A Step-by-Step Guide to Calculating Credit Card Processing Fees

6 September, 2022
Bill Sarda, Chief of Staff, Digital Transformation

Listen to the blog:

08.30 mins

Table of Content

Key Takeaways
How are credit card processing fees calculated?
Types of credit card processing fees.
What are average credit card processing fees for businesses?
Best practices for reducing credit card processing fees.
Automation for low-cost invoicing and payments via credit card.

Key Takeaways

  • How to calculate the credit card processing fee?
  • What are the types of credit card processing fees?
  • How can HighRadius help reduce your card processing fee?


A credit card processing fee is the amount payment processors charge when the transaction is made via a credit card. For a business owner, this amount can pile up to become a significant expense, because it is almost impossible to run a company without accepting payment via credit cards.

The average credit card processing fee ranges from 1.3% to 3.5% per transaction, which depends on a number of factors, such as the payment company through which you’re completing the transaction, the type of credit card, and the merchant category code (MCC). For example, if you accept a payment of $1000, then you might have to pay anywhere between $13 to $35 as processing fees.

How are credit card processing fees calculated?

Formula to calculate effective rate percentage

The best way to calculate credit card processing fees is by finding the effective rate.

The effective rate can be calculated by dividing the total amount deducted for processing by the total monthly sales. The amount you get after the calculation is your effective rate. It is the total amount your credit card company is charging you for accepting credit card payments.

Types of credit card processing fees.

Majorly, there are three types of credit card processing fees:


Assessment fees.

All well-known credit card providers charge a minimal assessment fee from the merchant. For example, if you have a Visa credit card, you have to pay an assessment fee of 0.14% for every transaction you make via that particular credit card.

The assessment fees charged by the other major credit card networks are:

American Express 0.15%
Discover 0.13%
Mastercard 0.01% for transactions above $1,000 and 0.13% for transactions below $1,000

Payment processing fees.

You also have to pay a payment processing fee to the processor (the company that manages your card payment processes) for every transaction you make via credit card.

The credit card network may also charge additional payment processing fees as mentioned below:

  • Monthly service fee.
  • Per-transaction fee.
  • Cost of the credit card equipment.

Interchange fees.

The bank that issued your credit card charges interchange fees on your transactions. This amount is incurred by the card issuing bank that manages your credit card. The fee varies from company to company, ranging from 1.5% to 3.3% based on factors such as—the relative risk involved, current interest rates, and the amount of money you transfer.

The interchange fee of the four major credit card networks are:

American Express 1.43% + $0.10 to 3.3% + $0.10
Visa 1.15% + $0.05 to 2.4% + $0.10
Discover 1.35% + $0.05 to 2.4% + $0.10
Mastercard 1.15% + $0.05 to 2.5% + $0.10

How American Express operates

What are average credit card processing fees for businesses?

The average credit card processing fees for businesses can vary depending on several factors, such as the type of business, the payment processor used, the type of credit card used, and the volume of transactions processed.

Here are the average credit card processing fees for the four payment networks (also called “card networks”):

Visa 1.29% + $0.05 to 3.29% + $0.10
Mastercard 1.39% + $0.05 to 3.29% + $0.10
Discover 1.58% + $0.05 to 3.28% + $0.10
American Express 1.5% + $0.10 to 3.15% + $0.10

Sources: Visa USA Interchange Reimbursement Fees published on April 23, 2022, Mastercard 2022–2023 U.S. Region Interchange Programs and Rates, Wells Fargo Merchant Services Payment Network Pass-Through Fee Schedule, and Wells Fargo Payment Network Qualification Matrix effective April 22, 2022.

Best practices for reducing credit card processing fees.

With most small and medium-sized businesses accepting credit cards as a means of payment, the processing fees may eat into their profitability margins. While it seems like a minimal amount, those small percentages can quickly snowball.

Unfortunately, there is no way to eliminate the credit card processing fee completely, but there are some ways you can save a few thousand dollars each month. We discuss some of these ways in this section.


Use AVS (Address Verification Services)

As a credit card holder, you can use address verification services to verify your billing address with the bank. This simple fraud-fighting software has several advantages in the world of eCommerce, such as identifying legitimate customers and ensuring efficient working operations. Customers have also reported that they’ve seen a 10% increase in ID verification matches when using AVS.

After the address verification is completed, the bank sends an AVS code to the merchant, who can use it to approve or reject the transaction. Visa motivates businesses to use AVS and even promises a lower interchange rate for each transaction.

Proper setup of the account and terminal.

Small mistakes can often lead to higher processing fees and added costs. Keeping this in mind, you must set up your account in the right way from the beginning itself. Your bank may charge more if you enter any wrong information while filling in your account information.

The same applies to how you set up your terminal, which greatly impacts the processing fees. Make a habit of processing transactions every 24 hours, which reduces the number of transactions in that particular period, resulting in lower processing fees.

Stay away from credit card fraud.

The most effective way to avoid credit card fraud is by entering the right security information, which is a three-digit code that you can find on the back of the card. This protects the cardholder from any fraudulent activity since it validates the purchase. You should also enter the billing ZIP code when prompted. This adds an extra layer of security to your purchase. Skipping this step can result in a higher rate due to fraud risk.

Negotiate the fees with credit card processors.

As a merchant, the most effective way to reduce credit card processing costs is by negotiating the fee with payment processors. The more transactions you show to the processor, the higher your chance of getting a lower fee. You can leverage the total transaction volume against the cost it takes per transaction.

Automation for low-cost invoicing and payments via credit card.

Highradius’ EIPP solution (electronic invoice presentment and payment) provides e-billing and payment features. You can leverage this solution for low-cost invoicing and payments via credit card.

The ERP payment gateway feature enables companies to accept credit card payments across multiple ERP systems. This helps reduce compliance and security risks by leveraging third-generation processor tokenization and eliminates the need for merchants to store transactional information.

If you are a business owner who accepts payments via credit card, then you will be obliged to pay a processing fee. As the world moves towards cashless payment methods, accepting credit cards is no longer optional. Neither will you be able to avoid the processing costs associated with it. However, following the best practices mentioned in this blog can help your business minimize and avoid some of the additional costs.



Question: How much does a credit card company charge per transaction?

Answer: The average credit card processing fee per transaction ranges from 1.3% to 3.5% depending on the payment network.

Question: Is the credit card processing fee negotiable?

Answer: Yes, credit card processing fees are often negotiable, which you can initiate by leveraging the volume of transactions against the cost per transaction.

Question: Who pays the credit card processing fee?

Answer: The three parties involved in credit card processing pay the fee—the card network, payment processor, and card issuer.

Question: How to calculate 3% processing fee?

Answer: To calculate a 3% processing fee, multiply the total transaction amount by 0.03. For example, if the transaction amount is $100, the processing fee would be $3 (100 x 0.03 = 3). The total amount charged to the customer would be $103.

Question: What is the best payment method for B2B?

Answers: ACH transfers, wire transfers, and corporate credit cards are commonly used in B2B payments due to their efficiency, security, and lower fees compared to traditional methods like checks. However, the best payment method for B2B transactions depends on the specific needs and preferences of the parties involved.

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