Credit Card Processing Fees Compared
Payment processing fees are often your biggest POS cost. A 0.5% difference on $300K annual sales is $1,500/year. Understanding how fees work helps you negotiate better rates and choose the right provider.
How Processing Fees Work
Every card transaction has multiple fees: interchange (paid to card-issuing bank), assessment (paid to Visa/MC), and processor markup. You pay all three, bundled or itemized.
- •Interchange: 1.5-3% - Varies by card type, set by card networks
- •Assessment: 0.13-0.15% - Small fee to Visa/Mastercard
- •Processor markup: 0.2-1% - What your POS provider makes
- •Total: These add up to what you actually pay
Flat-Rate Pricing
Most POS systems use flat-rate pricing: one rate for all card types. Simple and predictable, but you overpay on cheap cards (debit) and save on expensive cards (rewards).
- •Square: 2.6% + 10¢ in-person, 2.9% + 30¢ online
- •Toast: 2.49% + 15¢ (with paid plan)
- •Shopify: 2.4-2.7% depending on plan
- •Pros: Simple, predictable, no surprises
- •Cons: Overpay on debit cards (actual cost ~0.5%)
Interchange-Plus Pricing
Interchange-plus passes through actual interchange + a fixed markup. Lower cost for high volume, but more complex statements. Not usually available for small businesses.
- •Format: Interchange + 0.2% + 10¢
- •Debit card: ~0.5% + 0.2% = 0.7% (vs 2.6% flat)
- •Rewards card: ~2.5% + 0.2% = 2.7% (about same as flat)
- •Available: Usually $50K+/month processing volume
- •Providers: Payment Depot, Helcim, Stax (not typical POS)
In-Person vs Online Rates
Online and keyed-in transactions always cost more than in-person chip/tap transactions. Higher fraud risk = higher fees.
- •In-person (chip/tap): 2.4-2.7%
- •Online (card not present): 2.9-3.5%
- •Keyed-in (manual entry): 3.5%+
- •Reason: Fraud risk is higher without physical card
- •Tip: Always use chip/tap when possible
The Fixed Fee Trap
Don't ignore the per-transaction fixed fee (e.g., + 10¢ or + 30¢). For low-ticket items, this dramatically increases your effective rate.
- •$5 sale at 2.6% + 30¢ = 8.6% effective rate
- •$50 sale at 2.6% + 30¢ = 3.2% effective rate
- •$500 sale at 2.6% + 30¢ = 2.66% effective rate
- •Low-ticket businesses: Prioritize low fixed fees
- •High-ticket businesses: Prioritize low percentage
Comparing Actual Costs
The only way to truly compare is to calculate with your numbers. Use your average ticket size and monthly volume.
- •Formula: (Rate × Sale) + Fixed Fee = Transaction Cost
- •Monthly: Sum all transaction costs + monthly fees
- •Example: 1,000 transactions × $30 avg × 2.6% + 10¢ = $880/month
- •Compare: Run same calc for 2-3 providers
- •Don't forget: Monthly software fees, hardware costs
Common Mistakes to Avoid
Only comparing percentage rates
Fixed fees matter, especially for low-ticket businesses. A 2.5% + 30¢ can cost more than 2.6% + 10¢.
Assuming you need interchange-plus
Interchange-plus is complex and only saves money at high volumes. For most small businesses, good flat-rate pricing is fine.
Not negotiating
If you process $20K+/month, ask for better rates. Providers have flexibility, especially for growing businesses.
Ignoring effective rate
Calculate what you actually pay (total fees ÷ total sales), not just the advertised rate.
Frequently Asked Questions
What's a good processing rate?
For flat-rate, 2.5-2.7% + 10-15¢ is competitive for in-person transactions. If you're paying over 3% for in-person sales, you're overpaying.
Should I switch to interchange-plus?
Only if you process $50K+/month AND your customer base uses a lot of debit cards. For most small businesses, the complexity isn't worth the savings.
Why do online transactions cost more?
Fraud risk. When the physical card isn't present, there's higher risk of fraudulent transactions. Card networks charge more to compensate, and that's passed to you.