay’s custodial account. IntelliPay uses the collected fees to pay the merchant’s processing costs and manage the merchant’s account.


Processing costs continue to rise and impact an organization’s budget. Passing credit card payment processing costs to cardholders who use pricey rewards cards for the perks helps protect margins and budgets from the twice-yearly “reviews” and frequent adjustments to interchange and assessment fees. Choosing the right fee type can affect the hidden costs of processing time spent accounting for and managing payments.

Get the answers you need

There is a lot of confusion and misinformation regarding using a fee-based payment option to reduce or eliminate processing costs. IntelliPay has been offering multiple fee-based options for almost a decade. Our clients range from solo entrepreneurs to large government agencies. IntelliPay’s expertise can help you customize the right solution for your organization.   For a no-obligation evaluation or demo: call 855-872-6632 or email