The ABCs of Understanding Credit Card Processing Fees

November 1, 2021

Understanding credit card processing fees is as essential as understanding the law of gravity. Knowing what you charge and why is key to running a successful business that can grow without too much risk. In this post, we'll give you the ABCs of how your credit card processor works with you and your customers and which things they will be charging for so that you can make informed decisions about how to manage them to minimize costs.

What Is a Credit Card Processing Fee, and Who Pays It?

A credit card processing fee is the payment you make to your merchant service provider, often called a "credit card processor" or simply "processor," for facilitating the transfer of money from your customers' credit cards to yourself. You pay this fee in addition to what you charge them as an additional cost of doing business.

What Are These Fees? 

Here are the most common types of transaction fees and how they work.

There are over 200 different types of fees that credit card processors use to make money. We'll focus on the most common ones, but be sure you ask your provider about any other fee structure they may have in place.

The first set of fees is when customers pay with their cards either online or offline (in person). There are three fees for offline payments.

Discount Rate: the flat fee you pay per transaction regardless of whether your customer pays in full or overtime at 0% interest (a common practice with stores like furniture retailers). This is often about a percentage point higher than what they offer customers using credit cards. However, it's still much better than paying the entire amount upfront.

Per-Transaction Fee: this is typically around $0.25 to $0.50 each time someone swipes their card when purchasing from you.

Account Maintenance/Monthly Fees: these are either monthly fees paid directly by the merchant or deducted from revenues generated in addition to any other costs associated with maintaining an account, such as equipment and gateway fees which we'll get into below.

Then there are fees associated with online payments:

  • Gateway Fees: the fee you pay to your payment gateway provider for processing transactions through their system.
  • PCI Compliance Fee/Monthly Fee or Penalties for Noncompliance: this is an annual fee, typically around $100-$300 per year, paid to a third party who ensures that all of your security protocols meet the standards set by Visa and Mastercard.
  • If they find any problems, expect to be charged anywhere from $25-$50 each time until you fix them, otherwise, they may suspend your account indefinitely, which means no more card swipes.
  • Equipment Costs: Depending on what type of equipment you have in place already (or plan to buy), these can be one-time or monthly fees for things like a POS system, credit card reader, and cash register. This can include anything from an iPad to a stand-alone machine that prints receipts with a built-in pin pad.
  • Gateway Fees:  It's the second category under online transaction fees. It covers customer support, technical assistance, and account management for things like phone calls, emails, and forms you fill out on their website when trying to resolve issues with either payment not being processed properly or refunds/chargebacks issued by customers needing help getting funds returned.

The final type of fee will depend entirely on what kind of business you run and what your merchant service provider offers. This can include things like monthly reports, manual or automatic reconciliation of transactions to ensure they're accurate (for businesses with lots of sales/expenses), tax support for filing quarterly taxes in all 50 states, and more.

How Do You Calculate the Cost of Accepting Credit Cards?

In short, you can't. It is different for every business, and it depends on a lot of things. For example, if you have a specific type of merchant account or have the right equipment to process credit cards offline.

It would help to consider how many transactions your average customer makes per month since that will determine which fees are most relevant to your unique situation.

Your payment gateway provider might offer discounts if you pay annually instead of monthly. Your monthly service costs will be waived if you do not have enough sales each month.

Why Are There So Many Different Fees Associated With Credit Card Processing?

That's an excellent question, and it has to do with the fact that there are so many different types of merchant accounts available today, each offering its own set of services in addition to processing fees.

For example, some merchants only need basic credit card processing. In contrast, others require more advanced features like a batch settlement. Your payment gateway supports transactions from multiple customers/businesses instead. Others might charge per transaction (similar to what you'd find at the cash register) or offer monthly service costs.

When using a machine, you are paying for something with money. But when you use software connected to another company's network, this is called electronic funds transfers. Finally, costs vary greatly depending on whether you're looking at online or offline transaction fees.

What Can You Do To Reduce Your Costs When Accepting Credit Cards?

The best thing you can do is shop around and compare rates from various providers. Some offer services for free, while others might charge a flat fee per month or require an upfront investment in equipment purchases or software licenses/subscriptions.

You should also consider whether your needs are basic enough to support only one type of transaction (offline) or if you need something more advanced like online payments.


Understanding credit card processing fees is an essential topic for merchants, especially those who are just starting. As you can see, there is a lot to consider regarding credit card processing and how your business will be affected by different rates and fees.

The best way to avoid being surprised or frustrated with unexpected charges later on down the line is simply by educating yourself as much as possible about this process before going ahead with anything significant, like opening up a shop online.

Contact BNG Payments to learn more.

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