If you’ve decided to accept credit card payments for your business, you’ll quickly realize there are many merchant providers out there and they all charge differently. Unlike other overhead expenses, such as rent or business supplies, credit card processing fees are more complicated to predict and understand. This is because the pricing models that determine credit card merchant fees vary among merchant service providers and can include hidden costs.

In this post we’ll explain more about the different types of credit card merchant fees, the pros and cons of each, and help you determine which is best for you. 

What Are Merchant Fees?

If you accept payments by credit card (and nowadays, almost every business must), you’ll likely be subject to credit card merchant fees. Each credit card company (like Visa or Mastercard) sets a standard fee that the issuing bank charges when the card is used. These are typically a percentage of the sale and may also include a per-payment fee. 

In addition to these fees, the merchant services provider that processes your credit card payments also charges a small fee. Together, these form the credit card merchant fees you’ll pay when accepting credit card payments.   

So, how are merchant fees calculated? Different payment processing pricing models offer a variety of options for business owners.  

Types Of Credit Card Merchant Fees

When looking for the best merchant services provider, consider the pricing model they use to determine their credit card merchant fees. The most common types of credit card merchant fees are: 

  • Flat rate
  • Tiered
  • Interchange

One of these models isn’t necessarily better than the other: they just offer different benefits that may work better for some businesses and less so for others. Let’s look at each of these credit card merchant fees in more detail.

What is an effective rate?

Before we compare types of credit card merchant fees, we need to talk for a moment about determining the “effective rate” of your credit card processing. This can help you determine the competitiveness of the rate quotes you receive from each provider.

In short, the effective rate is calculated by dividing your total processing fees by your total credit card sales volume. The best way to do this is to calculate it based on your yearly numbers as there can be large variations if you calculate it on a month-to-month basis.

For example, you sell items at a farmers market every weekend and have a gross credit card revenue of $100,000. You are charged $7,000 for credit card processing throughout the year. In this scenario, your effective rate would be $7,000/$100,000 or 7%. 

Now that we understand effective rate, let’s look at the different pricing options to see which option is ideal for your business. 

What is flat rate pricing?

A flat rate pricing model is when your business is charged a flat rate for every transaction. For example, you could be charged 2.75-2.9% per credit card you swipe. You may also be charged an additional small fee of 30 cents per credit card you swipe. 

The benefits of this type of plan is that it is easy to decipher your effective rate. Further, if you are only processing a handful of small credit card transactions a month this option may be best for you. 

However, if you are processing more than $5,000 to $8,000 per month in credit card payments, you might actually be paying more than if you had a tiered rate plan with a dedicated merchant account. For instance, if we use the 2.9% plus 30 cents per swipe applied to $100,000 in annual credit card volume with an average transaction of $5, the flat rate fee could be $8,900 per year making your effective rate 8.9%. 


$100,000x.029 = $2,900 owed from annual credit card revenue

$100,000/$5 = 20,000 average transactions

20,000x.30 = $6,000 owed in fees per credit card swipes

$2,900+$6,000 = $8,900 total owed

Supporting Post: How to Accept Credit Cards with Your PaySimple Account

What is tiered pricing?

Tiered pricing models are the most common form of credit card merchant fees. With this model, merchants break down rates based on three levels:

  • Qualified
  • Mid-Qualified
  • Non-Qualified

In a tiered merchant account plan, the Qualified Rate has the lowest rate because it is deemed as the “safest”. You will generally get this rate when the card is in-hand and swiped (as opposed to the number being typed in), or when the credit card is not a rewards credit card (as those are more expensive for all parties involved). 

The Mid-Qualified Rate are more expensive than the Qualified Rate, but less expensive than the Non-Qualified Rate. For example, a web payment where the credit card number was typed in is a good example of a Qualified Rate.

The Non-Qualified Rate is the most expensive in the tiered merchant account rate plan because it includes “risky” and expensive transactions such as transactions that are not accepted in person or from credit cards that offer rewards for the consumers. 

One of the biggest benefits of this type of plan? If you are processing more than $5,000 to $8,000 per month, you will likely save money compared to a flat rate plan.

Also, if you’re on a fixed budget and need predictable expenses, tiered pricing is a good fit for you. Especially when you have a lot of repeat customers and are familiar with the types of credit cards they prefer to use, you can easily predict the amount owed on your merchant statement each month.

What is interchange pricing?

An interchange pricing model consists of two components: the interchange fee (determined by card networks like Visa) and a small markup fee that the credit card processor charges you. 

The benefit of this type of plan is that it is a transparent model because you get charged for what you’re actually processing. However, it can come with a lot of variation based on the types of credit cards customers use. This can create a complicated statement that makes it difficult to forecast your merchant statement fees each month. 

Which Credit Card Merchant Fees Are Best? 

When it comes to a credit card merchant fees comparison, it depends on which model is right for your business right now.

For example, if you’re just getting started, and have a low number of credit card transactions, a flat rate fee may be ideal for you. With this model, you won’t have to worry about a monthly payment, but know that you are generally paying more per transaction. As you start to receive more credit card payments you may want to reconsider this option. 

In general, if you’re processing more than $5,000 to $8,000 per month in credit cards you probably won’t want to use flat rate pricing anymore.

If you value a predictable merchant statement each month tiered pricing will probably work best for you and easily allow you to forecast future expenses. On the other hand, if you’re willing to deal with a more complicated statement that may be more difficult to forecast, the Interchange model may be able to save you some money. 

How much credit card companies charge merchants varies based on the target type of merchant they are trying to serve. Knowing your credit card sales volume and what’s most important to you (price vs. predictability) will help you choose the credit card processing option that’s right for you.

To learn more about credit card merchant fees and merchant accounts, click here for a complete A to Z guide. 

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