Understanding Credit Card Processing Fees: How They Work and Why They Matter
Gain a clear understanding of credit card processing fees, including interchange, assessment charges, and markups. Learn how these costs impact your transactions and how to choose cost-effective processing solutions to save money. This article explains the key components of credit card fees, helping users make informed financial decisions and optimize their credit card processing costs.
Using a credit card gives a sense of financial freedom, allowing purchases on demand. However, it's important to understand that every transaction involves costs. These fees are primarily composed of baseline processing charges and additional merchant markups.
Typically, 70 to 80% of your total transaction amount covers the actual cost of the goods or services paid for with your credit card.
On top of this, a markup ranging from 20 to 25% is added.
It’s important to note that credit card service providers do not negotiate lower base processing costs; these fees are standardized across providers.
Interchange fees form a major part of processing expenses. Interestingly, neither your card issuer nor the card networks (like Visa or Mastercard) profit from these fees. Instead, interchange is charged by the issuing bank, with rates set by the issuer and card network.
Interchange fees generally include a transaction fee and a commission.
Assessment fees, charged by the card associations, are consistent across processors but can vary based on your specific credit line.
Additional markups are added on top of these fees and may be negotiable, depending on the processor’s pricing model and fee structure. To minimize costs, it’s advisable to choose payment processors offering lower markups on interchange and assessment fees, as these are mostly fixed across the industry.
