The Ultimate guide to

Payment Processing Fees



As consumers and businesses migrate to what may become a cashless environment and toward digital payments, every merchant and company must determine how they will evolve with their own payment processing strategies, pricing models, and transaction processes to fit this new environment.

The electronic payments environment moved us closer than ever before to a cashless society and it is delivering many key benefits, such as greater revenue, improved cash flow, and enhanced reputation. Yet, it comes with a cost because these digital transactions involve numerous types of processing rates and fees that can erode profitability.

However, with certain strategies, a merchant can achieve the benefits at the lowest cost possible despite the range of costs associated with getting paid.

To achieve these strategies still requires a significant amount of due diligence. That’s because there are many processors out there that tout low rates and flat fees but are hiding fees and charges that they spring on you later on after you have been working with them.

Then, when doing your research, it can be confusing to compare payment processors on features because it seems like everyone has different volume, card types, payment channels and hardware requirements.

To provide you with some clarity about all the payment processing choices and fees, we’ve put together this guide for merchants on payment processing fees so you can better understand the costs involved with accepting digital payments. This ebook on payment processing fees covers all topics related to this aspect of working with your customers so you can create the best strategy for accepting digital payments while not giving all the money away in fees.


Chapter 1: Types of Payment Processing Fees

Not all payment processing fees were created equal nor do they cover the same aspects of the payment process. Created as a means of generating incremental revenues streams for payment processors, these fees can ran the gamut from processing fees to flat fees to situational fees. While some of the payment processing fees will be a requirement of any payment processor you do business with, other fees are definitely negotiable or can be avoided altogether.

Whatever fees are asked of you, it is definitely in your best interest to ask the payment processor to ask them to lower the fees or simply inquire if they are marking the fees up -- because they are required to tell you this information.

Another reason why different payment processing fees exist from processor to processor is related to the type of credit card that is being processed. Typically, those credit cards that include more benefits for the cardholder also have some of the highest rates associated with a credit card, which are then passed onto you as the merchant.

What you need to know and what we are trying to help you decipher within this ebook on payment processing fees is whether you are paying exorbitant fees or they are fairly priced for the type of transactions you are conducting.

Before we explain each category of payment processing fees, here is a summary chart of the type of fees that fall into each category and that may be passed onto you, depending on the credit card type and the payment processing company you use:

Fee CategoryTypes of Fees Associated with Fee Category
Processing Fees· Card brand fee· Transaction fee· Interchange differential fee· Non-qualified rate· Discount rate
Flat Fees· Annual fee· AVS fee· Batch fee· Monthly fee· Network access fee· Online reporting fee· Payment gateway fee· PCI fee· Statement fee· Terminal fee
Situational Fees· Cancellation fee· Chargeback fee· International fee· Liquidated damages fee· Monthly minimum fee· NSF fee· Retrieval request fee· Set-up fee
Processing Fees

Each of the potential processing fees is described here followed by the variables that determine your processing rates.

  • The card brand fee is a nominal fee that is defined as an assessment placed on your merchant account for each transaction that is then paid directly to the primary card brands, such as Visa, Mastercard, American Express, etc. This fee is fixed and doesn’t change based on the card brand or card type. Payment processing companies may or may not mark this fee up. This is typically a non-negotiable fee.
  • The transaction fee is a dollar amount fee that is added to each transaction and can be negotiable.
  • The interchange differential fee is the difference between the base interchange rate of a particular card brand and the actual interchange rate of the card used. This fee is in addition to the usual interchange fee described below and is used to recoup the cost of the interchange differential fee that is tacked on to each unique card type. This is a non-negotiable fee.
  • The non-qualified rate is a fee that is added on top of the discount rate. This bundled fee is typically found with premium credit cards and those credit cards that are not present for the transaction. The rate is intended to cover what are deemed high-risk transactions that may have a greater potential for fraud and require a higher rate to cover the cost of that risk. The payment processor determines the non-qualified rate, which is typically in the range of 0.2 percent and 1.5 percent. This is a negotiable fee.
  • The discount rate, also known as the merchant discount rate, MDR, or qualified rate, is considered to be all the fees related to processing a payment that is made with a basic credit card. It is a percentage of the total transaction amount that a merchant is required to pay in order to process a particular transaction. Of this rate, the largest fee included is the interchange fee, which is what the acquirer pays to the issuer and is established by the cards brands. There are literally hundreds of different interchange rates for each card type, and the fee tends to be higher on premium cards versus basic cards. While the overall discount rate is negotiable, the interchange, or wholesale, fee is non-negotiable.

