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Costs of Accepting Credit Cards at Your Business

By: American Heritage06.27.24
Customer using tap to pay with their credit card at a business POS

Before you add credit cards to the mix, understand the costs and pick a system that aligns with your business model.

In this article, we’ll cover the three most common ways credit card processing fees are structured, additional costs, and other factors to consider.


Processing Fees

Credit card processors use three basic pricing models, each with its potential advantages and drawbacks. What’s the most cost-effective choice for your business? The answer will depend on your sales volume and average transaction size, among other factors.


1. Interchange Plus

With every purchase, merchants pay an interchange fee to the credit card network (which varies by network and card type) plus a fixed markup to the processor (which typically varies by transaction type: in-person, online, or manually keyed).

Example: A customer at Don’s Bonbons buys a box of chocolate for $10.00 using their Mastercard. Don pays an interchange fee of 1.5% plus $0.10 ($0.25) to Mastercard, plus an in-person processing fee of 1% plus $0.05 ($0.15) to Dynamic Payment Solutions. In total, the transaction costs Don $0.40.

This pricing model offers the most pricing transparency per transaction, and for businesses with high sales volume, it can be the most cost-effective option. For smaller companies, predicting monthly costs may be more challenging due to the variability of interchange fees.


2. Flat Rate Per Transaction

With every purchase, merchants pay a fixed rate covering interchange and processing fees. Rates are generally a percentage of the sale plus a set amount, and they often vary by transaction type.

Example: A customer at Don’s Bonbons buys a box of chocolate for $10.00 using their Mastercard. Don pays an all-in-one in-person fee of 2% plus $0.20 ($0.40) to Holistic Payment Solutions.

This pricing model is the most straightforward, making budgeting easy, and rates can be competitive for businesses with low to moderate transaction volumes.


3. Subscription

Also known as membership pricing, this subscription model charges merchants a set amount per month instead of all or a portion of the usual per-transaction fees.

Example: A customer at Don’s Bonbons buys a box of chocolate for $10.00 using their Mastercard. Don pays an interchange fee of 1.5% plus $0.10 ($0.25) to Mastercard and an in-person processing fee of $0.05 to Synergistic Payment Solutions. In total, the transaction costs Don $0.30, on top of Don’s monthly subscription fee of $100.00.

This pricing model can deliver significant benefits for businesses with high volumes and transaction amounts that would otherwise incur hefty processing fees. For lower-value sales, percentage-based fees may be outweighed by monthly costs.


Other Costs and Considerations

Above, we’ve outlined the main costs of accepting credit card payments, but depending on your processor and system, there may be others to account for:


  • Assessment fees: Charges from credit card network based on total monthly sales
  • AVS (Address Verification System) fees: For checking billing info on keyed transactions
  • Batch fees: For settling or closing out your daily deposits
  • Chargeback fees: For reversing charges disputed by customers
  • Monthly minimum gees: For not meeting a set number of transactions
  • PCI (payment card industry) fees: To ensure compliance with security standards
  • POS (point-of-sale) fees: For using your merchant hardware or software
  • Setup fees: For opening an account and configuring systems
  • Statement fees: For general administrative and support services
  • Early termination fees: For canceling your contract before it expires


Many of these fees are negligible (assessment fees are commonly under 0.2% of your monthly transactions), but even tiny charges can add up. Ask your processor for a breakdown indicating which costs are waived or rolled into processing fees, which are incurred separately, and what your total monthly and yearly expenses will be.

When selecting a credit card processing service, you’ll also want to consider variables like contract length, security features, and system integration and scalability. While these factors don’t come with price tags, they can impact operational costs.

As an example, suppose you’re looking to expand your operations in the near term. In that case, you’ll want to choose a processing solution that easily integrates with your current POS and accounting systems and any planned upgrades. If the solution requires a long-term contract, you should also make sure you’re not getting locked into any terms and conditions that might inhibit your growth (like a fee structure that is advantageous only for lower sales volumes).

Finally, you’ll want to consider how expansion might affect security and compliance. For instance, will you be selling to customers in other countries? If so, ask how your processor supports cross-border anti-fraud measures and data protection policies specific to the new markets you’re entering.


Other Costs to Consider

Accepting credit cards comes with direct costs for businesses, including merchant service charges, transaction fees, and potential setup and equipment costs. These fees are often a percentage of the transaction amount plus a flat rate, making them relatively predictable but potentially substantial, especially for high-volume businesses.

On the other hand, handling cash, while seemingly cost-free, can carry hidden and often ignored costs. Obvious ones include the risk of theft or loss, accounting discrepancies, the time and labor involved in reconciling cash drawers, depositing cash at banks, and other logistical considerations.

More importantly, businesses dealing exclusively in cash may miss out on sales from customers who prefer to use cards, potentially impacting revenue. While credit card fees are explicit and straightforward, the indirect costs of handling cash can be harder to quantify, making a thorough cost-benefit analysis essential for businesses when considering payment acceptance policies.


You’re in Charge. We’re Here to Help.

To become a business member of American Heritage Credit Union, inquire today! We offer a variety of business solutions, including merchant services. To learn more about our business services, click here. For further guidance on merchant solutions and cash management strategies, reach out to us!



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