Credit card processing, with the fees laid out

The full guide

What you actually pay to accept a card

Interchange comes first. Visa describes interchange reimbursement fees as transfer fees between the acquiring bank, which serves the merchant, and the issuing bank, which issued the card. It notes that merchants do not pay interchange directly: they pay a merchant discount to their financial institution. Mastercard likewise calls interchange one component of the merchant discount rate that merchants pay their acquirers.

Interchange varies by transaction. Mastercard lists the factors that decide the rate, including the merchant category, the time between authorization and clearing, whether magnetic stripe data was present, enhanced transaction data and the merchant's Mastercard volume. Both networks publish their schedules, so any interchange figure in a quote can be checked.

Debit is treated differently. Under the Federal Reserve's Regulation II, debit interchange received by large issuers is subject to federal standards, while credit card interchange is not capped by that rule. On top of interchange come network fees and whatever your processor charges for merchant services.

Interchange-plus, flat-rate and tiered

Interchange-plus pricing is the easiest to audit, because the processor's margin is stated separately from costs it cannot control. Flat-rate pricing trades transparency for simplicity, which can suit a small or new business. Tiered pricing is the hardest to check against the networks' published schedules. Whatever the model, ask for the markup, every fixed fee and the contract terms in writing.

Where processing fees hide

• Monthly minimums. A floor on processing fees that you pay even in a slow month.
• Compliance fees. Card brands and acquirers run PCI compliance programs, and a processor can charge for its program or for missing paperwork. Ask what each compliance charge covers.
• Termination fees. In 2022 the FTC alleged that one processor's standard agreement ran 3 years with a $495 cancellation fee, while its sales staff promised owners they could cancel at any time.
• Price increases. The same FTC case alleged the processor periodically raised prices on existing customers, erasing the savings owners had been promised.
• Equipment leases. A terminal lease can be a separate contract that keeps billing after you leave the processor. The New York Attorney General won a 2020 ruling rescinding a leasing company's over-priced card-equipment leases and a 2023 award of more than $680 million.
• Chargeback and batch fees. Per-item charges for disputes and settlements. See chargeback.

Ask for the full fee schedule before you sign, and buy terminals outright when you can compare the purchase price with the lease.

Reading your processing statement

Start with 2 totals: card volume for the month and total fees charged. Then sort the fees into 3 groups. Pass-through costs are interchange and network assessments, which should match the networks' published schedules. Processor charges are the markup, per-transaction fees and any surcharges for sales outside the lowest tier. Fixed fees are the monthly, statement, compliance, gateway and equipment charges that do not change with volume.

Compare 3 or more months side by side. A markup that creeps up, a new line item or a fee you did not agree to is worth a written question to your processor. The totals should also line up with the gross card payments reported on your Form 1099-K for the year. If a statement mixes everything into a single discount rate, you are probably on flat-rate or tiered pricing, and a competing interchange-plus quote will show what that simplicity costs.

Effective rate: the number to compare

The effective rate is the only number that captures everything: total fees for the month divided by total card volume. Work it out from your current statement first. Then ask each competing processor to price that same statement, with the same volume, card mix and average ticket, so you compare like with like.

Beyond the rate, compare the contract. Check the length, the termination fee, any clause that lets the processor change prices, the equipment terms and when deposits arrive. One provider we track advertises next-day funding of card sales. Batch cutoff times decide whether a late-evening sale lands the next business day or the one after.

Openbook compares processing quotes this way and explains each one. We do not process payments; the processor and its bank handle your transactions. If Openbook is paid on a processing account you open, we tell you how. Your statements also help on the funding side, because they document card volume. Our guide to comparing offers applies the same discipline to funding.

Card volume and split-funded advances

With split funding, the processor divides each card settlement and sends an agreed percentage to the funder before the rest reaches your account. Funders we track describe repayment as a percentage of card sales or of daily card receipts, and one broker describes holdbacks of 5% to 15%. At 10%, a $2,000 card day sends $200 to the funder.

Card volume also sizes the advance. Funders offering split-funded deals look at how much you process each month and how steady it is, and a true holdback stretches the payoff when card sales fall rather than raising the daily amount.

That link has consequences. The funder needs a processor that can split your settlements, and moving to a new processor mid-advance can interrupt its collections, so get the funder's written consent before you switch. A cheaper processing quote can still be worth taking, but plan the timing with both parties. Our guide to how MCA payments work covers holdbacks and fixed debits, and the merchant cash advance page covers the contract terms.

Pros and cons