If all those processing fees weren’t confusing enough, there are then additional variables that are used to determine your processing rate.

How the credit card payment is accepted is the first variable. For example, if you swipe your customer’s card through a traditional terminal in your store, the rate will be different from the one you get if you process an online payment.

Typically, those transactions where the card is not present tends to have a higher rate than those where the card is present due to the higher risk of fraud that is involved. The second variable is what type of credit card you accept. A basic credit card will have lower processing rates than a premium credit card. Of course, the card brand is also a factor in your rate. Finally, the type of retailer is another variable. There are higher risk industries that come with higher rates, such as online marketplaces, crowdfunding sites, etc. All these variables come together to create your personal merchant processing rates.

Fixed Fees

Fixed fees are added on top of the aforementioned processing fees and are considered to be regularly occurring and predictable. While the list here may not all apply to your merchant business, it’s important to know all the fixed fees that might impact your monthly merchant account statement.

  • Address verification service (AVS) fee is for using an anti-fraud tool that is designed to verify the identity of the person in a transaction. It compares the name and address information provided with what is on file with the credit card company.
  • An annual fee is charged every year to cover the basic use of a payment processor’s services.
  • A batch fee is charged when you submit a group, or batch, of transactions at one time for processing.
  • A monthly fee is charged every month as part of using the payment processor’s services.
  • A network access fee is charged for using some card brand networks.
  • An online reporting fee is a charged to you if you prefer to see your monthly statement online instead of receiving a paper copy of your merchant account statement.
  • A PCI fee is a fee that is sometimes charged by a payment processing company to cover the costs of ensuring that they make you PCI-compliant as part of their service to you.
  • A payment gateway fee is a monthly service charge that ecommerce businesses may have to pay for the use of their payment gateway that provides authorization for credit card charges and the accompanying data to be passed across the Internet.
  • A statement fee is charged for the preparation, printing, and mailing of credit card statements.
  • A terminal fee is for those merchants that use traditional terminals for processing credit card payments in their stores and they have bought, leased, or rented a terminal. Those companies that are strictly ecommerce operations would not have this fee.

All of these fixed fees are considered to be negotiable

Situational Fees

The last category of fees is situational fees, which are only charged when a certain event occurs, which is typically irregular and unpredictable. Some situational fees are negotiable while others are not.

  • A cancellation fee is charged when some services are discontinued prior to the end of a contract that a merchant may have with a payment services provider. This situational fee is negotiable.
  • A chargeback fee is for a disputed transaction that may be related to faulty goods or services but sometimes is fraudulent on the part of the customer. In either case, this fee is charged in addition to the loss of revenue from the original sale. This situational fee is generally non-negotiable.
  • An international fee is applied to a transaction that involves an international credit card. There are some payment processors that will add a markup to this situational fee, which is generally a non-negotiable situational fee.
  • A liquidated damages fee relates to early termination and can become very expensive. It is based on the remaining time left on your contract and the average monthly profit value of your merchant account. This situational fee is negotiable.
  • A monthly minimum fee is charged to any merchant that does not reach a certain transactional value each month. The minimums vary by payment services provider. This is a negotiable situational fee.
  • A non-sufficient funds (NSF) fee is charged if you don’t have enough funds in your bank account to cover all the merchant account expenses you are charged each month or year.
  • A retrieval request fee relates to a chargeback that is initiated by a customer and involves the recovery of pertinent data tied to the transaction in question.
  • A set-up fee is charged by some payment processors when you establish your merchant account.


