A recent poll of American consumers found that more than 60% of Americans preferred paying with a credit or debit card. As a business owner, accepting credit and debit cards in addition to cash offers numerous payment options to customers, increasing the likelihood of completing a sale. However, if you accept credit card transactions, then you need to pay processing fees. 

Credit card processing fees take money off your bottom line. This is the case no matter what type of business you have. No matter if you are a brick-and-mortar retailer or an e-commerce business taking online payments, the bottom line remains the same — if you accept credit cards, you owe fees to your credit card processing company. 

Here’s the thing — credit card processing fees for merchants don’t seem that high at a glance, but they add up over time. The fees average around 3.5%. For every $1,000 transaction, you would owe $35 in fees. 

Let’s go on a journey and explore what this means for your business, how much you’ll end up paying over time, and what you can do to stop the bleeding and enjoy FREE credit card processing.

How Much Are Your Credit Card Processing Fees? 

If you’re using one of the four major credit card networks — Visa, Discover, Mastercard, or American Express (Amex) — you’re likely paying anywhere from 1.5–2.9% in credit card processing fees.

And unless you’re going through a trusted merchant services provider like Preferred Merchant Services, your average credit card processing fees are probably closer to 2.9% per transaction.

As it turns out, calculating credit card processing fees for merchants is pretty complicated. Not only are you charged a transaction fee, which is assessed each time you run a transaction, you are also charged scheduled fees with flat-rate pricing that show up on monthly statements. Furthermore, you  are charged incidental fees, which occur when there is a chargeback or a return. 

Additionally, there are multiple parties involved in a single credit card swipe. These include:  

  • Credit card associations: Such as Visa, Discover, Mastercard, and American Express
  • Credit card issuing banks: Such as Chase, Citi, Capital One, and Wells Fargo (different credit card brands)
  • Credit card processors: Also called acquiring banks or acquirers — they are basically middlemen
  • Merchant account providers: Companies that manage payment processing, such as Nadapayments
  • Payment gateways: If you accept PayPal or are using Square, for instance

credit card processing fees: Infographic showing the credit card transaction flow

Your hard-earned money changes a lot of hands before it arrives back in your wallet.

The multiple parties who touch a transaction are responsible for interchange fees. Interchange fees are one portion of processing fees. 

Interchange fees are charged by card networks to merchants for their services, and average out to around 1.81% for credit cards and 0.3% for debit cards. The rest of the credit card or debit card processing fee comes from adjustments and markups between the card issuer, payment gateway, and card processor.

“But do I have to know all this?” you might complain. “I mean … 3% isn’t that high.”

Keep this point in mind as we continue through this article. Sure, 3% may not seem that high now, but there are lower rates available. 

What About Debit Card Processing Fees?

Debit card processing fees are charged by the same major credit card networks.

In actuality, debit card processing is fairly complex. Depending on whether the debit card was issued by a major bank with over $10 billion in assets (these are called “regulated” debit cards) or a minor bank with less than that (these are called “exempt” debit cards), fees can vary quite a bit.

While debit card processing fees are lower than credit card processing fees, 42% of all non-cash payments are made with debit cards. So these fees still make up a big portion of all your payments.

Why Do Processing Fees Matter to Small Businesses?

Starting a small business is no small task. Doing so can mean razor-thin margins, minimal room for error, and a low likelihood of success.  

According to the Small Business Administration (SBA), 20% of small business owners fail in their first year, 30% fail in the second year, 50% fail after five years, and 70% of all small business owners fail by their 10th year in business. With odds like that stacked against business owners, it pays to know how to stop the bleeding.

Additionally, a CBInsights analysis of 101 startups found that small businesses fail for the following reasons:

Reasons why small businesses fail

Two of the top 9 reasons for small business failure are expense related

With findings like that, it pays to pay attention to your expenses — and keep them as low as possible. HIgher rates and hidden fees may not seem like much at the time, but they can cut into your bottom line, especially if you face periods of low sales volume. Fees play a significant role in whether your business is successful in the long run. 

How Much Do Processing Fees Really Cost? 

Let’s take a closer look at a pricing model to demonstrate just how much processing costs your small business over time. 

Since we can’t calculate how many transactions you’ll have over the lifetime of a business, we won’t factor in transaction fees — we’re only going to consider percentage fees. For our model, we’ll use a flat fee of 2.9% for credit card transactions and .05% for debit card transactions. 

With all that in mind, let’s try to calculate how much you pay per year in card processing fees:

# of years in business:30 years
Annual income:$250,000.00
30-year income total:$7,500,000.00
% of credit card payments:0.33 (33%)
In-store credit card processing fee (% only):0.029 (2.9%)
% of debit card payments:0.44 (44%)
In-store debit card processing fee (% only):0.005 (0.05%)
Processing fees per year:$2,942.50
Processing fees over 30 years:$88,275.00


You can more clearly see the impact these fees have when looking at a large transaction amount. In the example, a business owner charging $250,000 per year in transactions will lose $2,942.50 per year to processing fees and as much as $88,275 over 30 years. 

Whatever the dollar amount is that you pay from processing fees, one thing remains the same — there is no recouping these losses. Instead of paying the additional fees that processors charge for credit and debit transactions, you could reinvest that money back into your business. 

What Could You Do With Extra Cash Every Year?

Paying money in processing fees cuts into your bottom line and prevents you from reinvesting in your business. Here are just a few ideas for how you could use that hard-earned money instead:

  • Hire a new full-time employee
  • Reinvest in new tech or equipment for your business
  • Open a second store 
  • Pay bonuses to your employees 

If you’re curious just how much you’re paying in credit card processing fees each year, be sure to contact your payment processor or look into your point-of-sale system. Both of these should be able to tell you what percentage of your transactions are going to processing fees. 

Is There Any Way to Reduce Credit Card Processing Fees for Merchants? 

Fortunately, there are ways for you to reduce credit card processing fees. You can do so thanks to a surcharge program. 

A surcharge program passes the credit card processing fees to the customer when they choose to use a credit card instead of cash or a debit card.

For instance, let’s say you have a $10 transaction. Your business pays 3.5% in processing fees. Without a surcharge program, you pay $0.35 in processing fees, meaning you actually collect $9.65 from the transaction. With a surcharge program, the cardholder pays $10.35 for the transaction, and your business collects the full $10. 

Simplify Debit and Credit Card Processing Fees

credit card processing fees: Smiling woman hanging an open sign in front of the store

Many small business owners accept debit and credit card processing fees as a given. They don’t think twice about the fact they are paying higher fees than necessary. Instead, they just consider processing fees as something required to conduct business. 

Unfortunately, these fees add up over time. Three percent may not seem like much in the short run, but it adds up in the long run. These fees can cost business owners thousands. When you consider that 70% of small businesses fail within 10 years, business owners should not be taking that 3% for granted. 

Implementing a surcharge program is an effective way to eliminate processing fees. Surcharge programs pass the cost of these fees onto the consumer. They can avoid these fees by paying with cash or debit instead. 

The best way to implement a surcharge program is through Nadapayments. Nadapayments eliminates the interchange rate, providing you with a one-stop-shop to process debit and credit card payments. You’ll receive hardware for card-present transactions and software for processing online transactions. Nadapayments also provides the signage required to implement a surcharge program.

Business owners pay a flat monthly fee of $35 for the service, regardless of their transaction volume. There are no hidden account fees or cancellation fees. Nadapayments is also secure, practicing full PCI compliance. Be sure to reach out to learn more and get started today.