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How to Calculate Credit Card Processing Fees? [Tips to Lower Them]

6 September, 2022
5mins read
Bill Sarda, Chief of Staff, Digital Transformation
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What you'll learn

  • 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?
How are credit card processing fees calculated?
Types of credit card processing fees
Best practices for reducing credit card processing fees
How can HighRadius AR solutions help reduce costs?
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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:

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. Some popular payment processor companies include Square and Helcim.

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

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. 

How can HighRadius AR solutions help reduce costs?

Trusted by 700+ companies worldwide, 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.

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