Beware of These Processing Company Tricks

Unfortunately, not every payment processing company is ethical in how they do business.

Look out for these shady processing fee tricks:

  • Discount rates are advertised to make it appear that their pricing is lower than the competition but in actual fact they will hit you up later with much higher prices.
  • Hidden fees are the biggest area to be wary of because statements from these processors are confusing and detailed to the point where you don’t know what fees you are paying and why.

To combat these processor tricks, make sure you ask the processor to explain each line item on your statement so you understand all the processing, fixed, and situational fees you are being charged and why.


Chapter 2: Merchant Pricing Models

In addition to understanding these various processing fees, it’s important to determine how the payment providers develop their pricing models, which include Interchange Plus, Interchange Differential, Flat, Tiered and Billback/ERR.

This chapter will describe each pricing model and provide you with the pros and cons of each model that includes a wide range of the aforementioned processing fees.

Interchange Plus

Also known as Cost+ or Interchange Pass-Through, this is a fairly transparent pricing model that has terms and fees that are easier to understand compared to most pricing models. You will pay the card’s interchange rate (the cost of accepting that card) plus a markup, which is a fixed percentage that the payment provider will tell you. There is also a per transaction fee that the payment provider includes.

The advantage of the Interchange Plus pricing model is that it you can clearly see each fee that you are paying so you can determine the difference between the wholesale fees and markups. In terms of a disadvantage, it’s difficult to find one with this pricing model because it’s considered the fairest in the payment processing industry.

Interchange Differential

The Interchange Differential pricing model requires that you pay the qualified rate, the non-qualified fee, the card brand fee and the interchange differential fee.

The advantage of the Interchange Differential pricing model is that it works well for those merchants who are familiar with the credit card types used by their customers. However, the disadvantages are that the monthly statements are difficult to understand and the pricing model is often found to have hidden fees.


The Flat pricing model charges the same rate no matter what type of credit card it is, and this rate tends to be higher than other pricing models due to the risk of charging one rate for all types of cards. The flat rate pricing model also often comes with a transaction fee.


The Flat pricing model charges the same rate no matter what type of credit card it is, and this rate tends to be higher than other pricing models due to the risk of charging one rate for all types of cards. The flat rate pricing model also often comes with a transaction fee.

The advantage of a flat rate model is that it is a simplified pricing model that is easier to understand than some of the others. However, the cost of this model can be a disadvantage to many businesses, which can quickly become expensive to a small business owner that cannot take advantage of the lower rates that often come with a basic card.


The Tiered pricing model comes with many layers of categories that it uses to determine the price, including categorizing the transactions by qualified (swiped and Chip and PIN transactions), mid-qualified (keyed-in transactions), and non-qualified (online transactions).

There could be up to 12 tiers that become part of the pricing criteria, making it seem like there are an infinite number of pricing possibilities for each transaction.

Even more confusing that the rates and factors for each tier are not standardized, so each payment provider may have a different set of pricing that makes it difficult to compare and shop around for this pricing model.

The advantage to this pricing model is that the tiers do breakdown in detail what you are paying for each month so you can reconcile these fees as part of your financial analysis.

However, what is confusing is when you go to shop around for this pricing model with various payment providers because they may advertise what seems like a great deal, but, in actuality, they may be just showing the lowest tier they offer and your company may not qualify for that but will have to pay other tiers that are higher and have many fees bundled into the cost.


Also known as ERR, or Enhanced Recover Reduced, or Mixed Rate or Blended Rate, the Billback pricing model is comprised of a flat rate and a fee for all non-qualified cards. The merchant pays a flat rate on their first statement for all the transactions that are made. However, some transactions will have rates that are greater than this initial flat rate that has been charged.

