Payment processing fees feel like a quiet tax on every sale. The money lands in your account, but not all of it. So, where does the rest go? And more importantly, why does it keep adding up?
Let's break it down below.
What Is a Processing Fee?
A processing fee is the cost merchants pay every time they accept a customer's credit card or digital payment. This fee is deducted per transaction and typically falls between 1.5% and 3.5% of the sale.
But the fee doesn't go to a single company. It gets split between several players: your payment processor, the card network (like Visa or Mastercard), and the issuing bank. Sometimes, there's even a little extra baked in—quietly added by the processor itself.
Who's Taking a Cut of the Processing Fee?
Here's where that money actually goes:
1. Issuing Bank (Interchange Fees)
The bank that gave the customer their credit card takes the biggest cut. This is known as the interchange fee. It's non-negotiable and makes up the largest share of the processing fee, often around 1.5% to 2.5%.
This fee helps cover fraud risks, cardholder rewards, and system infrastructure. It's set by the card networks, but the issuing banks collect it.
2. Card Network (Assessment Fees)
Visa, Mastercard, Amex, or Discover charge a flat assessment fee for using their rails. It's usually a tiny percentage of the transaction, often 0.13% to 0.15% for credit cards.
Even though it's small, it applies to every single transaction.
3. Payment Processor or Acquirer
This is the company that actually moves the money from your customer's card to your merchant account. Think Stripe, Square, PayPal, or your bank's merchant services division.
Their cut is called the processor markup, and this is where things get murky.
Why Processing Fees Feel So High
Most merchants aren't just paying raw interchange and assessment costs. They're also paying a markup from the processor, which can be:
- A flat fee per transaction (like $0.30)
- A percentage markup (like 0.5%)
- Or a bundled "blended rate" (which hides the real breakdown)
If you're not on an interchange-plus pricing model, you probably don't know how much you're actually paying in markups. Blended rates might seem simple, but they're often padded.
Hidden Add-Ons That Inflate the Total Fee
Some processors quietly slip in other charges:
- Cross-border fees if the card was issued outside your country
- Chargeback fees when a dispute occurs
- PCI compliance fees if you're not up to date
- Batch fees for submitting transactions in bulk
- Monthly minimums or account fees
The advertised rate might be 2.9%, but the real cost can creep over 4% once all extras are factored in.
Why the Type of Card Matters
Not all cards cost the same to process. Rewards cards, business cards, and international cards often come with higher interchange rates.
For example:
- A basic debit card might have an interchange rate of 0.8% + $0.15
- A premium credit card might hit 2.25% + $0.10
The more perks the card offers the customer, the more it costs you.
So… Can You Avoid Processing Fees?
You can't eliminate them, but you can:
- Negotiate rates if your volume is high
- Switch to interchange-plus pricing for more transparency
- Use surcharge programs (where allowed) to pass some fees to customers
- Encourage lower-cost payment methods like ACH or PIN debit
Some tools and platforms let you route transactions to reduce costs, but for most small businesses, that requires external help or advanced setups.
Final Takeaway
A processing fee isn't just one simple charge. It's a stack of fees layered by banks, networks, and processors. Most of it goes to the cardholder's bank. Some goes to Visa or Mastercard. The rest is a mix of processor markup and miscellaneous extras.
Understanding where the fee goes is the first step to regaining some control. Transparency in pricing models matters, and so does knowing how your payment setup could be driving up costs without you realizing it.
FAQs: What Is a Processing Fee
What is a processing fee in payments?
A processing fee is the amount deducted from each transaction to cover the cost of moving money from a customer's card to a merchant's account. It includes charges from the issuing bank, card network, and payment processor.
How much is the average processing fee?
The average processing fee ranges between 1.5% and 3.5% per transaction. The actual cost depends on the card type, your processor's pricing model, and any additional fees they apply.
Why do card companies charge processing fees?
Processing fees help card networks and banks maintain infrastructure, cover fraud losses, and fund cardholder perks. They're also how processors earn revenue from the services they provide.
What's the difference between interchange, assessment, and processor fees?
Interchange goes to the cardholder's bank, assessment goes to the card network, and processor fees go to the company that handles the transaction for the merchant. Each layer adds to the total cost of the transaction.
Can I reduce my processing fees?
Yes. You can reduce fees by negotiating better rates, switching to a transparent pricing model like interchange-plus, avoiding premium cards, or using lower-cost payment options like ACH transfers.
Are debit cards cheaper to process than credit cards?
Usually, yes. Debit cards, especially PIN debit, have lower interchange fees compared to credit cards. This makes them a more affordable option for many merchants.
Cut Your Chargebacks Before They Cut Your Margins
High processing fees are bad, but chargebacks can be worse. They don't just cost you money; they also raise your risk score and could lead to frozen accounts or termination. That's why it pays to prevent them early.
Chargeblast helps merchants monitor disputes, block repeat offenders, and stay under fraud thresholds, all automatically. Don't let hidden risks sink your business after you've already paid the fee.
Ready to protect your payments? Book a demo below.
