What Are Credit Card Processing Fees?

Credit cards are convenient and widely accepted, but they also come with hidden costs. What are the fees associated with using a credit card?

Credit cards are often considered the safest way to pay for purchases because they offer protection against fraud. They also provide convenience and ease of payment.

However, credit cards carry a fee every time you use them. The amount varies depending on the type of transaction, but generally speaking, you’ll pay anywhere from 2% to 3%.

This means that even though you might save money at checkout, you’ll end up paying extra for each purchase. So it is important that you understand how to choose a company that offers these services. 

The Most Common Types Of Credit Card Processing Fees Include

1. 1. Merchant discount rate (MDR).

1. 1. Transaction fee.

1. 1. Service charge.

1. 1. Interchange fee.

1. 1. Discounted cash advance fees.

1. 1. Annual fees.

1. 1. Monthly service charges.

1. 1. Late fees.

1. 1. Overdraft fees.

1. 1. Foreign currency conversion.

In this article, we’ll be taking a look at what credit card processing fees are, discussing each of the ten fees listed above, and looking at some examples of credit card processing fees.

So if you’re interested in these types of fees and need to know more, read on!

The Main Types Of Credit Card Processing Fees Explained

Merchant Discount Rate (MDR)

This is the percentage of your total sales price charged by the merchant when you make a purchase.

For example, let’s say you buy $100 worth of merchandise from a store that has an MDR of 5%, which means that you’ll pay $5 out of your $100 total purchase.

This can vary greatly between merchants, so it’s important to shop around before making any large purchases.

If you find yourself shopping online frequently, consider signing up for an account with a company like PayPal or Square Cash. These services allow you to process transactions without incurring additional fees.

Transaction Fee

Also known as “merchants’ handling,” this fee is assessed by the merchant when you complete a transaction. It covers things such as shipping and handling, customer support, and other administrative expenses.

Service Charge

A service charge is usually applied to all purchases made through a particular merchant’s website. You typically won’t see this fee unless you’ve signed up for an account with that merchant.

Interchange Fee

An interchange fee is charged by the financial institution that issued your credit card. It’s used to cover the cost of processing credit card payments.

Discounted Cash Advance Fees

If you take out a cash advance loan, you may incur discounted cash advance fees. These fees are similar to those of payday loans, but instead of charging interest, they apply discounts to the principal balance.

Annual Fees

Annual fees are assessed annually by many banks and credit unions. These fees can range from $15 to $50 per year, and are typically only applicable to checking accounts.

Monthly Service Charges

Many credit cards have monthly service charges associated with them. These fees are often waived after you’ve paid off your bill within a certain timeframe.

Late Fees

Late fees are imposed by credit card companies when customers fail to pay their bills on time. Some late fees are quite high, while others are much lower.

Overdraft Fees

Most banks will automatically deduct funds from your bank account if you exceed your available balance. This type of fee is called an overdraft fee.

Foreign Currency Conversion

When you use a foreign currency, you might be subject to foreign exchange fees. These fees are levied by the bank that issues your credit card.

Why Do Credit Cards Charge A Processing Fee?

The simple answer to this question is that all card issuers charge a merchant commission for the ability to accept the card at their store. This includes online stores. 

This commission is passed onto the customer in the form of credit card processing fees. 

When making a purchase with a credit card, the processing fee is usually a percentage of the transaction amount plus a flat rate.

How Much Does The Average Credit Card Processing Fee Cost?

Credit card processing fees can vary significantly depending on who you’re using.

For example, some big-name retailers like Walmart, Target, and Home Depot charge no more than 2% of the total value of each sale. 

Other retailers, like Amazon, charge anywhere from 3% to 5%. 

Some smaller businesses, including restaurants, gas stations, and convenience stores, charge 10% or even 20% of the total value. 

Some merchants don’t charge any processing fees at all. 

In fact, there are plenty of places where you can buy something without ever having to worry about paying a processing fee. 

How To Avoid Paying Too Much In Credit Card Processing Fees

When it comes to paying too much in credit card processing fees, there are two main ways to avoid this problem.

The first way is to shop around for the best deals. By doing so, you’ll be able to save money on your overall spending budget.

Another option is to sign up for a credit card that offers rewards programs. Rewards cards are designed to help you earn points that can then be redeemed for free stuff.

The more points you accumulate, the better deal you’ll get!

Finally, consider using a debit card over a credit card. Debit cards do not carry the same risk of having your payment declined due to insufficient funds.

As long as you’re able to keep track of your spending, a debit card is a great way to manage your money.

Summary

Credit card processing fees are a necessary evil in today’s commercial world. 

Credit card issuers partner with financial networks like Visa and Mastercard on their credit and debit cards.

This partnership translates to card issuers charging merchants a commission to be able to accept that card.

There are many types of credit card processing fees out there. Most of these fees are hidden and hard to find. But they exist nonetheless.

If you want to avoid paying too much in credit processing fees, make sure to shop around and compare different rates before signing up for a new card.

Might also be a good idea to read more on the subject by visiting our payment processing library.