If the initial flat rate is lower than the card’s interchange rate, the payment processor will make it back in a second charge known as the billback that appears on the next month’s statement and where the merchant is then billed back for the non-qualified cards. The processor also has the ability to add a markup to that billback charge.

Like the flat rate pricing model, the advantage with the billback pricing model is that it is simple to understand. However, what does become more complex and a disadvantage is that the actual cost of the transaction is difficult to break down and understand all the various aspects that are costing you more money each month.

Because of the complexity of pricing models in terms of bundled or hidden fees, it’s important to take a closer look at the actual transaction process to see if this clarifies the overall costs of payments.


Chapter 3: The Transaction Process

There are many people involved in the transaction process that each get a part of every sale you make. Understanding who is involved, why, and how much they get can further help you determine the best approach to your payment processing needs.

Stakeholders in the Transaction Process
  • The Acquirer is the acquiring bank, such as Chase, who passes the credit card information on for the merchant directly to the card brands. The acquirer takes on the risk of processing that credit card within the transaction and often takes on the dual role as payment processor and acquirer.
  • The Card Brand, which can be referred to as the payment brand, credit card association, care association and payment brand network, is the credit card company like Visa, Mastercard, and American Express just to name a few. They decide on compliance and regulatory issues as well as monitor processing activity, lead transaction settlements, develop new products and generally guide many aspects of the payments industry.
  • The Issuer is the issuing bank, which issued the credit card and provided it the customer. They also send offer credit and send out credit card statements when there is a balance. An example would be Chase Visa.
  • The Payment Processors also can be called credit card processors, independent service organizations, and merchant account providers. They manage and negotiate credit card processing as well as establish rates and merchant accounts in partnership with the acquirer.
The Payment Processing Industry Organization Chart

Along with these four types of stakeholders, there are also consumers and merchants that make up the payment processing industry. At the top of this payment processing industry organization chart sits the card brand, which doesn’t ever deal directly with consumers. Instead, they only work with the acquiring bank or issuing bank in the form of a brand partnership and for card issuance.

At the next tier on the organization chart can be found the acquiring bank, which interacts with merchants and payment processors. The acquiring bank either deals with merchants who serve as the intermediary between the consumer and the acquiring bank.

The acquiring bank can also work directly with the payment processor who then serves as the gateway for the merchant who then deals with the consumer. In terms of the issuing bank, the organization chart only has them working with consumers directly and becomes that intermediary for the consumer and the card brand.

In this relationship, the majority of a transaction does go to the merchant for the sale of goods. The issuer gets the next largest payment followed by the processor, card band and acquirer.

The merchant’s selection of the processor still offers the most room for negotiation to increase the final amount from a transaction while the card brand, issuer, and acquirer are more difficult to control in terms of lowering their final amount from the transaction.

Since it is the relationship with the processors that you can control, the next chapter explores how fees differ between the types of processor you choose so you can understand how to get the best value for your investment.

How Fees Differ between Processor Types

Chapter 4: How Fees Differ between Processor Types

Aggregators and merchant account providers are the two types of payment processors a merchant can work with and represent two very different types of business models.

Because the business models are so different, this is a key place where you can make a decision that impacts the fees you will pay because the fees are significantly different between these two business models.

To help you make a sound decision on which type of processor to work with, here is a description of how each works and how they develop their fee structure.


Aggregators have a one-to-many structure in which several merchants are grouped together to create a joint merchant account. However, this structure allows merchants to process credit card payments easily and fast without applying for their own merchant account.

While this is convenient for merchants, it increases the risk for fraudulent activity for the aggregator, which is passed on to the merchant in the form of higher processing fees.

Aggregator do not charge many of the fixed fees discussed earlier in this ebook, such as monthly minimums, so it is a good solution for those merchants that do not process a lot of credit card payments. However, if you start to process more than $40,000 a year in credit card payments, you will want to migrate to a dedicated merchant account through a merchant account provider.

