Merchant Fees Explained: Everything You Need to Know

28 March, 2024
10 mins
Bill Sarda, Digital Transformation

Table of Content

Key Takeaways
What Are Merchant Fees?
3 Types of Merchant Account Fee Pricing
The Universal Merchant Account Fees 
Situational Merchant Account Fees
Red Flags to Watch Out for in Merchant Fees
Wrapping Up

Key Takeaways

  • Merchant fees are charges incurred by businesses whenever a customer uses a card to make a purchase. These fees cover expenses from card brands, chosen payment processors, and optional services.
  • When selecting a merchant account pricing model, merchants should consider factors such as transaction volume, card types accepted, and preferences for simplicity versus transparency. 
  • Situational merchant account fees, also known as incidental fees, occur in specific scenarios outlined in merchant service provider contracts and can add up quickly if not managed carefully
  • Understanding the interchange rate set by card networks and the markup charged by merchant account providers is crucial for merchants to accurately assess their processing costs


In the realm of B2B transactions, the convenience of card payments is undeniable. However, have you ever pondered why businesses sometimes impose additional charges for card usage? These fees, known as merchant fees, are pivotal in determining the overall cost associated with accepting card payments.

Surprisingly, these seemingly insignificant fees can significantly influence a company’s financial health. They have the potential to accumulate rapidly, impacting vital aspects such as profits and budgeting. Understanding the magnitude of these fees underscores the importance for businesses to delve deeper into the intricacies of merchant fees.

Did you know? In 2020, merchants in the United States shelled out approximately $110 billion in processing fees for handling an $7.6 trillion worth of card transactions, as reported by the Nilson Report.

Whether you’re a seasoned finance professional or new to the world of B2B payments, grasping the intricacies of merchant fees is paramount for optimizing your financial operations. In this blog, we’ll take a closer look at merchant fees, how they work, exploring their impact on businesses and offering insights into strategies for mitigating their red flags.

What Are Merchant Fees?

Merchant fees are charges incurred by businesses when a customer uses a card to purchase. These fees cover expenses from card brands, chosen payment processors, and optional services, varying based on factors like card type being used, transaction volume, and merchant agreement terms.

Now let’s dive deeper into the components that make up merchant fees and how they contribute to ensuring smooth card transactions:

Charges from card networks

Card networks like Visa, Mastercard, American Express, and Discover charge fees known as interchange fees. These fees are paid by the merchant’s bank (acquirer) to the customer’s bank (issuer) for each transaction. 

Processing fees from payment processors

Payment processors, such as Stripe, Square, or PayPal, charge merchant processing fees for handling card transactions. These fees typically include a combination of a percentage of the transaction amount and a flat fee per transaction. Within processing fees, the portion attributed to merchant service fees specifically accounts for the value-added services provided by the payment processor.

What are merchant service fees?

Merchant service fees or charges are the processing fees that represent the charges for additional services and features provided by payment processors to facilitate card transactions. Merchant service fees contribute to enhancing the efficiency, security, and reliability of the payment processing ecosystem.

3 Types of Merchant Account Fee Pricing

Before diving deep into different Merchant Account fee pricing types, let’s first understand what is Merchant account and Merchant account fee.


  1. Flat-rate merchant account pricing

    Flat-rate pricing is a pricing model where merchants are charged a fixed percentage fee and a fixed transaction fee for each transaction, regardless of card type or transaction volume. This straightforward approach offers simplicity and predictability in payment processing costs.

    The fixed percentage typically falls within the range of 1.75% to 3%.

    Here’s an example:

    For instance, a flat-rate pricing model may charge a fixed fee of 2.5% per transaction, with an additional $0.30 per transaction. Thus, for a $100 transaction, the total processing fee would amount to $2.80 ($100 * 0.025 + $0.30).

  2. Interchange merchant account pricing

    Interchange merchant account pricing, also referred to as interchange-plus, presents a transparent and cost-effective approach to managing credit card merchant fees. This pricing model comprises two key elements:

    Interchange Rate: This fee, determined by card associations like Visa or Mastercard, constitutes the cost from the issuing bank to the merchant via the card network. Interchange fees for debit card transactions are typically lower compared to those for credit card transaction fees for merchants.

