Payment Processing Fees Explained

Understanding the costs of accepting card payments

Understanding Payment Processing Fees

Payment processing fees can be confusing. As someone who worked at Shift4, I've seen how these fees are structured and how they can vary. Let me break down exactly what you're paying for.

When you see a rate like "2.9% + $0.30", that's not just one fee - it's actually made up of several components that get bundled together.

Components of Payment Processing Fees

1. Interchange Fees

Interchange fees are set by the card networks (Visa, Mastercard, etc.) and paid to the issuing bank (the customer's bank). These fees vary based on:

  • • Card type (credit vs debit, rewards cards cost more)
  • • Transaction type (in-person vs online, keyed-in)
  • • Business type and industry

Typical range: 1.5% - 2.5% of transaction amount

2. Assessment Fees

Small fees paid directly to the card networks (Visa, Mastercard, etc.) for using their network. These are typically around 0.10% - 0.15% of the transaction amount.

3. Processor Markup

This is what your payment processor (Stripe, Square, etc.) charges on top of interchange and assessment fees. This is where processors make their money and where you can negotiate better rates.

Typical range: 0.3% - 1.0% of transaction amount, plus $0.10 - $0.30 per transaction

Common Fee Structures

Flat-Rate Pricing

Simple pricing like "2.9% + $0.30" for all transactions. Easy to understand, but you pay the same rate regardless of card type. Used by Stripe, Square, and PayPal.

Best for: Small businesses, businesses with low transaction volumes

Interchange Plus Pricing

You pay the actual interchange fee plus a small markup (e.g., "Interchange + 0.3% + $0.10"). More complex but can be cheaper for high-volume merchants. Used by Shift4 and other enterprise processors.

Best for: High-volume merchants, businesses processing $50,000+ monthly

Tiered Pricing

Transactions are categorized into tiers (qualified, mid-qualified, non-qualified) with different rates. Can be confusing and expensive. Generally not recommended.

How to Minimize Payment Processing Fees

1. Accept In-Person Payments When Possible

In-person payments (swiped, dipped, or tapped) have lower interchange fees than online or keyed-in transactions. Always use chip or contactless when available.

2. Negotiate for High Volume

If you process $50,000+ monthly, you can often negotiate better rates. Consider switching to interchange plus pricing or negotiating custom rates.

3. Avoid Keyed-In Transactions

Keyed-in transactions (manually entering card numbers) have the highest fees. Always use chip readers or contactless payment when possible.

4. Watch for Hidden Fees

Look out for monthly fees, statement fees, PCI compliance fees, and early termination fees. These can add up quickly and aren't always disclosed upfront.

Understanding Your Statement

Payment processing statements can be confusing. Here's what to look for:

  • • Gross Sales: Total amount of transactions before fees
  • • Processing Fees: Total fees deducted
  • • Net Deposits: Amount actually deposited to your account
  • • Effective Rate: Total fees divided by gross sales (this is your true cost)