Merchant Account Providers

Merchant account providers like Due use a one-to-one structure so you have a dedicated merchant account. They also provide additional services, such as hardware to process payments if you have a physical location and the tools that ensure you are PCI-compliant. Other features are also included like ways to accept mobile payments or customize the payment processing service you offer your customers as well as dedicated customer support.

In return for these additional services, you will have additional fees and requirements, including a contract where you are obligated to stay with that merchant account provider for at least a year or longer or face early termination fees.

However, those additional costs could also yield a much larger benefit in the form of business growth that you could not have otherwise achieved. And, when you start getting those much higher processing volumes, it is a better value to have a merchant account provider to help you handle all that because you will be able to leverage competitive rates that get better the more volume you produce and the larger your transaction sizes become.

Which Payment Processor is Best?

As these descriptions illustrate, the best payment processor is the one that fits your individual business size, payment volume, budget and growth expectations. There will always be advantages and disadvantages with all types of models and partners within the payments industry, but many of those disadvantages produce a benefit when looking at the larger picture.

Always be looking ahead at what you plan to do with your business and how large you want to make it.

Pricing Comparisons

Chapter 5: Pricing Comparisons

The next step in looking at pricing with payment processing is to look directly at how rates and fees might change based on the volume of processing you do within your business. Looking at the price comparisons can then tell you what to expect at each growth stage so you can plan accordingly for the payment costs that are typically involved. This pricing comparison also shows you the difference between working with an aggregator and a merchant account provider.

An aggregator model typically just charges a flat percent but does tack on a small per transaction fee for online processing.

However, a merchant service provider will charge a slightly higher percentage for in-store transactions than online that is combination of fees, such as a discount rage, a non-qualified rate, card brand fee and applicable interchange differentials plus a monthly fee and monthly minimum fees for each type of card brand transaction.

The larger the volume, though, the less money is lost when working with a merchant service provider, illustrating that processing volume becomes a key deciding factor when considering what you pay in processing fees.



Now that we have covered all the various aspects of the credit card processing fee structure and business models, there are some primary conclusions that you can take with you as you reflect on the type of fee structure and model that works for your individual business needs:

  • Visualize your current and future business objectives so you know how your will expand your business so that you can select a merchant account provider that can scale with you and deliver the best support, payment tools, and fee structure that works with that development.
  • Account for your average processing volume and transaction size before selecting a payment processor. While aggregators work well for less than $40,000 a year in processing, you will want to opt for a merchant account provider if your volume and transaction is above that amount.
  • Understand exactly what fees you will be paying for before committing to any payment service provider. Make sure they provide a line item breakdown and explain every aspect of the cost prior to signing up or putting your name on any dotted line that comes with a specific contract timeframe.
  • Always negotiate those fees rather than just agreeing to them. Now that we have broken down the fees in this ebook, you will have a better idea of which ones are non-negotiable and which ones you can chip away at and get lowered.
  • Believe that you can understand the payment processing fee environment and have it work for your business budget and needs. While there are shady processors out there that try to bundle, hide, and confuse the fee structures, there are many transparent, ethical payment processors that are happy to show you exactly what costs are involved and help you feel more confident about what you are doing.
Glossary of Terms

Acquirer/Acquiring Bank: An acquirer or acquiring bank passes the credit care information between the merchant and card brand to complete a transaction.

Address Verification Service (AVS): This is a fee charged to ensure that the name and address information given during a transaction matches what it is on file for that particular credit card.

Affinity Credit Card: An affinity credit card is offered on behalf of affiliations, major brand retailers, service providers or partnerships. A small portion of each purchase goes towards the intended organization that is represented on the credit card.

Aggregator: An aggregator establishes a group merchant account so an individual merchant can accept credit cards without having their own merchant account.

Annual fees: This is a fee charged every year to cover certain payment processing services.

Basic Credit Card: A basic credit card is a general purpose credit card that has no perks, benefits, or points associated with using it.

