We get this question a lot here at CardFellow: “What’s the average credit card processing fee for a [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 depends on a number of factors, including your industry, the type of card, how you accept cards, if you take PIN or signature debit, and more. It also depends on whether you have a CardFellow wholesale credit card processing membership or if you obtained your merchant account outside of CardFellow. Those with CardFellow memberships will pay about 40% less in fees than businesses that don’t, even when using the same processor.
However, we can still provide very rough numbers to give you a starting point. Just remember your actual costs may be a little higher or lower, depending on any number of factors.
- Average Credit Card Processing Fees
- Effective Rate
- Calculating Average Cost
Average Credit Card Processing Fees
So, what do businesses pay for credit card transactions? 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% for Visa, Mastercard, and Discover transactions. The average cost for card-not-present businesses, such as online shops, is roughly 2.30% – 2.50%.
|Visa, Mastercard, Discover||American Express OptBlue|
|Swiped Transaction||~1.95% – 2%||See note on Amex|
|Online or Keyed Transaction||2.30% – 2.50%||See note on Amex|
Businesses that have CardFellow memberships will pay about 0.20% – 0.50% less than the rates above.
Remember, these costs are general averages. Your particular business may have higher or lower costs. Higher costs don’t automatically mean you’re getting a bad deal, but can mean it’s worth digging deeper.
It’s very difficult to assess whether you have competitive pricing by comparing your rates to averages, and 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. The fact is, there are many costs involved, from interchange and assessments to processor’s markup, which can include statement fees, monthly fees, PCI fees, and more.
Rather than using averages as your benchmark, try tools that provide you with best-case rates for your specific business, and use that as your measuring stick. CardFellow offers a free quote comparison tool where you can enter basic information about your business and see the best possible pricing. Try it here.
You’ll typically pay more to accept American Express than other types of cards. Whether you pay a lot more or a little more depends on your payment processor and the pricing model you’re on.
While Amex has a reputation as the “expensive” card to accept, the company has actively tried to change that. In 2015, Amex rolled out a new pricing model, called OptBlue. The new model offered the possibility of lower costs. Indeed, OptBlue charges can be much closer to Visa and Mastercard charges than they have been in the past. However, some credit card processors used OptBlue to their advantage instead of yours. Rather than pass on the savings to you, they instead pocketed it as additional profit.
It’s difficult to give accurate averages for Visa, Mastercard, and Discover, but it’s nearly impossible for Amex. In addition to the broad range of processor fees, a high number of commercial credit cards are Amex. Commercial cards incur different rates than consumer cards, and factors like enhanced data play a role as well.
However, if your Amex costs are significantly higher than your Visa or Mastercard charges, you should look into it further. It may be that you’re on an old pricing model, that your processor is pocketing savings, or that you’re not properly passing level 2 and level 3 date to get better rates on specific card types.
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. Your effective rate will be expressed as a percentage, but it is not synonymous with a processor’s rates. In other words, effective rate isn’t a set fee that retailers pay. It’s simply a calculation of what you paid in processing fees as a percentage of your total processing volume. The effective rate is what you paid for merchant services.
Instead of relying on rough averages, it’s better to get an accurate idea of processing fees for your business by taking a few variables into account. You’ll need to know:
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 ways that a business can process credit cards. As the names imply, card-present refers to a retail or restaurant business that swipes cards, and card-not-present refers to businesses that process transactions remotely, such as e-commerce or mail order businesses. (However, it’s important to note that any “keyed” transactions – where a cashier enters a card number by hand into a machine or terminal – counts as card-not-present even if the card was physically with the cashier. Card present only refers to swiped transactions.)
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.
- 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)
- 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
- 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 has 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 for credit cards. Doing so helps to fend off credit card use on very low transaction amounts.
Read more about Minimum Purchase Amount on Credit Card Transactions.
Accounting for Average Ticket Size
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 the average ticket, and multiply that number by the total transaction fee. (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. a credit card. In many cases, customers use debit cards for small transactions and credit cards for larger transactions. Debit card interchange fees are less than credit card interchange fees.