    Markup (Plus): Added on top of the interchange rates, this fee represents the charge levied by the merchant service provider for processing the transaction. It ensures the provider’s profitability and covers operational expenses.

    Interchange pricing, often favored by high-volume merchants for its clarity, as it enables a clear breakdown of credit card merchant fees. Despite its transparency, it may result in lengthy and intricate monthly transaction statements.

    Here’s an example:

    Suppose a business processes a transaction with a Visa credit card that has an interchange rate of 1.5%. If the merchant account provider marks up the interchange rate by 0.5%, the total processing fee for the transaction would be 2.0%. For a $100 transaction, the processing fee would be $2.00 ($100 * 0.020), with $1.50 going towards the interchange fee and $0.50 as the markup.

  3. Tiered merchant account pricing model

    In tiered pricing, transactions are categorized into different tiers depending on various factors such as card type, processing method, and other criteria set by the merchant service provider. Each tier has its own associated fee, such as qualified, mid-qualified, and non-qualified rates. This associated fee often results in higher costs and less transparency compared to interchange-plus pricing. While it may seem simple on the surface, understanding the criteria for each tier and how it impacts your overall costs can be complex.

    Here’s an example:

    For instance, a qualified rate for a swiped debit card transaction might be 1.5%, while a non-qualified rate for a keyed credit card transaction could be 3.0%. These varying rates can make it challenging for businesses to predict their processing costs accurately.

The Universal Merchant Account Fees 

Universal merchant account fees include various charges incurred by businesses for processing card transactions. Regardless of the pricing model—flat, tiered, or interchange-based—these fees remain consistent across different merchant service providers.


Authorization fee

This fee validates transaction requests by verifying the availability of funds or credit. It’s charged on a per-transaction basis, regardless of approval status, serving as a crucial step in the transaction process.

Transaction fee

Transactional fees are charges incurred for every transaction processed through a merchant account. Depending on the pricing model, transactional fees can vary, being either a fixed amount or a percentage of the transaction value. 

Assessment fees

These fees are levied by card associations like Visa or Mastercard to cover network operations and fraud prevention expenses. Although small, they play a significant role in sustaining the card payment ecosystem.

Scheduled fees

Various flat-rate fees contribute to the operational costs of merchant accounts, including:

Monthly or Annual Fee: Some providers charge a percentage of transaction revenue or a fixed monthly amount for account maintenance.

Monthly Minimum Fee: Imposed if merchants fail to meet a predetermined revenue threshold, ensuring a minimum level of transaction volume.

Processing Commitment Fee: Incurred when merchants fall short of contractual transaction volume commitments, reflecting the importance of meeting agreed-upon terms.

Statement Fee: Covers the cost of generating and delivering paper statements, although online alternatives are often available at no extra cost.

Payment Gateway Fee: Charged for utilizing payment gateways provided by merchant service providers or third-party services, facilitating secure online transactions.

Transaction Fees

These fees are charged for every transaction processed through your merchant account. They typically consist of assessment fees paid to card associations and interchange fees paid to card-issuing banks.

Situational Merchant Account Fees

Situational merchant account fees, also referred to as incidental fees, are charges that occur in specific scenarios outlined in merchant service provider contracts. While some of these fees may seem trivial, they can add up quickly if not managed carefully. Let’s explore some of the most common situational fees and their implications for merchants:

PIN debit transaction fee

Merchants may incur this fee when customers use debit cards and require PIN verification for transactions. While PIN debit transactions offer added security, they can also come with associated debit card transaction fees for merchants

Address verification system fee

A nominal fee charged when merchants need to verify a customer’s address for security purposes. While seemingly insignificant at $0.01 per transaction, this fee can accumulate over time, impacting a merchant’s bottom line.

