Payment Processing Fees Explained: What Merchants Are Really Paying For (And Why)
If you accept credit cards, you are paying payment processing fees. Most merchants know that much. What creates frustration and distrust is not the cost itself, but the lack of clarity. Statements are dense full of acronyms and jargon, terminology is inconsistent, and different providers explain fees in different ways. As a result, many business owners feel they are being overcharged without understanding why.
This guide breaks down payment processing fees in plain language, with real-world examples, so you can clearly understand what you are paying for, what is negotiable, and what is not.
The Big Picture: Where Your Processing Fees Go
Every time a customer pays with a credit or debit card, that transaction moves through several parties:
The customer’s bank (issuer)
The card network (Visa, Mastercard, etc.)
Merchant payment processor
Your processing fees are split among these parties. Some portions are fixed industry costs. Others are where processors earn their margin.
Understanding this structure is the key to making sense of your statement.
1. Interchange Fees: The Largest Cost You Pay
Interchange fees are paid to the customer’s issuing bank. This is the bank that issued the credit or debit card to your customer. These fees compensate the bank for taking on risk, extending credit, and funding rewards programs.
Interchange is set by the card networks and applies uniformly across all processors. Your processor does not control these fees.
What affects interchange rates
Interchange varies based on several factors:
Card type (debit vs credit, rewards vs non-rewards)
How the card is accepted (chip, tap, online, keyed-in)
Your business type (restaurant, retail, ecommerce)
Risk indicators (address verification, CVV data, etc.)
Example
A customer pays $100 using a rewards credit card in your store via tap-to-pay.
That transaction may carry an interchange fee of:
1.95% + $0.10
Total interchange cost: $2.05
This $2.05 goes directly to the issuing bank. Your processor does not keep it.
Interchange is usually the largest portion of your total processing cost.
2. Card Network Fees (Assessment Fees)
Card networks charge small fees ranging 0.13-0.16% for Visa, Master, and Discovery card, while Amex has its own tiered fee structure. This is for operating and maintaining their payment rails. These are often called assessment fees or network fees.
They are paid to the card brands themselves and are non-negotiable.
Typical characteristics
A small percentage of transaction volume
Sometimes paired with a small per-transaction charge
Applies to every transaction regardless of processor
Example
On that same $100 transaction, the card network may charge:
0.15% assessment fee
Total network fee: $0.15
Again, this fee is fixed and passed through by your processor.
3. Processor Markup: The Part You Can Control
Processor markup is what your payment processor earns for providing payment services. This is the portion of your fees that is negotiable and varies most between providers.
Processors may describe this markup in different ways depending on their pricing model.
Common pricing models
Interchange-Plus Pricing
You pay the actual interchange fee plus a clearly stated markup. This is the most transparent model.
Example:
Interchange: 1.95% + $0.10
Processor markup: 0.30% + $0.10
Total cost on $100 transaction: $2.45
Tiered Pricing
Transactions are grouped into “qualified,” “mid-qualified,” and “non-qualified” buckets with different rates. This model is less transparent and often more expensive for merchants who accept rewards cards.
Flat-Rate Pricing
You pay one blended rate for all transactions, such as 2.75%. Simple, but often higher than interchange-plus for established businesses.
4. Per-Transaction Fees
In addition to percentage-based fees, most processors charge a fixed fee per transaction. This covers authorization, settlement, and network handling costs.
Typical range
$0.05 to $0.30 per transaction depending on ticket size.
Example:
Coffee shop with $6 average ticket
$0.25 per transaction equals over 4% before percentage fees are even added
High-volume, low-ticket businesses should pay close attention to this line item.
5. Monthly and Recurring Account Fees
Many merchant accounts include fixed monthly fees. These are not tied to transaction volume and appear even if you do not process any sales.
Common examples include:
Monthly account fee
Statement or reporting fee
PCI compliance fee
Minimum processing fee (charged if volume is low)
Example
A merchant processes $3,000 in a slow month but pays:
$25 monthly account fee
$15 PCI compliance fee
Those $40 in fixed costs significantly raise the effective processing rate for that month.
Some modern processors bundle or waive these fees. Others rely on them heavily.
6. Chargeback and Dispute Fees
Chargebacks occur when a customer disputes a transaction with their bank. Regardless of whether you win or lose the dispute, a fee is typically charged.
Typical chargeback fees
$15 to $35 per dispute
Chargebacks are expensive, but the real risk is ratio-based. If chargebacks exceed network thresholds, processors may:
Increase your rates
Require reserves
Terminate your account
Even businesses with honest practices can incur chargebacks due to customer confusion or friendly fraud.
Putting It All Together: A Real Example
Let’s revisit the $100 transaction and add everything up.
Interchange fee: $2.05
Card network fee: $0.15
Processor markup: $0.50
Per-transaction fee: $0.20
Total processing cost: $2.90
Effective rate: 2.9%
Your merchant statement should have all these broken downs in detail. Understanding the components allows you to evaluate whether the card issuer, the card network, and your processor’s portions are fair.
What Merchants Should Focus On
You cannot eliminate interchange or network fees. They are the cost of participating in card payments.
What you can control:
Pricing model transparency
Processor markup
Per-transaction fees
Unnecessary monthly charges
The most important step is understanding your statement well enough to separate unavoidable costs from negotiable ones.
Final Thought
Payment processing does not have to feel opaque or deceptive. When merchants understand how fees are structured, they gain leverage, confidence, and the ability to make informed decisions rather than reacting to headline rates.
If you need help understanding your processing statement, feel free to connect with QSS.
We can help with a free review of your current processing setup and statement, explain:
What portion of your fees are fixed industry costs
What portion is negotiable
Where confusion or lack of transparency may be costing you unnecessarily