In 2011, the United States government imposed a cap on interchange for certain debit cards. As part of the Durbin Amendment, regulated debit cards were capped at 0.05% + 22 cents. Regulated debit cards are defined as cards issued by a bank with $10 billion or more in assets. (For example, Wells Fargo, Bank of America, SunTrust, etc.)
However, those fees were only capped at the interchange level – the Amendment said nothing about caps on what processors can charge on top of interchange. As a result, many businesses didn’t see much of a reduction on debit transactions.
The Federal Reserve website includes details on debit interchange fee trends over time as a result of the regulation.
In any case, your debit costs will not be the same as credit costs. That means that the percentage of debit vs. credit cards that you take will have an impact on your total processing fees.
Related Article: Which is Cheaper – PIN or Signature Debit?
Calculating Average Cost
Now that you know the contributing factors that determine average cost, let’s put it all together.
- Figure your average monthly processing volume and average ticket amount. I’m going to use $10,000 and $50 as an example.
- Select the average interchange cost from the “Processing Method” section above 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.
- 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%.
- 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%
- 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. In this example, the merchant account rates for 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 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.
Curious how CardFellow can help you save? Create a free account!
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.
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.
I am looking for a credit card processing company for a business that has been processing cards for over twenty years. I am looking at better rates and more transparency in rate calculation. Your explanation was very helpful.
How do your rates compare with Square? Is there a monthly fee? I only sell 6-7 months out of the year and only one month in some summer months. I’m a sole proprietor so can’t afford to lose many sells or pay too much in fees. I am not requiring a $20 purchase to charge items.
Sign up for CardFellow. Most of the companies charge significantly more. It seems from my research for card present it should average at 2%ish (if you do B2B and get corporate cards it could be much more) Square is 2.75% for card present. We saved 1% and calculated it to be about $200 a month with CardFellow. It’s worth a try.
How do merchant account fees fit into your analysis? I’m trying to understand costs of setting up acceptance of payments for online subscription service with monthly recurring payments.
All of the fees discussed in this article can be part of merchant account fees. For accepting payments online, you’ll need to use a payment gateway. If you’re interested in getting quotes for your business, you can sign up for a free account at CardFellow and receive quotes instantly. Please let me know if you have questions!
Please explain the rates to me I’ve been quoted 0.5 percent but that is not inclusive.
It’s difficult to explain the rates without having any other information or knowing the terms offered by the processor who quoted you. Have you received quotes through CardFellow? If not, you can sign up for free and we’ll be able to explain the quoted rates with much more accuracy.
I had an offer for terminal, 0% debit and 1% credit…but $89 monthly fee supposedly for leasing equipment. Does this sound right? Most monthly fees I see online is maybe $15 month. Also this is a 5 year contract. Your thoughts?
My thoughts are that you’ll be much happier if you create an account at CardFellow and get quotes through the processors in our marketplace. 🙂
I’d need more details about the quote you’re talking about, but it does sound like there could be undisclosed fees you’ll run into. In general we suggest you avoid lengthy contracts, as you have limited options once you’re locked in like that, and that you don’t lease equipment, as it ends up being far more expensive in the long run.
Have you signed up to get quotes through the CardFellow marketplace? If not, you can sign up for free to see what’s available to you. Our services are free to use, completely private (you won’t get sales calls from pushy processors), and feature fully disclosed pricing, lifetime rate lock, and no cancellation fees.
I just joined a business selling tea and registering new members to my team. I need to know which credit card processing company would be good for me. I also have a non profit that takes members on local events throughout the city of Philadelphia. I have membership fees. And third, I have apart of my non profit, a Hula Hoop Dance troupe that makes their own hula hoops and they have their own DVD that they sell.
Any advice would be helpful. We would like to find the best company to use. My bank Santander would like for me to use them. Our Philly Hoop Starz Dance Troupe account is at this bank.
