Merchant Rate GuideThe card-issuing bank
Interchange goes to the customer's bank. Card networks set the rates, and they apply to every merchant. You cannot negotiate interchange directly.
Guide
Why are credit card processing fees so high?
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Credit card processing fees are high because every sale pays several parties, and the one part merchants can influence, the processor's markup, usually stops being negotiated once an account is signed.
The card-issuing bank, the card network, and the processor each take a share of every card payment. Network fees apply to every merchant equally. The processor markup does not, and without ongoing competition it tends to stay where it started.
Why do small businesses pay so much to accept cards?
Small businesses pay a lot because they have little leverage to negotiate, they often sell online where rates run higher, and once a processor sets their price, there is rarely a reason for it to fall. Typical merchant account companies can charge up to 5% of everything a company earns once all fees are added.
Who gets paid on every card sale
The card network
Visa, Mastercard, American Express, and Discover charge assessment fees. Like interchange, these are the same for everyone and are passed through by your processor.
Your processor
The processor adds its markup and sometimes gateway, statement, or account fees. This is the negotiable part, and the part where competition between processors makes a real difference.
Why the markup sticks
Once pricing was established, there was little opportunity to revisit it without renegotiating the relationship or moving to another provider.
That is the core reason fees stay high. Shopping around once gets you a new rate, then competition ends. Most small merchants do not have time to renegotiate every year, so the markup they accepted at sign-up becomes permanent.
Online sales cost more
Card-not-present payments carry more fraud risk, and pricing reflects it. NerdWallet describes about 2.9% plus 30 cents as a fair online rate, compared with about 2.6% plus 10 cents for competitive in-person rates. On a $40 online order, that 2.9% plus 30 cents comes to $1.46.
Simple pricing has a price
Flat-rate pricing is easy to read, but the guide “The Best Small Business Credit Card Processing” warns that simplicity is expensive, and suggests researching ways to get lower fees before settling on 2.9% plus 30 cents per transaction.
What you can do about high processing fees
- 1
Know your effective rate
Divide total fees by total card sales. Use our calculator on the credit card processing costs page.
- 2
Separate fixed from negotiable fees
Interchange and assessments will not move. Focus on the processor markup and extra account fees.
- 3
Consider interchange-plus at volume
The U.S. Chamber of Commerce CO guide says it typically offers lower rates above $10,000 a month.
- 4
Keep processors competing
Avendo routes each transaction to the best available rate, so competition never ends after sign-up.
Run the numbers on our credit card processing costs page, or go back to the guide to the best credit card processing for small business online.
Common questions
Short answers here. The full credit card processing FAQ covers 47 questions.
- Why are credit card processing fees so high?
- Fees are high because several parties take a share of every sale: the card-issuing bank through interchange, the card network through assessments, and the processor through its markup. Once a merchant signs with one processor, that markup is rarely revisited. Avendo keeps processors competing on every transaction, so the markup stays under pressure.
- What is interchange?
- Interchange is the fee set by card networks such as Visa, Mastercard, American Express, and Discover, and it applies to every merchant. Your processor charges it along with its own markup. Interchange and assessment fees are set by the networks and charged by your processor, not by Avendo.
- What is the cheapest credit card processing company for a small business?
- The cheapest option is whichever gives the lowest effective rate for your card mix, and that can change from one transaction to the next. That is why Avendo routes each online sale to the processor with the best available rate at that moment, rather than locking you into one provider’s price for years.
- Can I charge my customers a credit card processing fee?
- Often yes, as a disclosed surcharge or a cash discount, where state law and card network rules allow it. Many merchants prefer to lower the fee itself, because surcharges can discourage buyers at checkout. Lowering your effective rate through competing processors avoids passing costs on to customers.
- Is it illegal to charge 3% on a credit card?
- In most U.S. states, credit card surcharges are legal when you follow card network rules, which cap the surcharge and require clear disclosure and advance notice. A few states restrict or ban them. Confirm the current rules with your processor and your state attorney general before you start.
- Which states ban credit card surcharges?
- A small number of states, including Connecticut and Massachusetts, prohibit credit card surcharges, and some others limit or regulate them. State laws change and court rulings have shifted them before, so check your state attorney general’s current guidance before adding a surcharge.
Find out how much your store could save on card fees
Contact Avendo with your monthly card volume and average ticket. Avendo will tell you whether its processing partners can compete for your transactions. Avendo never bills merchants, and there is no obligation to switch.