Credit Card Processing

Credit Card Transaction Fees

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More often than not, credit card transaction fees contribute more to cost than credit card processing rates.

A common and costly mistake when shopping for credit card processing services is to focus on a processor’s rate while paying little attention to transaction fees. The financial impact of this mistake is especially damaging for businesses with a low average sale amount.


What’s the difference between a transaction fee and a processing rate?

Each time a business processes a credit card transaction it pays two types of fees. The first is a single percentage that is based on the volume of a transaction, called the rate or discount rate, and the second is a flat fee generally referred to as a transaction fee.

The trouble with transaction fees starts with a misunderstanding of the term itself. The term transaction fee generally refers to any flat fee charged when a business’s credit card machine or software gives or gets information to or from a processor.

Authorization fees, return fees, AVS fees and gateway fees are just a few examples of the various transaction fees that processors charge. And, unlike a processor’s discount rate, more than one transaction fee may apply to an individual credit card transaction. What people typically think of as a processor’s transaction fee is actually its authorization fee.

Authorization Costs Vs. Discount Rate Cost

The authorization fee is charged each time a business authorizes a credit card transaction, and it often contributes more to cost than the discount rate. This is especially true in the case of interchange plus pricing.

For example, let’s pretend a processor offers a business with an average sale of $35 an interchange plus pricing quote of 0.25% plus a $0.15 authorization fee.

The discount rate portion will cost the business $0.09 (.0025 * $35 = $0.0875) per average sale, which is significantly less than the authorization fee of $0.15 per average sale. If this business processed $10,000 in a given month, the rate will only amount to $25 in fees (.0025 * 10,000 = $25), but the transaction fee will amount to $42.86 (10,000 / $35 * $0.15 = $42.86).

As this example demonstrates, it’s important to measure the impact of a processor’s authorization fee on overall cost as it often contributes more to cost than the discount rate.

Making the impact of transaction fees even more significant is the fact that many processors charge more than one transaction fee per sale.

Multiple Fees Per Transaction

It’s not uncommon for a processor to charge more than one transaction fee per individual credit card sale. Splitting transaction fees in this manner allows processors to make credit card processing fees appear more competitive than they really are.

This practice is most often seen in the case of processors that charge an address verification (AVS) fee for card-not-present transactions.

For example, a processor may offer an e-commerce business an interchange plus quote of 0.25% plus a $0.10 authorization fee knowing that, as a card-not-present business, every transaction will require AVS.

Since it’s customary for processors to only prominently disclose the discount rate (0.25%) and authorization fee ($0.10) in a quote, the processor’s additional AVS fee of $0.05 gets buried in the fine print, even though it will apply to every single transaction the business processes and bring the total transaction cost to $0.15.

Charging an AVS fee separately isn’t the only way a processor can inflate costs associated with transaction fees. Another common practice is to charge a communication fee in addition to an authorization fee.

Multiple Transaction Fees in Action

Below is a statement from a business before it used CardFellow’s free service to lower its processing fees by 35%.

While performing a free analysis for this company, not only did we noticed excessive rates, but we also found the processor was charging an authorization fee in addition to a communication fee resulting in total per transaction costs of $0.47.

First the processor charged $0.35 per transaction as an authorization fee.

Authorization Charge

And then it charged another $0.12 per transaction as a WAT communication fee.

Communication Charge

As this examples proves, it’s very important to analyze your business’s processing statements closely to ensure what you think you are paying in credit card transaction fees is actually what is being billed.

Types of Transaction Fees

Below is a list of credit card transaction fees with a description followed by the name various processors typically use to refer to each type of fee.

Authorization Fee
An authorization fee is charged each time a business authorizes a credit card transaction. The authorization fee is the most widely publicized transaction fee, and it’s often what a processor refers to generally as its transaction fee.

Authorization fees are often referred to on processing statements as:

  • POS AUTH
  • AUTH FEE
  • DISC P/I
  • Authorization Fee
  • Auth

Per Item Fee
Per items fees are charged each time a business’s equipment contacts that processor to get or give information. A per item may be charged in place of or in addition to other transaction fees such as authorization fees.

Per item fees are often referred to on processing statements as:

  • Item Fee
  • Item Rate
  • Per Item Rate
  • Trans Fee

Communication Fee
A communication fee is charged each time a business’s processing equipment dials the processor’s toll-free phone number to get or give information. Communication fees are often charged in addition to authorization and per item fees.

Communication fees are often referred to on processing statements as:

Return Item Fee
A return item fee is charged each time a business issues a refund on a previously authorized and settle transaction. Return item fees are often charged in addition to per item fees.

