Credit Card Processing Fees

Credit Card Processing Fees and Rates Explained

Do you know what you are really paying to process credit card transactions?

As a small business owner you'll need to process credit cards through your merchant account. For each payment you collect your merchant processor will charge a fee for processing the transaction.

All merchant processors have their own way of presenting these fees and transaction charges, so it is often difficult to make apples to apples comparisons amongst companies competing for your business. The following sections provide an overview of the charges typically associated with processing credit and debit card transactions so that they are easier to understand.

The Two Components of Credit and Debit Card Transaction

Each time you process a credit or debit card transaction through your merchant account, you are charged an inquiry fee and a percentage of the total transaction. The inquiry fee is a flat amount, typically between 20 cents and 35 cents. The percentage charged, is typically called your "credit card rate" and it is variable based on the type of transaction and the type of card used.

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Credit Card Processing Fee Categories

Credit Card Rates are typically broken into two categories:

  • Swiped Transactions - When the card is physically swiped through a credit card terminal it is called a Card Present Transaction. The lowest rates are typically applied to card-present transactions.
  • Manually Entered Transactions - If the card cannot be swiped the transaction is referred to as Card Not Present, or MOTO (mail order/telephone order). All transactions where a credit card is not physically swiped through a terminal, including internet transactions, phone transactions, or credit-card numbers keyed into a terminal fall into this category.

Credit Card Rate Types

The fee for each credit card transaction type is determined by both the kind of card used, the way it is processed, and the time it takes the merchant to batch the transactions for processing. It is important to know whether you do mostly card present or card not present transaction when selecting a plan type, because card not present charges are significantly higher in a Type 1 plan than in a Type 4 plan.

Type 1 (or Retail)

A Type 1 account is designed for card present transactions.

  • Qualified

    The card is swiped through a terminal, and the merchant batches the transactions within 24 hours. Most swiped credit cards will fall into this category and it typically offers the lowest rate.

  • Mid-Qual

    This rate applies to rewards cards and key-entered transactions. It also applies to charges batched in 24-48 hours, that would be Qualified had they been batched sooner.

  • Non-Qualified

    All corporate and government cards are charged this rate regardless of batch processing time. Other transactions batched after 48 hours are also charged this rate. This is typically the highest rate charged.

Type 4 (or MOTO)

A Type 4 account is designed for card not present transactions.

  • Qualified

    Most transactions fall into this category, provided the merchant batches transaction within 24 hours. This category offers the lowest Type 4 rate.

  • Non-Qualified

    All corporate, government, and reward cards are charged this rate regardless of batch processing time. It also applies to charged batched after 24 hours that would otherwise be Qualified had they been batched sooner.

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