Credit card processing fees explained: What small businesses really pay

Every time a customer completes a credit card transaction at checkout, a payment processing system quietly deducts transaction fees before the funds ever reach your merchant account. The difference between the transaction amount and what lands in your bank account may look small, but over hundreds of credit card payments, it becomes a material cost.

For small business owners, credit card processing fees are often the largest hidden expense in day-to-day operations. Monthly fees, per-transaction fees, higher fees for online payments, and unclear pricing structures all erode cash flow without warning.

Before choosing a payment processor or evaluating payment options, it helps to understand what actually makes up your credit card processing cost. This guide breaks down the real fee structures behind every sale.

Understanding credit card processing fees

Each credit card payment involves multiple financial institutions and service providers. Together, their combined cuts form your total payment processing fees.

• Interchange fees come first: Interchange rates are set by card networks such as Visa, Mastercard, and American Express and paid to the issuing bank, also called the card issuer. These interchange fees vary by type of card, whether the transaction is card-present or part of e-commerce online transactions, and the risk profile of the payment method.
• Assessment fees follow: Assessment fees are charged by each credit card network to cover operating and regulatory costs. These are small percentages of the transaction amount, but they apply to every credit card transaction regardless of your pricing model.
• Processor markup is added: Your payment processor or merchant services provider layers its own markup on top of interchange and assessment fees. This is where pricing varies most across credit card processors, with flat-rate pricing, interchange-plus pricing, and tiered pricing models producing very different payment processor fees.
• Extra and hidden fees apply: Many credit card processing companies also charge monthly fees, PCI compliance costs, chargeback fees, and extra fees for chargebacks or declined payments. These hidden fees rarely appear in headline pricing but significantly raise your bottom line over time.

Common pricing models explained

Every payment processor structures fees differently, but most credit card processors rely on one of three core pricing models. Understanding how each pricing structure works helps small business owners predict payment processing fees and avoid hidden fees that inflate the true credit card processing cost.

• Flat-rate pricing simplifies everything: You pay a flat fee or fixed fee for every credit card transaction, regardless of the type of card or payment methods used. This pricing model is easy to budget, especially for in-person transactions and contactless checkout, but it may carry higher fees for large sales volume.
• Interchange-plus pricing reflects real interchange rates: This model charges the actual interchange fees and assessment fees from card networks, plus a processor markup per transaction. It often produces lower rates for high-volume merchants, but requires more accounting work to track payment processor fees across different payment methods.
• Tiered pricing hides complexity: Transactions are sorted into “qualified,” “mid-qualified,” and “non-qualified” buckets. Many online transactions and premium cards fall into higher-cost tiers, leading to unpredictable payment processing fees and higher processing costs over time.

Average credit card processing fees for small business

While rates vary by service provider and industry, most small businesses pay between 1.5% and 3.5% per transaction. Ecommerce sellers and high-risk merchants often face higher fees because online payments carry greater fraud exposure.

These ranges illustrate why reviewing fee structures and transaction fees across different payment options is essential for protecting your cash flow.

Why are businesses charging 3% to use a credit card?

Rising interchange rates and payment processor fees have made card acceptance more expensive for many service providers. To protect the bottom line, some merchants now pass these payment processing fees directly to customers.

• Cover rising interchange fees: Card networks and issuing banks continue to increase interchange rates, pushing up the credit card processing cost for many small businesses.
• Offset transaction fees: Per-transaction fees, assessment fees, and markup add up quickly, especially for businesses with high sales volume.
• Protect cash flow: Applying a surcharge reduces the gap between the transaction amount and the funds deposited into your bank account.
• Balance compliance and customer trust: Credit card surcharges must follow PCI compliance guidelines, state laws, and card network disclosure rules to avoid penalties or disputes.

Is it illegal to charge a 3% credit card fee?

Many small business owners worry that adding a surcharge could violate card network or state rules. In most U.S. states, credit card surcharges are legal when they are disclosed clearly and limited to the actual processing cost, but requirements vary by jurisdiction and card issuer.

• Follow state-level laws: Some states restrict or ban credit card surcharges, so business owners must verify local regulations before changing checkout pricing.
• Notify card networks in advance: Visa and Mastercard require merchants to register before applying a surcharge and to follow specific disclosure standards.
• Display fees transparently: The surcharge must be visible at the point-of-sale and on receipts so the cardholder is never surprised by extra fees.
• Cap the surcharge correctly: The surcharge cannot exceed your actual credit card processing cost per transaction.

