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Processor Fees Guide

Prerequisites

Before auditing processor fees, understand:

TL;DR
  • The industry has a transparency problem - Merchants routinely pay 30-50% more than they should
  • Junk fees are common: PCI fees, statement fees, settlement funding fees often have no cost basis
  • Calculate your effective rate monthly: Total fees / Total volume. Above 2.5% CP or 3.0% CNP? Something's wrong.
  • Interchange-plus pricing with full disclosure is the honest model. Tiered/qualified pricing hides markup.

Why Processors Can Get Away With This​

The payment processing sales model creates perverse incentives. Sales reps often earn commissions based on the spread between what they quote you and what they actually pay in interchange. The wider that gap, the more they make. So they're motivated to:

  1. Quote you a low "qualified" rate that few transactions actually hit
  2. Bury additional fees in the contract you won't read
  3. Use pricing models that obscure the true cost

From the issuer side, we see the actual interchange that flows through the network. When I compare that to what merchants tell me they're paying, the markup is often shocking. A merchant paying an "effective rate" of 3.2% on a transaction mix that should cost 1.9% in interchange is giving away 1.3% pure margin to their processor.

Fees That Shouldn't Exist​

Some fees are legitimate cost recovery. Others are pure profit extraction dressed up with official-sounding names.

PCI Compliance/Non-Compliance Fees​

PCI DSS compliance is a real requirement. But here's what processors don't tell you: if you're using their approved terminal or gateway, you're probably already compliant. The "compliance fee" is often just a monthly charge for nothing.

The "non-compliance fee" (which can run $50-150/month) is even worse. It's a penalty for not filling out a questionnaire that certifies what's already true.

Ask your processor: "What specific PCI services does this fee cover?" If they can't give you a concrete answer, it's a junk fee.

Statement Fees​

You're paying $10-25/month to receive a record of charges you're paying. Think about that. Your processor is charging you for the privilege of seeing how much they're charging you.

Monthly Minimums​

If you don't generate enough processing fees in a month, you pay a penalty. This makes sense for processors managing risk on dormant accounts. But some contracts set minimums so high that growing businesses get penalized during slow months. Seasonal businesses get hit especially hard.

The Double-Dip: Auth Fees Plus Transaction Fees​

This is the one that makes me angry. Some processors charge you when the authorization happens AND when the transaction settles. These show up as separate line items ("authorization fee" and "transaction fee") so they look like two different things. They're not. You're paying twice for the same transaction to move through the same pipes.

If your statement shows both per-auth and per-transaction charges, ask why. There's no technical reason for both.

Settlement Funding Fees​

This is a newer one. Processors have started adding percentage-based fees specifically for moving your money to your bank account. The fee for... giving you your own money.

There's no cost basis for this. Settlement happens automatically through existing infrastructure.

Early Termination and Liquidated Damages​

Standard early termination fees ($200-500) are annoying but understandable. Liquidated damages clauses are predatory. They calculate what the processor "would have earned" over the remaining contract term and charge you that amount. On a 3-year contract with 2 years remaining, this can be tens of thousands of dollars.

Read your contract. If you see "liquidated damages," negotiate it out before signing.

How to Read Your Statement Like a Fraud Analyst​

Apply the same skepticism to your processing statement that you'd apply to a suspicious transaction.

Calculate Your Effective Rate Every Month​

Total fees charged / Total volume processed = Effective rate

If your effective rate is above 2.5% for card-present retail or above 3.0% for e-commerce, something is probably wrong.

Look for Rate Creep​

Compare this month's effective rate to last month's. Processors often implement small increases hoping you won't notice. A 0.1% increase on $100K monthly volume is $100/month, $1,200/year.

Identify Every Line Item​

Make a list of every fee on your statement. For each one, ask:

  • What service does this pay for?
  • Is this a pass-through cost (interchange, assessments) or processor markup?
  • Did this fee exist when I signed up?

Watch for New Fees Appearing​

Processors sometimes add fees mid-contract, buried in statement messages or mailed notices. Any fee that wasn't in your original agreement is negotiable, and arguably shouldn't be enforceable.

Question Vague Descriptions​

"Miscellaneous fee," "service charge," "regulatory fee," "network access fee." These generic names often hide pure markup. Demand specifics.

Questions to Ask Before Signing​

These are the questions most guides miss:

  1. "Can you show me exactly how my fee would be calculated on a $100 Visa Signature card-not-present transaction?" (This forces them to reveal the actual math.)

  2. "What fees can change during the contract term, and under what circumstances?" (Get this in writing.)

  3. "If interchange rates go down, will my rates go down too?" (Most processors pocket the difference.)

  4. "What's my effective rate going to be, not my qualified rate?" (Qualified rates are meaningless if nothing qualifies.)

  5. "Can I see a sample statement from a similar merchant?" (See what fees actually appear.)

  6. "What's the process if I find an error on my statement?" (Tests whether they have real support.)

  7. "Who owns the merchant account if I want to switch processors?" (Some processors make portability difficult.)

Finding Honest Processors​

They exist. Look for:

  • Interchange-plus pricing with full disclosure: You see exact interchange, exact assessments, exact markup. No mystery.
  • Month-to-month contracts: Processors confident in their service don't need to lock you in.
  • No PCI fees, no statement fees: These are pure junk fees. Good processors don't charge them.
  • Transparent rate schedules: Published pricing you can verify.
  • Willingness to explain every line item: If they get defensive when you ask questions, walk away.

The payment processing industry is slowly getting more transparent, driven by competition from modern processors who compete on service rather than obfuscation. But "slowly" means you still need to protect yourself.

Red Flags in Processor Contracts​

Red FlagWhy It's Bad
"Qualified," "Mid-qualified," "Non-qualified" tiersObscures true cost; most transactions downgrade
Liquidated damages clauseCould cost thousands to exit
Auto-renewal with rate increaseLocks you in at worse terms
PCI non-compliance feeUsually a junk fee
Both auth fees AND transaction feesYou're paying twice
Vague fee descriptionsHiding markup
Long-term contract (3+ years)Reduces your negotiating leverage

Annual Fee Audit Checklist​

Run this audit every year, or when switching processors:

  • Calculate monthly effective rate for past 12 months
  • Identify rate trends (increasing, stable, decreasing)
  • List every fee line item and its purpose
  • Flag any fees added mid-contract
  • Calculate what you'd pay at interchange-plus pricing
  • Get 2-3 competitive quotes
  • Review contract termination terms before negotiating

Next Steps​

Auditing current fees?

  1. Calculate effective rate - Total fees / volume
  2. Identify junk fees - PCI, statement, settlement
  3. Run annual audit checklist - 12-month review

Evaluating new processors?

  1. Ask the right questions - Force transparency
  2. Watch for red flags - Tiered pricing, liquidated damages
  3. Find honest processors - Interchange-plus, no junk fees

Reading statements like an analyst?

  1. Look for rate creep - Month-over-month comparison
  2. Identify every line item - Pass-through vs markup
  3. Question vague descriptions - Demand specifics

See Also​