Retrieval request fee

When customers dispute transactions and request copies of receipts from their card issuing bank, merchants may be charged a retrieval request fee. While typically small, this fee underscores the importance of maintaining accurate transaction records.

Chargeback fee

Chargebacks occur when customers dispute transactions with their card issuer, resulting in a loss of revenue for merchants. In addition to revenue loss, merchants also incur chargeback fees, further exacerbating the financial impact of disputes.

Voice authorization fee

If merchants need to call their merchant service provider to authorize a transaction manually, they may be charged a voice authorization fee. While not common, this fee can occur in certain circumstances where online authorization is not possible.

PCI non-validation fee

Failure to maintain Payment Card Industry (PCI) compliance or provide proper verification can result in a PCI non-validation fee. This fee underscores the importance of adhering to security standards to protect customer data and avoid additional costs or extra merchant service rates.


Batch fee

Merchants may face batch fees when settling a batch of transactions at once. While batch processing offers efficiency, the associated fee should be considered in overall transaction processing costs.

Red Flags to Watch Out for in Merchant Fees

When navigating the complex landscape of merchant fees, it’s essential to be vigilant for red flags that could potentially inflate costs and harm your bottom line.


Hidden fees

Beyond the standard fees like transaction and authorization charges, be wary of undisclosed or obscure fees buried within your statement. These “creative” fees, concocted by processors, may appear legitimate but could be unnecessary or inflated.

Misleading terminology

Some processors may use ambiguous or misleading terminology to mask additional merchant service rates. For instance, an “interchange clearing fee” might sound official, but it could be a disguised markup imposed by the processor.

Unclear assessment fees

Ensure that assessment fees accurately reflect the charges imposed by card associations like Visa or Mastercard. Any discrepancies or inflated fees should raise concerns about transparency and integrity.

Fluctuating discount rates

Keep a close eye on discount rates, which represent the percentage of each transaction deducted by the processor. If these rates fluctuate frequently without adequate explanation, it could indicate hidden markups or undisclosed fee adjustments.

Sudden Increase in charges

A transparent and reputable processor should communicate any changes to fees or rates promptly and clearly. Beware of providers who fail to notify you of fee increases or adjustments, leaving you in the dark about your true processing costs.

Excessive fine print

Read the contract and terms of service thoroughly to identify any clauses that could lead to unexpected fees or rate hikes. Pay attention to details like cancellation fees, contract renewal terms, and conditions for rate adjustments.

Wrapping Up

As you navigate the world of B2B payments and merchant fees, remember that every penny counts. While the convenience of card transactions is undeniable, the hidden costs can sneak up on your bottom line if left unchecked. By understanding the ins and outs of merchant fees and implementing strategies to manage them effectively, you can safeguard your company’s financial health and maximize your profitability. 


1. What is the average merchant processing fee?

The average merchant processing fee typically ranges from 1.5% to 3.5% of each transaction’s total amount. It includes interchange fees set by card networks, payment processor fees, and other charges. But actual rates vary based on business type, transaction volume, and card types.

2. Are there any charges for merchant accounts?

Yes, there are charges associated with merchant accounts, including recurring monthly or annual fees, setup fees, statement fees, batch fees, and more. These fees vary depending on your acquiring bank and the services you require, including the volume and types of transactions your business processes.

3. Who pays the merchant fee?

The responsibility for paying merchant fees typically falls on the business owner or merchant accepting card payments. While the merchant ultimately bears the cost of these fees, they may pass on some of the expenses to customers through pricing strategies.

4. What is one way to avoid paying merchant fees?

Offering discounts or incentives for customers to pay through cash or Automated Clearing House (ACH) transfers can reduce the number of card transactions and associated fees. Also, setting minimum purchase amounts for card transactions can help offset the cost of merchant fees for small transactions.

5. What is the standard merchant discount rate?

The standard merchant discount rate typically ranges from 1% to 3% for each transaction’s payment processing. It represents the fee that merchants are charged for accepting card payments. A portion of the merchant discount rate goes to the credit card issuer as an interchange fee.


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