Making “Cents” of Credit Card Processing Fees

Deciding whether or not to accept credit cards at your restaurant can be a tough call. On one hand, people who don’t have enough cash on hand may decide to eat somewhere else if you don’t take cards — but on the other hand, though you may get more customers, credit card fees can take a big chunk out of your profits. Here’s a look at the costs involved so that you can make an informed decision.

What goes into credit card fees?

First, there are two kinds of base costs involved:

Interchange fees are fees that are paid to the card-issuing banks (such as Visa, MasterCard, and Discover), which cover costs such as the bank’s line of credit, rewards benefits, cardholder statements, and reporting.

These fees don’t vary among processors, but change based on the types of businesses involved (for instance, a gas station would pay less than a restaurant). The interchange fee makes up the majority of the total credit card-processing fee (up to 90% in some cases), and is typically a flat fee plus a percentage of the purchase price.

Under the Federal Reserve’s regulations, standard payment processors may not have an interchange fee that exceeds 21 cents plus 0.05 percent multiplied by the value of the transaction, plus a 1-cent fraud-prevention adjustment. This only applies to the limit that the issuing bank of a debit or PIN debit card can charge and does not apply to credit cards like Visa or MasterCard.

Businesses where a credit card is not present, such as e-commerce or mail order companies, are subject to higher interchange fees than stores in which credit cards are physically swiped.

Assessments are also fees charged to issuing banks, which go toward network infrastructure, regulations, research and development, and marketing and branding. Visa and MasterCard both have 0.11% assessment fees on total retail sales, in addition to a number of smaller charges. Discover’s assessment fee is 0.15%. You can see all associated charges for each card here.

In addition to these fees, each merchant services company — which acts as a go-between for you and your credit car provider — has its own additional fees, such as monthly payment gateway fees and statement fees. Merchants that process credit cards in store are subject to lower rates than those that process cards based on the numbers alone. Although all credit card processors are subject to the same interchange and assessment rates for their issuing bank, the merchant services provider you select can change your costs by thousands each year.

On average, however, credit card transaction fees on a $100 charge would amount to between $2.50 and $3.

American Express, in contrast to the other card issuers, issues merchant accounts directly and governs its own rates. That means that regardless of which credit card processor you choose, you must always pay American Express’ rate when swiping American Express cards. This fee ranges from 2.3% to 3.5%, based on the type of business you run. As a result, many smaller businesses choose not to allow customers to use American Express credit cards because of the higher costs to process such cards.

Additionally, for traditional credit card processing, you will need to purchase a physical terminal, which generally costs around $150.

Mobile payment processing

If you opt to choose a mobile payment solution for a smartphone or iPad-based point of sale tool rather than a traditional point of sale solution, your payment options may be structured differently.

Many mobile processing options use a per-swipe pricing system. Some examples of typical rates are:

Name Compatibility Per-swipe rate
Square iOS and Android 2.75%
GoPayment by Intuit iOS and Android 2.75%
Mobilized iOS and Android 2.70%
PayPal Here iOS and Android 2.70%
PayAnywhere iOS, most Android, and Blackberry 2.69%

With these plans, there are no other associated costs, so such plans could be good options for small vendors with low sales volume, such as farmer’s market vendors.

Some services also offer monthly subscription plans in which you’ll pay a flat monthly fee and gain access to a lower per-transaction rate, or pay no transaction fee at all. Square’s monthly plan, for instance, costs $275 per month, with no transaction fees. GoPayment offers a $12.99 monthly plan with a 1.75% swipe rate. These plans are better options for higher-volume merchants with consistent revenues. But it’s important to note that such plans also have caps to the volume: For instance, Square will resume normal fees after you have processed $10,000 in sales for that month.

Additionally, with the majority of mobile processing devices, your credit card reader is delivered free of charge or can be purchased for as little at $10. Such readers plug directly into your mobile device — look at our previous article for a comparison of the best options.

These new mobile payment processing options make credit card acceptance a viable option for smaller businesses that otherwise would have been too frustrated with the hassle and expense of purchasing a credit card terminal and paying the monthly fees required by merchant services providers.

Can you charge your customers extra for paying by credit card?

In the past, merchants were forced to eat the associated costs for customers who chose to pay by credit card instead of cash. However, under new legislation that’s valid in 40 of the 50 states, businesses are now permitted to impose a surcharge of up to 4% of their customers’ purchase prices.

For businesses that previously avoided accepting credit cards due to the extra cost, the ruling can make accepting credit cards a no-brainer — however, if you choose to charge a surcharge, make sure that you are transparent about it with your customers, or you’ll risk upsetting them with hidden fees — or even run into trouble with the law.