Address Verification (AVS) Fee
An AVS fee is charged each time a business accesses the address verification system when processing a card not present transaction. Retail businesses typically perform AVS when keying in a transaction, and e-commerce businesses perform AVS on every transaction. For this reason, e-commerce and card not present businesses must take into consideration that an AVS fee will be charged in addition to an authorization or per item fee on every transaction.

AVS fees are often referred to on processing statements as:

  • AVS
  • AVS AUTH FEE
  • AVS AUTH
  • GLBLEDCAVS

Related Article: Using Address Verification Service (AVS).


Gateway Fee
A gateway fee is charged each time an e-commerce business passes information to its gateway service provider. Gateway fees are charged in addition to authorization and per item fees. The gateway fee may also be charged in addition to the AVS fee, although many processors charge the gateway fee in place of the AVS fee for e-commerce businesses.

Wireless Service Fee
A wireless fee is charged each time a business passes information to its wireless service provider. Wireless service fees are charged in addition to authorization, per item and AVS fees.

While the percentage part of your processing costs can’t be ignored, it’s equally or more important to understand what you pay for transaction fees in order to ensure the most competitive pricing.

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Ben Dwyer

BY Ben Dwyer

Ben Dwyer began his career in the processing industry in 2003 on the sales floor for a Connecticut‐based processor. As he learned more about the inner‐workings of the industry, rampant unethical practices, and lack of assistance available to businesses, he cut ties with his employer and started a blog where he could post accurate information about credit card processing.As the blog gained in popularity, Ben began directly assisting merchants in their search for a processor. Ben believes in empowering businesses by providing access to fair, competitive pricing, accurate information, and continued support. His dedication to transparency and education has made CardFellow a staunch small business advocate in the credit card processing industry.

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12 COMMENTS

  1. from neil, on March 27, 2018 18:44:05

    Here’s an unusual client. I have a client who is paying his monthly health insurance bill by American Express. Amex wants to charge 2.9%. There is one bulk billing per month of +/- $600k. Amex wants 2.9% which works out to ~$200,000/year. Can someone recommend a solution?

    • from Ellen Cunningham, on March 28, 2018 13:10:21

      I’m not following, you’re putting through one monthly charge of $600,000?

  2. from Geoffery, on March 23, 2017 18:54:06

    What is the average total % of fees that compile a merchant’s bill if they pay 0% to the service provider asking the merchant to only pay the fees set by the card associations, authorization etc? Is there some ballpark rate that is an industry standard or guide?

    • from Ellen, on March 24, 2017 16:02:40

      Hi Geoffery,
      I don’t know of any providers that don’t charge anything beyond interchange and assessments. Are you referring to companies that offer interchange + 0%? In those cases, there are still per-transaction fees and monthly or annual membership fees that are paid to the service provider.

      The fees set by the card associations and collected by banks/card networks are interchange and assessments. Mastercard and Visa publish their interchange tables on their websites, though Discover does not. (American Express uses a slightly different model that isn’t technically interchange, but they don’t publish that publicly, either.)

  3. from Mark Locke, on July 20, 2016 16:04:41

    Are there companies out there that will let you pass the fees onto the customer?

  4. from Antonio, on June 22, 2015 18:25:55

    What company would you suggest to do credit card transactions with? I will be starting a small business and a company that offers wireless credit card machines is asking 2.79% per transaction. I thought that was a bit steep. Any company suggestions? I am located in Boston, Massachusetts. I will be starting a transportation company.

    • from Ellen Cunningham, on June 23, 2015 08:50:01

      Hi Antonio,
      We’re able to help businesses secure very competitive processing through our marketplace, so the easiest thing to do is sign up here at CardFellow to get quotes from several companies. It’s quick (and completely free!) to sign up and compare quotes from processors. You’ll have quotes within minutes. We also keep your information private, so you won’t be bombarded with sales calls, and we’re here if you have questions.

  5. from Sharon Bonye, on April 23, 2015 21:51:33

    What would a Visa sale amount of $10,000.00 (one transaction) cost the retailer? Approximately.

    • from Ellen Cunningham, on April 27, 2015 09:45:19

      Hi Sharon,
      There are a lot of factors that affect the cost of transaction processing, including whether it is swiped, manually entered, or received online, as well as the fees charged by the processing company, and more. Are you looking to lower the costs of accepting credit cards at your business?

  6. from Mike, on April 21, 2015 18:25:06

    Hi Ben,

    Would you know what PF means for these 2 fees?
    PF – Small Ticket
    PF – Rest

    • from Ellen Cunningham, on April 23, 2015 15:04:43

      Hi Mike,
      Is there more context? It could be almost anything.