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It’s nearly impossible to accept credit card payments online without paying a processing fee – either to your credit card provider, payment provider or processing gateway. Be wary of companies that claim there are no processing fees.
Fortunately, yes Credit card processing fees can be kept low. You can also avoid these fees altogether by passing the fees on to your customers.
This article explains how to avoid credit card processing fees, reduce these fees, and choose a payment processor for your online business.
Credit Card Fees Overview
Online credit card payments carry higher fees than in-person credit card payments because online transactions carry a higher risk of fraud.
Here are the fees associated with accepting credit card payments online:
- Interchange Fee: Credit card issuers (Visa, Mastercard, AmEx) charge a non-negotiable fee on every credit card transaction. This fee is paid by your merchant provider or payment processor, but is passed on to you, the business owner. The fee ranges from 1.29% to 3.5% per transaction, which is 70% to 90% of the total transaction fee.
- Merchant service markup: These are the fees your merchant provider or payment processor charges you for processing your payment. These are the most variable of all credit card fees because payment processors use different fee structures. This can also be used as a basis for your decision on which provider to choose – choose the one with the lowest or most transparent markup fees.
- Assessment Fees: Also known as credit card brand fees, credit card association fees or network access and brand usage fees (NABU), these are fixed fees charged by the credit card networks for using their credit card brands. Typically, they are charged between 0.13% and 0.16% per transaction.
Is there any way to avoid credit card fees?
Credit card processing fees are unavoidable. However, you can pass the fees on to your customers or choose an alternative payment method. In some states, it is legal for merchants to pass credit card processing fees on to their customers. But make no mistake – these are not a guarantee of zero fees.
When providers claim they offer zero-cost card processing, you’ll still have to pay merchant processing fees, such as merchant markup fees and transaction fees for debit, ACH, and eCheck transactions.
Adding a processing fee to online credit card payments
A processing fee is the amount charged when you use a credit card to make a transaction over the phone or online. It is usually a flat rate or a percentage of the total amount. For example, the service fees you see when you buy airline tickets and pay bills online are processing fees.
Charging a convenience fee is legal in all states, but there are still regulations to follow. All credit card issuers (Visa, Mastercard, and American Express) require that the convenience fee be disclosed before a transaction, but they are not required to be included on the receipt.
- visa: Fixed costs
- MasterCard: Can be a flat fee, percentage or tiered fee based on transaction
- American Express: Can be a fixed fee, a percentage fee, or a fixed fee per transaction
Passing on costs to customers (credit surcharges)
A credit card surcharge is a payment processing fee added directly to the cost of the product or service you sell at the point of sale. As of 2023, credit card surcharges are legal in all but two states: Connecticut and Massachusetts. Unlike convenience fees, surcharges are strictly regulated by the card networks and state laws.
- visa: Merchants must disclose fees before a transaction and list them on the receipt.
- MasterCard: Merchants must notify MasterCard and acquiring banks 30 days before implementing a credit card surcharge. Like Visa, MasterCard requires full disclosure and transparency prior to a transaction.
- American Express: American Express is the only credit card issuer that does not allow you to charge a surcharge on your credit card. It also charges the highest interchange fees of any credit card issuer.
Credit card surcharges are usually between 2% and 4% of the total price at checkout. But be aware that even if you pass the fee on to your customers, you’ll still need to pay for things like verification, PCI compliance, and any monthly fees between you and your payment provider.
Offer alternative payment methods (ACH/electronic check payments)
To avoid credit card fees, you can offer your customers more payment options, such as ACH (Automated Clearing House) transfers or accepting electronic checks. ACH payments have lower transaction fees (0.5%–1.5%*), but take longer to process.
It’s also not suitable for e-commerce or other businesses that use shopping carts because ACH transfers require customers to enter their bank account and routing numbers.
How to Lower Credit Card Fees
Since I’ve already established that you can’t accept credit card payments online for free, there are still ways you can reduce your fees without passing them on to your customers.
Some of my suggestions are:
Alternative payment methods available: Mobile payments, ACH transactions, and peer-to-peer payments are all affordable alternatives in terms of fees. Before offering these payment methods, evaluate their pros and cons to make sure they’re a good fit for your business.
Negotiate new rates with your payment processor: I won’t be shy about asking for a better price from a vendor, especially if my business is using the platform for a long time, and neither should you. Remember, the larger your business, the more leverage you have in negotiations.
Minimize Refunds: Credit card fraud can cost you a lot of money. Protect your payments with chargeback prevention tools and implement workflows to reduce chargebacks and fraud in your business. In addition to lost revenue from fraud itself, an increase in chargeback or fraud rates can result in higher fees from your processor.
Low-cost payment processors
| Helsinki | |||
| stripe | |||
| Caldecox |
How to Choose a Payment Processor
Ultimately, choosing a payment processor with low and competitive fees is the solution to paying the lowest fees. Here are some of my tips for choosing a payment processor for your business.
Check for clear pricing structure and fee transparency
It’s important to choose a vendor with a transparent fee structure so you know exactly where your money is going. I would avoid vendors that offer tiered pricing models as these are the least transparent and come with the highest prices. Tiered pricing is when the processor charges different rates and fees based on the card type.
If you are a new or small business, choose solutions with fixed fees and no monthly minimums, as these are the most affordable. However, as your business grows, I recommend looking for solutions with interchange-plus or membership pricing, as these providers can offer the lowest rates. There are also some providers that offer automatic volume discounts for high-volume businesses.
Evaluate acceptable payment methods
As a rule of thumb, the more payment methods a provider offers, the more control you have over what you need to pay. As I said before, ACH payments have lower rates than credit card payments, but not all processors can handle this payment method.
Also, check if you need to pay separate fees for each payment method. A good solution will have everything in one place so you can easily track and manage your online payments.
Evaluate safety features and standards
Choose a payment processor that is PCI compliant and equipped with fraud prevention tools such as tokenization, address, and IP verification. These help prevent and reduce fraudulent transactions.
There is a way to reduce your credit card online payment fees
While it’s not possible to accept credit card payments online for free, there are ways to reduce processing fees. It all comes down to choosing a payment processor that charges low, competitive fees, and has the features your business needs.
Meaghan Brophy also reviewed this article
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