Who actually pays credit card transaction fees?

At checkout, the cardholder pays the full transaction amount, but the processing cost is deducted before funds reach your merchant account. This means the business, not the customer, carries the real cost of credit card payments unless a surcharge or cash discount is applied.

• The merchant pays by default: Small business owners absorb interchange fees, assessment fees, payment processor markup, and other payment processing fees on every credit card transaction.
• Funds are reduced before payout: Your payment processor removes transaction fees before transferring the balance to your bank account, so you never receive the full sale amount.
• Surcharges shift the burden to the customer: Some merchants apply credit card surcharges at the point-of-sale so the cardholder covers part or all of the processing cost.
• Cash discounts avoid card fees entirely: Offering a cash discount encourages alternative payment methods and reduces reliance on credit card processing for in-person transactions.
• Card network rules still apply: Visa, Mastercard, and American Express require that any surcharge be clearly disclosed and capped at the actual credit card processing cost.
  
  

Comparing credit card processors

Not all credit card processing companies structure fees or support the same payment options. Comparing providers across pricing, payout speed, and hardware requirements helps small business owners identify the best credit card solution for their business needs.

• Compare pricing structure, not just rates: Look beyond the advertised flat fee and review the full fee structures, including payment processor fees, markup, and hidden monthly fees.
• Review payout timelines carefully: Some credit card processors settle funds in one to three business days, while others release funds instantly or same-day, affecting your cash flow.
• Assess hardware and POS requirements: Traditional merchant services often require card readers and dedicated POS systems, while modern providers rely on mobile point-of-sale apps.
• Check contract flexibility: Watch for long-term agreements, cancellation penalties, and extra fees buried in merchant account terms.
• Evaluate payment method coverage: Ensure the provider supports all major credit card networks, including Visa, Mastercard, and American Express, across in-person and online payments.

Credit card processing fees comparison: small business examples

Seeing real numbers helps business owners understand how payment processing fees affect the bottom line. The examples below show how different pricing models change total credit card processing cost for common small business scenarios.

These examples show how even small differences in pricing structure can compound into thousands of dollars per year.

Reducing your credit card processing fees

While you cannot eliminate interchange fees entirely, business owners can take practical steps to lower payment processing costs over time.

• Use contactless and chip payments: Card-present and contactless transactions reduce fraud exposure and often qualify for lower rates.
• Consolidate your payment gateway: Using a single payment gateway for ecommerce and in-store checkout simplifies reconciliation and can reduce service provider fees.
• Negotiate processor markup: Merchants with consistent sales volume can often request lower markup or per-transaction fees from their payment processor.
• Eliminate hidden fees: Audit statements for extra fees such as PCI non-compliance charges, statement fees, or monthly account maintenance costs.
• Control chargebacks proactively: Clear refund policies, accurate receipts, and responsive customer support reduce disputes and costly chargeback fees.

Pros and cons of flat-rate processing

Flat-rate pricing remains popular among small business owners who want predictable payment processing fees without hidden fees or complex interchange-plus pricing.

Pros

• Predictable costs: Every credit card transaction is charged the same flat fee, simplifying budgeting.
• No hidden fees: Flat-rate pricing avoids surprise monthly fees and obscure assessment charges.
• Simple setup: Business owners can accept credit card payments without negotiating complicated merchant services contracts.
• Improved cash flow: Faster payouts help stabilize cash flow for small businesses.
• No hardware dependency: Mobile point-of-sale systems remove the need for physical card readers.

Cons

• Potentially higher rates at scale: Large merchants with high sales volume may find interchange-plus pricing offers lower rates.
• Device or platform limitations: Some flat-rate providers support only specific devices or operating systems.

Cut your credit card processing fees and take control of your bottom line

Credit card processing fees affect every sale, from the transaction amount you see at checkout to how much actually reaches your bank account. When small business owners understand pricing models, interchange fees, and hidden fees, they gain real control over payment processing costs.

JIM helps small businesses accept credit card payments using only an iPhone, removing the need for card readers, POS systems, or complex merchant services contracts. With flat-rate pricing, no monthly fees, and instant payouts to your JIM Visa prepaid card, it replaces confusing fee structures with one clear pricing model. That simplicity protects cash flow and removes friction from everyday payment processing.

Want to stop guessing what your payment processor is charging you? Explore JIM and see how easy it is to run cost-effective, contactless checkout.