Average Credit Card Processing Fees

Average Credit Card Processing Charges

Figuring out the average credit card processing fees for a particular business means paying attention to the details.

We get this question a lot here at CardFellow: "What's the average credit card processing charge for [insert your business type here] business?" There are easy answers to this question, and then there are the right answers.

What your business pays in processing fees also depends on whether you use CardFellow's marketplace to allow processor to compete for your business. Those that use CardFellow will pay about 40% less in fees than businesses that don't. It's a fact.

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Typical Credit Card Processing Costs

If you're looking for quick numbers, here you go: the average credit card processing cost for a retail business where cards are swiped is roughly 1.95% - 2%. The average cost for card-not-present businesses, such as online shops, is roughly 2.30% - 2.50%.

Businesses that use CardFellow to secure a credit card processor will pay about 0.20% - 0.50% less than the rates above.

Going by general numbers can be dangerous, especially if you're figuring processing expense for a new business. Underestimating processing fees at this stage will hurt your new business when it's most vulnerable.

Variables to Consider for Effective Rate

Instead of simply guessing, it's better to get an accurate idea of processing fees for your business by taking a few more variables into account. Before we jump into the nitty-gritty, I should note that each credit card processing quote that you get here at CardFellow has a complete breakdown of fees. Our software will give you a very detailed estimate of processing costs, and it's free to sign up.

The amount a business pays in processing fees relative to gross volume is called an effective rate. Estimating the effective rate for your business is the best way to determine average processing expenses, and here's what you need to know to calculate an accurate figure.

Processing Method

Your business's processing method has a large impact on typical credit card processing charges because it affects how many and which types of fees will apply.

Card-present and card-not-present are the two general ways that a business can process credit cards. As the names imply, card-present refers to a retail business that swipes cards, and card-not-present refers to businesses that process transactions remotely, such as e-commerce or mail order businesses.

Interchange fees, processing markup, and third-party charges are all affected by your business's processing method. Credit card processing charges are typically less for card-present businesses than they are for card-not-present businesses. Here's why.

Card-Present Businesses

  • Pay lower interchange fees - roughly 1.60% plus a $0.10 transaction fee.
  • Have lower monthly fees (roughly $5 - $15) and transaction fees ($0.08 - $0.10) because they don't need gateways
  • Are low risk and get lower interchange plus rates from processors here at CardFellow)
  • Have lower occurrences of chargebacks and fraud that contribute to overall cost

Card-Not-Present Businesses

  • Pay higher interchange fees - roughly 1.90% plus a $0.10 transaction fee.
  • Have higher software costs that are usually associated with online gateways (generally $10 - $15 a month plus a $0.01 - $0.08 transaction fee)
  • Are higher risk and pay higher interchange plus markups from processors
  • Have higher occurrences of chargebacks and fraud resulting in greater overhead expense

Average Ticket Size

Ticket size is a huge impact on a business's average credit card processing fees. Ticket size refers to the amount of a typical credit or debit card sale. The greater the average ticket size, the higher the average processing costs.

As the ticket size decreases, the number of transaction fees incurred increases. Since transaction fees have a greater impact on smaller transactions, they have a greater impact on overall cost.

For example, let's pretend that two businesses each process $1,000 in transactions. Business A has an average ticket of $10, and Business B has an average ticket of $100. This means that Business A will have 100 transactions, and Business B will have 10 transactions.

Let's assume that both businesses have the exact same rates, including a $0.18 transaction fee. Business A would pay $18 in transaction fees, while Business B would only pay $1.80. Business A pays 1,000% more!

Businesses that have low average tickets sometimes opt to impose a minimum purchase amount on credit card transactions. Doing so helps to fend off credit card use on very low transactions.

Here's how to account for average ticket size when determining average processing fees for your business.

Divide your business's expected/actual monthly processing volume by its average ticket, and multiply that number by the total transaction fee, which is roughly $0.18 - $0.20 for card-present businesses, or $0.25 - $0.30 for card-not-present businesses. Divide this number by the processing volume, and multiply it by 100. This will yield the percentage of total volume that goes toward paying transaction fees.

Keep this number handy, because we're going to use it later to figure the total average credit card processing fees for your business.

Debit vs. Credit Card Charges

Average ticket also has an impact on how many of your customers will pay with a debit card vs credit card. Debit card interchange fees are less than credit, and they'll be getting even lower after October 1, 2011 when the Durbin Amendment is enforced.

Calculating Average Cost

Now that you know the contributing factors that determine average cost, let's put it all together.

  1. Figure your average monthly processing volume and average ticket amount. I'm going to use $10,000 and $50 as an example.
  2. Select the average interchange cost from the "Processing Method" section that applies to your business. Use 1.60% for card-present businesses and 1.90% for card-not-present businesses. I'm going to go with card-not-present.
  3. Add the processor's interchange markup to the average interchange cost. I'm going to use 0.25% as the markup, so I'll add 1.90% and 0.25% for a total so far of 2.15%.
  4. Next, figure the impact your average ticket will have on transaction fees by following the steps in the "Average Ticket Size" section, and add that number to your running total. I'm a card-not-present business, so I used the $0.25 transaction fee. Here's how mine works out:
    $10,000 / $50 * $0.25 = $50
    $50 / $10,000 * 100 = 0.50%
    0. 50% + 2.15% = 2.65%
  5. Finally, figure the impact monthly fees will have by using the average monthly charges from the "Processing Method" section, and using the same formula as we did in figuring the average ticket impact. As a card-not-present business, I used monthly fees of $15. Here's how mine works out:
    $15 / $10,000 * 100 = 0.15%
    0.15% + 2.65% = 2.80%

And there we have it. An online business that processes $10,000 a month with an average ticket of $50 will pay about 2.80% of volume or $280 a month in credit card processing charges.

Keep in mind that the quotes you receive through CardFellow are very competitive, and we only allow interchange pass through, which is the least expensive, most transparent form of pricing. If you're comparing quotes outside of our marketplace, you may want to increase your average a little to be safe.

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2 Responses to Average Credit Card Processing Fees

  1. steve fan says:

    Very helpful article but I’ve just started an online store and our CNP fees are closer to 3.85% at an average ticket of just under $100. I shopped around too – fees that aren’t even included in this 3.8% include the cash bond a new business has to place ($60,000 for me) in order to ensure that our credit card account has enough money to pay for chargebacks, foreign transaction costs, and other stuff. So this article while helpful is understanding the true cost of online cnp fees to entrepreneurs. It’s always more expensive when you’re starting a new business.

    • Ben says:

      Thanks for you comments, Steve. It sounds like you didn’t use CardFellow to find your credit card processor ;)

      It’s important to understand that the majority of credit card processing expense is paid to card-issuing banks in the form of interchange fees. The average interchange fee for an online business is roughly 1.90% – 2.00%.

      Add to that the assessment from Visa and MasterCard of 0.11%, and then a competitive processing markup of interchange plus 0.15%, and you’re up to 2.26% plus about $0.20 per transaction.

      Even after gateway fees and miscellaneous fees, you shouldn’t be up around 3.85%. I’m thinking that you may be paying fees on a tiered pricing model instead of less expensive interchange plus.

      A $60,000 non-interest bearing reserve account is quite out of the ordinary, especially for a business with only a $100 average ticket. I’ve never seen a reserve that high, even for high-risk businesses.

      You should really create a free account here at CardFellow to get instant credit card processing quotes. We’ll even do a free analysis comparing your current processor to the best offer you receive through CardFellow. This will give you a solid idea of how much you can save.

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