How Credit Card Fees Work For Small Businesses


As the owner of a small business, chances are you accept credit payments from your customers. If that is indeed the case, you may not have too much of an idea of how that payment process works. It’s time you learn what’s going on (and why it’s going on). Here are the 5 “Ws” of credit card fees.


This infographic created by Merchant Maverick will help you understand the payment chain that plays out each time a transaction happens. In order to understand the fees and why they exist, you must understand who the players involved are. In this case, you (as a business owner) could either be the merchant or the customer. For now, let’s focus on you as the merchant accepting credit card payments. Below are all the players (aka middlemen) in the transaction chain:

Image via Merchant Maverick

Payment gateways

This software application  is what authorizes or declines a customer’s payment. These gateways securely transmit sensitive credit/debit card or bank account information from the customer to the customer’s issuing bank and all other parties that are involved in the transaction.

Credit Card processors

These are the people who offer the merchant a Merchant Account. They enter into a contract with the merchant and are the reason accepting credit card payments are possible. The acquirer exchanges funds with the issuing bank on behalf of the merchant and pays the merchants net balance (gross sales minus reversals, interchange fees, and acquirer fees).

Credit Card Associations (CCA)

Top of the food chain. These are the names you know – Visa, MasterCard, American Express, etc. These are the companies that make all the rules and who you are beholden to (sort of).

Credit Card issuing banks

These are the banks that partner up with the CCAs to hand out the branded cards and qualified customers. This is the link in the chain that fronts the money to the credit card processors (or “acquiring bank”) on behalf of the card holder.

Merchant account providers (not pictured but pertinent)

This is the part of the chain that is often a third party appointed by the merchant to oversee transactions from incoming channels (credit cards and debit cards) for the acquiring banks. They either work on the front end (supply authorization and settlement services to the merchant banks’ merchants) or on the back end (accept settlements from front-end processors and, via The Federal Reserve Bank for example, move the money from the issuing bank to the merchant bank.)


There are two category types containing three fees which are charged to merchants.

1) The TWO categories are:

Wholesale fees

These fees are determined by the credit card issuing bank and the credit card associations (Visa, MasterCard, etc.). They are consistent regardless of which provider you choose.


Your markup fees are how your credit card processor is planning to make a profit from your business.

2) The three fees that fall into one of the other above categories are.

Transactional fees

Charged to the card merchant every time there is a transaction processed. These are the largest cost that comes with accepting credit transactions. An example of these types of fees is “Interchange Reimbursement Fees and Assessments” (per transaction fee card-issuing banks and the credit card associations charge for each transaction).

Flat fees

These fees = are non-negotiable and denote the services you receive from your provider. There’s a long list of these and as a merchant you should focus on them and ensure you’re getting what you pay for and aren’t being charged for services you aren’t receiving. Examples of these types charges are “Terminal Fees”  (in-store terminal usage cost), “Payment Gateway Fees(online, call-in usage cost), and “Payment Card Industry Fees” (meant to keep credit card security and usage standards high across the board).

Incidental fees

These fees only exist when a transaction falls into the “incident” category. Examples of these charges are: “Chargeback fees” (disputes with customers over payments), “Batch Fees” (usually twice a day as groupings of charges are put through).


The two categories and three fees explained above are applied to two types of charges:

1) Card Present transactions

This is the typical in-store transaction that is processed with the card present and through a terminal. This type of transaction is considered more secure and thus carries a lower fee.

2) Card Not Present transactions

This would apply to e-commerce transactions done through a web store, third party stores like Etsy or eBay, or through phone-in orders and are done without the card being present. This type of transaction is considered less secure and thus carries a higher fee.


The fees you pay are all lumped into one of the three following billing structures, which are chosen when setting up your business to accept credit transactions.

1) Flat rate pricing

This implies an “across the board” flat rate fee that is charged for each transaction which doesn’t change for type of card used. Square uses this type of billing. The advantage of flat rate pricing is its simplicity: You know exactly how much yo’re paying each time you process a payment, regardless of the type of card.

2) Interchange Plus pricing

This is the most common type of fee structure for credit cards. Payline works inside of this structure. You pay a fixed percentage and a fixed dollar amount (above the interchange rate). The advantage of interchange pricing is you can pay a lower rate The disadvantage is that it’s more complicated to understand and setup than flat rate pricing providers.

3) Tiered pricing

  • Qualified

The merchant “batches” all transactions within 24 hours. This applies to card-present transactions and is the most secure, affordable and most frequently used tier pricing setup.

  • Mid-Qualified

Focuses on reward cards and manually entered (card not present) transactions. Also includes charges batched between 24-48 hours which would have been qualified but weren’t batched early enough.

  • Non-Qualified

The highest rated charge with all transactions that are batched after 48 hours (all corporate and government cards are charged this rate).


The ‘when’ is all the time. As a business owner, one who is likely accepting credit card payments, it’s imperative that understand them. If you’re able to monitor what you’re charged in comparison to the services you’re receiving,  you can ensure you aren’t getting the short end of the stick. The fact is, If you want people to spend money with your business, chances are you’re going to be processing credit payments daily.

Dante Berardi Jr.

Dante Berardi Jr.

Dante Berardi Jr comes to Hubba from a background in content creation and grant writing for musicians and artists. A writer/musician himself, Dante has a thirst to consume words and the stories they create when pieced together. He sleeps too little, reads too much, lives on coffee and will talk your ear off about vinyl.
Dante Berardi Jr.