What Small Businesses Should Know About Credit Card Processing Fees

If your small business accepts credit cards — in person or online — you’re paying processing fees. And depending on how your payment processor sets up your plan, those fees may be cutting deeper into your profits than they should.

Here’s what small business owners need to know about how credit card processing fees work — and how to keep them from hurting your cash flow.

What are credit card processing fees?

Credit card processing fees are the costs your business pays to accept credit card payments. These payment processing fees cover the behind-the-scenes work that happens every time a customer pays you with a credit card — including approval, fraud checks, fund transfers and payment settlement. The total cost is usually made up of several different fees charged by different players in the payment processing ecosystem, including:

Interchange fees. These are fees paid to the cardholder’s bank (the card issuer).

Assessment fees. These are fees paid to the credit card network (like Visa or Mastercard).

Processor markup. This is paid to your payment processor or merchant services provider.

You’ll also see fees for things like chargebacks, payment card industry (PCI) compliance, monthly service or minimum usage, depending on your service provider.

How much do credit card processing fees cost for small businesses?

Most small businesses pay between 1.5% and 3.5% per transaction in credit card processing fees. However, your actual cost depends on a few factors:

The type of card. Debit cards usually have lower fees than credit cards, and the cost can also vary by company. For example, American Express typically charges more than Visa or Mastercard.

The payment method. In-person credit card transactions generally have lower fees than online payments or keyed-in sales. This is because in-person transactions are less risky and “card not present” (CNP) transactions have higher interchange rates.

Your pricing structure. Is your pricing structure flat rate, tiered pricing or interchange plus? We’ll share more about this below.

Your industry. The industry you’re in might impact your sales volume and average transaction size (some processors offer lower rates for lower-risk businesses).

You may also pay monthly fees or per-transaction fees on top of the percentage fee. Always check the full fee schedule before signing with a payment processor.

What are the different types of credit card processing fee structures?

There are three common pricing models credit card processing companies will use:

1. Flat Rate Pricing

You pay a flat fee — a fixed percentage (e.g., 2.9%) plus a small fixed fee (e.g., $0.30) per total transaction — no matter the card or method. Providers like Stripe, Square and PayPal use this model. It’s predictable, but often not the lowest-cost option.

2. Interchange Plus Pricing

You pay the actual interchange fee (set by the card networks) plus a set markup from your processor. This model is more transparent and can lead to lower rates if you process high volumes or have low-risk transactions.

3. Tiered Pricing

Your credit card processor groups transactions into tiers (qualified, mid-qualified and non-qualified) with different rates. This model is harder to audit and often results in higher fees — especially for rewards cards or online payments.

How do I lower the costs of credit card processing for my small business?

You can’t avoid credit card fees altogether, but you can reduce what you pay. Here are some ways to lower your costs:

Negotiate with your processor. Ask for better rates or switch to interchange-plus pricing if you’re on a tiered plan.

Use a card reader for in-person payments. Avoid manually keying in card numbers when possible, since keyed-in transactions cost more.

Meet payment card industry compliance requirements. Avoid non-compliance fees by completing your annual PCI compliance requirements checklist.

Set a minimum purchase amount. This can help avoid high fees on very small transaction amounts.

Review your monthly statement. Look for unnecessary fees, and call out any that weren’t disclosed.

If you process large volumes, don’t be afraid to shop around. Merchant services pricing is negotiable — especially if you have a strong track record.

Can I charge a convenience fee or surcharge?

Yes, you can charge a convenience fee or surcharge — but there are rules. And the wrong approach could damage customer trust or trigger legal issues.

Surcharges (a fee added for using a credit card) are allowed in most states, but not all. You must clearly disclose the fee and apply it only to credit cards — not debit cards.

Convenience fees (for alternative payment methods, like online or phone payments) are legal but often discouraged by card networks. Rules vary by network — check Visa, Mastercard and American Express policies carefully.

Cash discount programs (offering a lower price for paying with cash) are legal in all 50 states and increasingly popular among retailers.

Before adding any fees, talk to your processor and make sure your POS system supports proper fee disclosure.

The Bottom Line

Credit card processing fees are part of doing business — but you still have control. Research your options to find the best payment processing solutions for your small business. When you understand how these fees work, how processors price their services, and how to negotiate or structure your pricing, you can reduce unnecessary costs and keep more of what you earn.

For many small business owners, this isn’t just about savings — it’s about smoother cash flow, clearer decisions and fewer surprises at the end of the month.