Batch Fee: This is a fee for sending in a group of transactions at a time for processing.

Billback, or Blended Rate/ERR, Model: This is a pricing model that has a flat rate and a second charge for all non-qualified credit cards.

Cancellation Fee: This is a fee for discontinuing a contract before it’s over.

Card Brand (or Payment Brand or Payment Brand Network): A card brand is an organization like Visa or Mastercard that oversees compliance and regulatory issues as well as monitors processing, develops new products, and handles transaction settlements.

Card Brand (Card Association or Card Assessment) Fee: The card brand charges a small fee on each transaction.

Chargeback Fee: This is a fee charged when a transaction is disputed and involves providing a credit back to the cardholder and fees to research the dispute as well as a loss of revenue from the sale.

Discount Rate (or Merchant Discount Rate or Qualified Rate): This is a fee tied to processing a payment that involves a basic credit card.

Effective Rate: This rate is determined by dividing the total processing by total sales volume.

Fixed Fees: Fixed fees are fees where the amount never changes and are completely predictable.

Flat Model: This pricing model involves a flat percentage no matter what type of transaction or card.

Interchange Differential Fee: This is the difference between the base interchange rate of the card brand and the actual interchange rate of the type of card used.

Interchange Differential Model: This is a pricing model where the merchant pays a qualified rate, the non-qualified fee if any card besides a basic credit card is being used, a card brand fee, and the interchange differential fee.

Interchange Fee: This is a fee that the acquirer pays to the issuer and is set by the card brands.

Interchange Plus or Pass-Through: This is a pricing model where the merchant pays the interchange rate of the card plus a fixed percentage that can consist of many types of fees.

International Fee: This fee is applied when an international credit card is used during a transaction.

Issuer or Issuing Bank: This is a financial institution like a bank that has issued the credit card.

Monthly Fee: This is a processing fee that is charged once a month to use a payment processor’s services.

Monthly Minimum Fee: This fee is charged when a merchant does not achieve a specific monthly minimum number of transaction totals.

Non-Qualified Fee: This fee is connected to any use of non-standard consumer credit cards or those credit cards that are not present for the transaction.

Non-Sufficient Funds (NSF) Fee: This fee is charged to a merchant account whenever there are not enough funds in the connected bank account to cover the merchant account expenses.

Online Reporting Fee: This fee is charged to any merchant who prefers to view their statements online rather than to receive a paper copy.

Payment Gateway Fee: This is a fee charged to ecommerce businesses only.

Payment Processors (or Merchant Account Providers): Payment processors are the companies that oversee, negotiate, setup, manage and support credit card processing activities, processes, and equipment. They also ensure you are PCI-compliant, which is a critical part of today’s payment processing industry.

Premium Credit Card: Premium credit cards include corporate purchasing cards, business cards, and credit cards that come with benefits like cash, points, discounts. Examples include cash back, airline and hotel point cards, and points programs.

Processing Fees: These are fees that are added on to every transaction for goods and services.

PCI Fee: This is a fee paid to ensure PCI compliance.

Retrieval Request Fee: This fee is triggered when a customer disputes a transaction, which leads to a chargeback. To recover the data to investigate the claim, this fee is enacted to cover the cost.

Set-up Fee: Also known as an application fee, the set-up fee is charged when a merchant account is established.

Situational Fees: These are a category of payment processing fees that are only charged when certain events happen.

Statement Fees: A statement fee is charged for preparing, printing, and mailing a credit card statement. This fee can be avoided if a merchant opts to have their statements delivered electronically.

Terminal Fee: This fee only applies to those merchants that rent, lease, or buy a terminal that they use in their store to process each credit card transaction.

Tiered Model: This pricing model is based on various tiers, including qualified, mid-qualified, and non-qualified.

Transaction Fee: This is a fee added to every transaction that a merchant has processed.

Want to know how Due can save you money on every transaction and help you avoid many of these unnecessary fees? Click the button below to contact us today to learn more!

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