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Taking charge on credit-card processing fees

Published December 14, 2021

Paying cash or using plastic? Consumer choice could mean the difference between profit and loss for stores and restaurant owners, especially for small transactions.

Truth is, credit card issuers have incentives to entice shoppers to use their cards as frequently as possible. This has caused steady increases in small transactions with cards in recent decades, and a commensurate rise in payment processing fees paid by retailers and restaurants.

Convenience stores have been especially hard hit, having to forfeit profit every time they accept a credit or debit card for a transaction. That’s mostly because they have small ticket sizes which means they are paying a greater percentage of their sales to process card payments.  

Fortunately for merchants, competition between major card networks and independent processing networks has increased in recent years, due mostly to changes by Congress to support competition. Fees to merchants have thus come down by some measures.

As a percentage of purchase volume from all credit, debit and prepaid general purpose and private label cards, the weighted average of processing fees paid in the U.S. was 1.45 percent in 2020, down from 1.54 percent in 2019, according to Nilson Report.

While US card purchase volume increased 0.6 percent to $7.63 trillion in 2020 from 2019, merchants paid $110.32 billion in processing fees, a decrease of 5.2 percent, year-over-year.

How do credit card transaction fees work?

Let’s start with a point of sale.

  • A consumer pays for a good or service with a card
  • The merchant’s POS system sends a funds verification request to the consumer’s credit card network
  • The bank authorizes or declines the transaction
  • The card payment processor, the issuing bank and the card network charge fees to the merchant for handling the transaction

So, the parties that make up the fee structure include:

  • Independent Sales Organizations (ISOs) & Membership Service Providers – third-party payment processors
  • Issuing bank – cardholder’s bank
  • Card association, or card network – Visa, Mastercard, Amex, Discover, etc.

Types of card processing fees

The biggest bite to pay attention to is the rates passed on by card processors for each card transaction. The fees are broken into three parts:

Interchange fees. These are what the merchant pays to the consumer’s bank for each purchase. It is to cover transaction risk from credit card fraud or unforeseen handling costs. Processors pass this charge onto merchants. It’s non-negotiable.

Assessment fees. Card brands charge these fees to offset the cost of enabling use of their card brand, as well as the cost of processing transactions. Also, non-negotiable.

Payment processor markup fees. This is the margin charged on each transaction. This is negotiable.

Which credit card pricing structure makes the most sense?

Different pricing structures offer ranges of fixed and variable costs. The right one for you depends on the size of your business, your transaction volume and your averseness to risk.  

Tiered Pricing

Tiered pricing, also called bundled pricing, is a fee structure in which processing companies assign three tiers of transaction cost based on three tiers of payment card transactions. These include:

  • Qualified – debit card and non-reward credit card transactions
  • Mid-qualified – membership rewards card, loyalty card and manually keyed-in transactions
  • Non-qualified – Corporate card, high-reward credit card, international card and card-not-present transactions

The major benefit here is the simplicity and understandability of the structure. The downside is that high-volumes of downgraded transactions can really add up, generating significant costs.

For example, a Visa debit card with a chip inserted at a POS terminal is will cost the merchant less than a higher reward credit card such as American Express, especially if its typed in manually.


With interchange-plus plans, credit card companies use specific tables to calculate merchant credit card processing fees. The tables factor card type, transaction method and other variables.

On the plus side, these plans are usually more affordable than tiered plans. Problem is, they are also highly variable in cost susceptible to price increases by major card networks.


Flat-rate plans charge merchants a flat fee to process credit card transactions, regardless of card issuer or method.

The appeal here is predictability in budgeting and planning for transaction costs. The downside is the transaction volume threshold, at greater transaction volumes this plan becomes more expensive for the merchant.

Conversely, if your business experiences a slowdown in credit card transactions, you may get penalized for processing small transaction volumes by way of minimums.

Recent changes in the credit card processing marketplace

Changes made by Congress in 2009 and 2010 have increased competition to major card networks such as Visa and Mastercard by making it easier for independent card networks to compete. Networks such as NYCE, Star and others charge lower fees, which has put downward pressure on pricing. This has helped to counteract pandemic-related price inflation.

“Unfortunately, the increased competition has been limited mostly to in-store debit transactions, according to Lynn Rice, president of Super Quik, a Kentucky-based convenience retailer. “That’s because the largest card-issuing banks rely on Visa and Mastercard to set their prices and have blocked smaller competitors from handling transactions online or through mobile phone apps.”

The result is that Visa and Mastercard still dominate online and app-enabled transactions.

4 ways to reduce credit card processing fees

1.      Negotiate credit card processing fees. The percentages processors take from sales transactions are substantial enough to warrant pushback. In many cases, these fees are negotiable. Use transaction volume for leverage when possible. The more you sell, the more you can reason for a volume discount.

2.      Reduce credit card fraud, charge backs and higher fees from card issuers and processors by investing in security and compliance as a competitive advantage.

3.      Make sure your account POS terminal and software are set up to help you optimize your cost structure and save money.

4.      Consult with a payment processing and technology expert. NCR VOYIX payment experts specialize in crafting optimized payment solutions that can evolve with the growth of your business. NCR Payment Solutions has been a leading provider of vertically integrated solutions for corporations and government entities of all sizes.

Need more information?