A guide to credit card processing fees

While digital wallets and other alternative payment methods get most of the press these days, credit cards are still one of the most popular payment methods among consumers around the world.

In the U.K., for example, 24% of all e-commerce transactions were made with credit cards, and an additional 23% of transactions online came from debit cards.

Moreover, according to the Worldpay Global Payments Report 2024, card transactions dominate at brick-and-mortar locations, with 28% of all point-of-sale (POS) transactions coming from credit cards and 46% from debit cards.

At the same time, cash transactions declined by -8% between 2022 and 2023, and this trend is anticipated to persist, with a projected annual decline of -6% through 2027*.

Based on these payment trends, the ability for businesses of all sizes to accept credit cards is critical to their success. However, many small businesses choose to avoid credit card payments because of the associated processing fees.

Don’t let financial fears stop you from accepting the payment methods your customers prefer. There are ways to manage these costs; you just need to understand how credit card processing fees work.

In this article, we will cover the following topics:

• What are credit card processing fees?
• Types of processing fees
• Why are there payment processing costs?
• Managing credit card processing costs

What are credit card processing fees?

Credit card processing fees are the charges that businesses incur whenever their customers use credit cards to make purchases. These fees are paid to the payment processor responsible for facilitating transactions between the business and the customer’s bank or card issuer.

Processing fees are typically paid either as a transaction fee, which is the percentage of the total transaction value, or as a per-transaction fee, which is a set fee for each transaction regardless of how large or small the value of that transaction may be.

While this article describes the various types of processing fees, it’s important for business owners to also understand other mandatory fees, including the acquirer processing fee, fixed acquirer network fee, kilobyte access fee and network access and brand usage fee.

Types of processing fees

As you consider your credit card processing options, you’ll need to understand the most typical types of processing fees. They include:

Interchange Fees

Interchange fees are the fees paid by your payment processor to the bank or card issuing company that provided the customer’s credit card. Typically, these fees are a percentage of the total transaction value, and they can range from about 0.2% for debit cards and 0.3% for credit cards. Interchange fees are capped by regulations and may vary depending on the card type.

Merchant Service Charge

A merchant service charge is the fee charged by your payment processor for their services, which includes processing the transaction, securing your network and providing customer support. Merchant service charges can either be a flat fee or a percentage of the transaction.

Scheme Fees

Interchange and scheme fees are typically charged by credit card networks like Visa and Mastercard for the right to process transactions through their networks. Often these fees, which are paid by the banks and payment processors, are then passed on to businesses as part of their merchant service charges. Scheme fees are usually based on a percentage of the transaction amount or a flat fee per transaction.

See the interchange and scheme fees a merchant can expect to pay as part of their agreement with Worldpay.

Why are there payment processing costs?

Payment processing fees exist because they help to cover the costs associated with developing and maintaining the technology that powers all the inner workings of credit card transactions. From setting up the accounts, to establishing payment channels for card transactions, to building and distributing the card readers at the POS, payment processing costs go to fund nearly every aspect of credit and debit card processing.

In addition to technology, maintenance and innovation costs, payment processing fees also help to support the employment of countless professionals working behind the scenes in customer service, fraud prevention, account services and risk management.

Managing credit card processing costs

While credit card processing costs are necessary, there are ways that new and existing businesses can better manage and minimize these fees. Consider the following options:

Increase your average transaction value

Transaction fees or per-transaction fees can be difficult for small businesses to absorb if they tend to primarily sell low-cost items or only a few items at a time. But, when businesses offer bundled products and/or encourage their customers to make larger purchases, they can spread the processing fee over a larger transaction value.

Choose a transparent payment partner

When you select a transparent payment partner, they will give you a clear and reliable pricing structure with no hidden fees or markups. This allows your business to predict credit card processing costs more accurately and avoid any unexpected financial surprises.

Select the right pricing plan

Finding the right pricing plan for your unique business is important, and one size does not fit all. Credit card processing costs can depend on a number of factors including your industry, your annual card turnover, your average transaction value and other historical sales data.

While considering credit card processing fees and plans, also think about the technology that works best for your business. The new Mobile Card Machine from Worldpay empowers you to accept credit card payments in-store and on-the-go with zero upfront fees, pricing tailored to your specific business needs and next-day settlements.