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Credit Card Processing Fees Guide for Small Business Owners

In today’s digital age, accepting credit card payments has become a necessity for small businesses. However, along with the convenience of card payments, comes the reality of credit card processing fees. These fees, charged by payment processors and card networks, can have a significant impact on a business’s bottom line. Therefore, small business owners must have a thorough understanding of the types of fees involved and how they are calculated.

This blog aims to provide business owners with a comprehensive overview of credit card processing fees in small businesses. By gaining insights into the different types of fees, you can make informed decisions when choosing payment processors to effectively manage finances in your business. Additionally, understanding the calculation methods behind these fees will enable you to accurately estimate your costs and budget accordingly.

How Does Credit Card Processing Work?

Before delving into the complexities of credit card processing fees, it is crucial to have a clear understanding of the overall process. Credit card processing involves a series of steps, including authorization, settlement, and funding.

Here is a breakdown of how credit card processing works:


When a customer makes a purchase at your small business using a credit card, the transaction details, including the card number, purchase amount, and other relevant information, are securely transmitted to the payment processor or acquiring bank affiliated with your business. The payment processor then communicates with the card issuer to verify the card’s validity and the availability of funds.

Verification and Authorization

The card issuer, such as Discover, VISA, Mastercard, etc., performs various security checks to ensure the transaction is legitimate. This involves validating card details, checking for any fraud indicators, and verifying that the cardholder has sufficient funds or credit available. If the transaction is approved, an authorization code is generated, indicating that the funds are reserved for the transaction.


After the authorization is received, the transaction enters the settlement phase. This is where the actual transfer of funds takes place. Typically, at the end of each business day, the payment processor sends a settlement request to the card networks. The card networks facilitate the transfer of funds from the card issuer to the acquiring bank or payment processor.


Once the settlement is complete, the funds are deposited into the merchant’s designated bank account. The time it takes for funds to reach the merchant’s account may vary depending on factors such as the payment processor’s policies, the type of business, and the chosen funding options.

By understanding the fundamental steps involved in credit card processing, small business owners and merchants can develop a clear picture of how transactions are handled and how credit card processing fees come into play.

What Are Credit Card Processing Fees?

Credit card merchant fees encompass a range of components that merchants, including small businesses, encounter with each card transaction.

Here are the key types of credit card processing fees:

Credit Card Interchange Fees

Interchange fees are a significant portion of credit card processing fees. These fees are paid to the card-issuing banks (e.g., Chase, Bank of America) and are determined by the card networks (e.g., Visa, Mastercard). Interchange fees vary based on factors such as the type of card (credit, debit, rewards), transaction type (in-person, online), and risk level (e.g., card-present, card-not-present). Typically, interchange fees are calculated as a percentage of the transaction amount, plus a fixed fee.

Credit Card Assessment Fees

Assessment fees are charges imposed by the card networks themselves, such as Visa, Mastercard, or Discover. These fees are typically based on a percentage of the transaction volume and are set by the card networks. Assessment fees contribute to the overall processing costs and are separate from interchange fees.

Credit Card Markup Fees

Markup fees, also known as payment processor fees or merchant account fees, are charges levied by the payment processor or acquiring bank for their services. These fees cover the operational costs, support, and technology provided by the payment processor. Markup fees can be based on various pricing models, including a percentage of the transaction amount, a flat fee per transaction, or a combination of both.

Statement Fees

Some payment processors may charge statement fees, typically on a monthly basis, to cover the administrative costs of providing regular statements and reporting to the merchant. These fees contribute to the overall expense of credit card processing and should be considered when evaluating the total cost.

Chargeback Fees

Chargeback fees are incurred when a customer disputes a transaction and initiates a chargeback. Chargeback fees cover the administrative expenses associated with investigating and resolving the dispute. The fees may vary depending on the payment processor or acquiring bank and can include processing fees, retrieval fees, and representing fees.

Understanding the breakdown of these different types of credit card processing fees can help you analyze your business expenses, negotiate better terms with payment processors, and implement strategies to minimize overall processing costs.

How to Calculate Credit Card Processing Fees

Accurately calculating credit card processing fees for small business owners is essential to understanding and forecasting your costs. By considering various factors such as transaction volume, average ticket size, interchange rates, and the processor’s markup, you can estimate your expenses more effectively.

5 Steps to Calculate Credit Card Processing Fees

The following steps outline the process for calculating credit card processing fees:

1.     Identify Interchange Rates and Assessment Fees

The first step is to determine the interchange rates and assessment fees associated with the specific card brand being used. Interchange rates vary based on factors such as the type of card (debit, credit, rewards), transaction type (in-person, online), and risk level. Assessment fees are fixed charges imposed by the card networks and are typically based on a percentage of the transaction volume.

2.     Determine the Processor’s Markup

The payment processor or acquiring bank charges a markup fee for their services. This fee can vary based on the merchant’s agreement with the processor and is typically expressed as a percentage of the transaction amount or a flat fee per transaction. It’s crucial to understand the exact markup structure to accurately calculate the fees.

3.     Calculate Interchange Fees

Multiply the transaction amount by the applicable interchange rate and add any associated assessment fees. For example, if the interchange rate is 2.5% and the assessment fee is 0.15% on a $100 transaction, the interchange fees would be calculated as follows: $100 x 2.5% + $100 x 0.15% = $2.50 + $0.15 = $2.65.

4.     Add the Processor’s Markup

Once the interchange fees have been calculated, add the payment processor’s markup to the total. For instance, if the processor’s markup is 0.5%, the markup fee on a $100 transaction would be $100 x 0.5% = $0.50.

5.     Total Processing Fee

Finally, sum up the interchange fees and the processor’s markup fee to obtain the total credit card processing fee for the transaction. Using the previous example, the total processing fee would be $2.65 + $0.50 = $3.15.

By following these steps and considering the specific interchange rates, assessment fees, and markup structure, you can estimate your business’ credit card processing fees accurately.


As small businesses increasingly rely on digital transactions, understanding the intricacies of processing fees becomes paramount to your financial success.

Though often referred to collectively as credit card processing fees, these charges include a number of components that vary widely from processor to processor.  Understanding the different fee components and their calculation methods, as outlined above, can help you confidently estimate your expenses and make well-informed decisions when choosing payment processors. Though easy to overlook, variations in processing fees can greatly affect your monthly P&L statement. Ensuring that the fees align with your budgetary constraints and overall financial goals is pivotal to managing your finances, and ultimately, your business’ success.