The best thing to do is sign up for a free account here at CardFellow to get instant quotes for processing. The quotes you’ll receive are backed by protections from CardFellow, including no cancellation fee, free statement monitoring to ensure you get the lowest pricing, and more. For your non-profit groups, it my also help to read this post about credit card processing for non-profits. I hope this helps!
I am trying to determine my effective rate before I start shopping for a new card processing company. I have created a table with my total credit card processing fees and total charge card sales by month. Based on what I read about effective rate I would divide my card fees by my card sales then take times 100 to get percentage. Below is a real month example I calculated. Did I do this correctly?
expenses $179.00 / sales $6,313.00 x100 = 2.83%
That will give you a rough estimate – the problem is that some pricing models actually carry fees across several months, only charge some fees quarterly or annually, etc. You can also create a business profile here at CardFellow to see what type of pricing you’d be eligible for and compare that to your current costs. It’s completely free and no obligation, so it doesn’t hurt to look. You can try it here: https://www.cardfellow.com/sign-up
I’m starting an online e-commerce business that will involve online transactions of only $0.21 (10 cents to the seller, 10 cents to my business, 1 cent in taxes).
I need to be able to allow customers to make their $0.20 purchases online, without myself going bankrupt trying to pay transaction fees that are over double my business’s returns.
At 10 cents earned per purchase, I can’t afford to pay 10 cents to 50 cents per transaction, plus additional percentages of the transaction.
I’d be charged a quarter every time I make a dime, or worse.
Unfortunately, you’re going to have limited options at that price point. There are some companies that offer micro-transaction rates, but you’re still going to be looking at a percentage and a per-transaction fee. PayPal’s micropayments rate, for example, is 5% and 5 cents per transaction. Additionally, since you mention sellers, it sounds like you’ll be functioning as a marketplace? I’m not sure if you’d be eligible for a micropayments rate as a marketplace. You’ll want to contact a company with microtransaction pricing to find out.
Does this still hold up when someone uses a rewards card? What about Amex?
Yes, though if you’re doing almost entirely Amex or almost entirely rewards cards, the numbers may be off a little bit. Rewards cards and Amex are typically a little more expensive, but many businesses overpay – especially businesses that are on “tiered” pricing with “non-qualified” rates.
The best way to get an accurate idea of the costs for your particular business is to use a cost comparison tool, which lets you see and compare pricing from several processors at the same time, in the same format. CardFellow’s cost comparison is free and no obligation, with a 2-minute form to get instant quotes. You can try it here: https://www.cardfellow.com/sign-up
I want to sign a contract – a company that give the the rate 1.5% +0.05 for Visa, and 1.55% + 0.05 Mastercard. Monthly fee is $10, Interac transaction fee is 0.05. I’m just wondering how is that monthly cost. I don’t really understand.
I’d suggest creating a free account at CardFellow – it lets you easily compare multiple quotes, and you can even ask the rep that gave you that quote to enter it into our system. That will allow our software to break it out for you and show you the costs you can realistically expect. It’s completely free and no obligation. Go here: https://www.cardfellow.com/sign-up
Isn’t it against contract terms with Visa/Mastercard/etc to set credit transaction limits? I’m not even weighing in on the fairness or societal expediency of this system where smaller transactions, smaller businesses, and internet businesses are ostensibly punished for making smaller sales… (wait, did I just weigh in?)
But I could’ve sworn that when you sign a contract with a credit processor you are contractually bound to allow all purchases by credit card, regardless of the amount. Has that changed? Or did it never exist?
It’s no longer prohibited – credit card minimums have been permissible since the introduction of the Durbin Amendment. https://www.cardfellow.com/blog/minimum-charge-credit-card-purchase/
The way credit cards are managed ought to be outlawed. There is no sense in making something so simple into such a spaghetti mess. If a few of the biggest merchants in America switched to cash only it might make these shiny shoes hucksters learn a good lesson. In general, the poor average slob gets financially beaten to death by the big boys. It’s been that way for thousands of years.