Credit card processing fees can really eat into your profit margins. A few percentage points may not sound like a lot, but those transaction fees can add up quickly, and you may even be tempted to stop accepting credit cards altogether.

But giving up credit cards as a payment method isn’t realistic in today’s world, where customers expect to be presented with multiple payment options.

So in order to keep accepting credit card payments as a small business, you’ll want to choose a payment processor with the lowest credit card processing fees.

Let’s take a look at what kinds of fees you can expect from major payment processing companies — and how to eliminate fees altogether with a surcharge program.

What Are the Lowest Credit Card Processing Fees?

If you’re looking for a list of companies with the lowest credit card processing fees, then you may need to do a little research – and math! That’s because choosing the best credit card processor for you depends on several factors, such as your transaction volume, type of business, and pricing model.

The cheapest credit card processing option for an online store may be different from the best credit card processor for a small business owner. You’ll want to compare the monthly fee structure, the cost to rent or buy a credit card machine or a POS system, and any hidden fees that might turn up, such as chargeback fees.

That said, comparing the fees for several popular credit card processing companies is a good place to start. Here’s how six merchant services providers stack up when it comes to credit card processing fees:

  • Stripe: 2.9% plus 30 cents per transaction
  • Square: 2.6% plus 10 cents per transaction
  • PayPal: 2.99% plus 49 cents per transaction
  • Payment Depot: Interchange plus 15 cents per transaction
  • Stax by Fattmerchant: Interchange plus 8 cents per transaction
  • Dharma Merchant Services: Interchange plus 0.15% plus 8 cents per transaction

There are a few things to keep in mind here, though. The first is that the same credit card processor can charge dramatically different fees depending on the type of transaction.

For example, Square charges 2.6% plus 10 cents when the card is present. If you enter the card number manually or charge a card that you already have on file, the fee jumps to 3.5% plus 15 cents – so a low processing fee may not be available for your business.

Meanwhile, Dharma Merchant Services charges an interchange fee plus 0.15% for most small businesses but drops it to 0.10% for nonprofits.

Of course, even the cheapest credit card processing fees are still an expense! But you can eliminate them altogether by using a surcharge program and a merchant services provider like Nadapayments. This is the cheapest way to accept credit card payments because it passes on transaction fees to the customer — or encourages them to pay with a debit card, check, or cash instead.

How Are Credit Card Processing Fees Calculated?

Credit card terminal

Before we go any further, let’s dig a little deeper into credit card transaction fees to see how they’re calculated. As we’ve seen, the fees for online payments and e-commerce transactions may be calculated differently than point-of-sale transactions.

But your processing costs will also depend on the pricing model you choose and possibly on whether you enter into a long-term contract or choose a monthly subscription.

There are three main types of credit card processing pricing models: flat-rate pricing, interchange-plus pricing, and tiered pricing.

Flat-Rate Pricing

Flat-rate pricing means you’ll pay a consistent fee for every transaction. The fee might vary depending on the type of transaction it is (for example, 2.6% plus 10 cents for contactless payments and 2.9% plus 30 cents for e-commerce payments), but it won’t change based on processing volume or the credit card network.

The benefit to this approach is that it’s predictable, but it may end up costing you more per transaction than other pricing models.

Interchange-Plus Pricing

Interchange-plus pricing is based on the interchange rate determined by the credit card networks, such as Visa, Mastercard, and American Express. Your merchant services provider will pass along that fee plus a markup.

This model tends to offer more transparent pricing, since the fee is based on real-time processing rates (plus the markup). The downside is that these fees may change over time and are usually different for each credit card network, so they’re less predictable.

Tiered pricing

Tiered pricing is the least transparent pricing model because the payment processor can charge a different fee for each transaction based on their own criteria. They may charge less for “qualified” transactions and more for high-risk transactions, making it harder to predict which sales will be hit with higher processing fees.

How to Get the Lowest Credit Card Processing Fees

Depending on the type of business you run, there may be ways to lower your credit card processing fees without sacrificing sales or customers. Here are a few ways to get lower credit card processing rates or eliminate transaction costs altogether.

Find an Affordable Payment Processor

If you aren’t locked into a long-term contract with your payment processor, shop around for a better deal. Consider switching from a tiered pricing model to flat-fee pricing, but be on the lookout for hidden fees for using a payment gateway or virtual terminal.

Some payment processors charge additional fees to rent credit card readers and POS systems, so be sure to factor that in to the overall cost of each payment processor.

Avoid Cards With Higher Fees

You don’t have to accept every type of credit card out there. Some credit card networks, like American Express and Discover, charge higher fees, so it makes sense if you don’t want to accept those added fees as the cost of doing business.

Even major brands like Amazon have stopped accepting some Visa credit cards – at least temporarily – due to high processing fees. Some customers may complain, but chances are they’ll be just as happy to use a different credit or debit card.

Set a Minimum Spend for Credit Cards

Even flat-rate fees can feel steep if your customers make a lot of small purchases. For example, since Stripe charges 2.9% plus 30 cents per transaction, you could pay up to 33 cents in fees on a $1 purchase.

By implementing a minimum spend, your customer will be incentivized to use a debit card instead or spend more at your business to make the fees worthwhile.

Setting a minimum purchase amount is legal, as long as it’s no more than $10, and is applied to all credit card networks equally.

Start a Credit Card Surcharge Program

Finally, the best way to get the lowest credit card processing fees is to get rid of them! A surcharge program — not to be confused with a convenience fee — passes the fees on to the customer if they choose to pay with a credit card. The customer will pay the transaction cost, and your business will get to keep 100% of the profit.

For example, if you use Nadapayments to implement your surcharge program, a customer that pays by credit card would have a 3.5% surcharge added to the purchase price. So on a $10 purchase, the customer would pay an additional 35 cents.

However, if the customer chooses to pay with a debit card, you’ll pay only 1% plus 25 cents in fees, and the customer won’t have to pay a surcharge.

Here’s an example of how a $100 sale would look if the customer used a credit card or a debit card:

Lowest credit card processing fees: example credit and debit card fees

Launch a Surcharge Program With NadapaymentsCredit card surcharge programs are legal everywhere in the U.S. except Connecticut, Massachusetts, Colorado, and Puerto Rico.

Lowest credit card processing fees: customer about to swipe their credit card

Nadapayments makes it easy to launch a surcharge program by providing payment processing, a merchant account, and a credit card reader all in one package.

You’ll pay a flat rate of $35 per month, which covers all of the hardware and software you’ll need to accept credit and debit cards, digital wallets (such as Google Pay and Apple Pay), contactless payments, and more. And, you’ll be able to accept them in-person, online, or on-the-go.

Nadapayments even provides the signage you need to explain the surcharge program to customers so they can understand exactly how it works — and how they can save money too by paying with cash, check, or debit card.

At the end of the day, you’ll pay $0 in credit card processing fees and only 1% plus 25 cents for debit card transactions.

Whether you already accept credit card payments or are just getting started, get in touch with Nadapayments today to learn how you can lower your transaction costs!