Understanding Payment Processing Fees
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Payment processing fees can be confusing. Here's what you actually need to know.
On a $100 sale, you'll pay roughly $3.20 in fees with most providers. About $2.20 goes to banks and card networks (you can't change this), and about $1.00 goes to your processor (you can negotiate this at volume).
Where Your Fees Go
Here's a real example of a $100 Visa credit card transaction:
| Component | Amount | Who Gets It | Can You Negotiate? |
|---|---|---|---|
| Interchange | ~$1.80 | Customer's bank (Chase, Citi, etc.) | No |
| Assessment | ~$0.14 | Card network (Visa, Mastercard) | No |
| Processor Markup | ~$1.26 | Your processor (Stripe, Square, etc.) | Yes, at volume |
| Total | ~$3.20 |
Rates vary by card type, transaction type, and your pricing model.
The Three Components Explained
- Interchange Fee: This is the largest portion of the fee, and it goes to the bank that issued the customer's card (the issuer). Interchange rates are set by the card networks (Visa, Mastercard, etc.) and are non-negotiable.
- Assessment Fee: This is a smaller fee that goes to the card network itself (Visa, Mastercard, etc.). Like interchange fees, these are non-negotiable.
- Processor Markup: This is the fee that your payment processor charges for their services. This is the only part of the fee that is negotiable.
How Pricing Models Affect Your Fees
- Flat-rate: With this model, you don't see the individual components of the fee. The processor bundles everything into a single rate (e.g., 2.9% + $0.30). This is simple and predictable, but you may be overpaying for some transactions. See our processor comparison for examples.
- Interchange-plus: This is the most transparent pricing model. You pay the actual interchange and assessment fees for each transaction, plus a fixed markup from your processor. This allows you to see exactly what you're paying and to whom.
- Tiered: This model groups transactions into tiers (e.g., "qualified," "mid-qualified," "non-qualified"). Each tier has a different rate. This is the least transparent model, and it's often difficult to know why a transaction was placed in a particular tier. For most businesses at scale, this is the worst option.
When Should You Care About This?
| Your Monthly Volume | What to Do |
|---|---|
| Under $10K | Don't optimize. Use flat-rate pricing and focus on growing your business. |
| $10K - $50K | Ask your processor about volume discounts. A simple email can save you 0.1-0.2%. |
| $50K - $100K | Consider switching to interchange-plus pricing. Run the math first. |
| Over $100K | Negotiate hard. Every 0.1% saved is $100+/month in your pocket. |
Reading Your Statement
Your monthly processing statement shows what you're paying. Look for:
- Volume by card type: Debit cards cost less than credit cards
- Fee breakdown: If you're on interchange-plus, you'll see each component
- Hidden fees: Monthly fees, PCI compliance fees, statement fees
Some processors bury extra fees in your statement: PCI non-compliance fees, batch fees, statement fees, monthly minimums. Read your first few statements carefully.
If you're on a flat-rate plan (Stripe, Square), your statement will be simple. If you're on interchange-plus or tiered, request a detailed breakdown if it's not provided. For help reconciling, see settlement and reconciliation.
You've Completed the Payments Basics
You now understand:
- The players in the payments ecosystem
- How to choose a payment processor
- The different types of payment processing fees