Guest Blog by RISE
Credit card processing fees are extensive, complicated, and can be overwhelming. Nevertheless, you must pay them if you want to process credit cards through your business. Rather than blindly paying these charges, it’s worth taking the time to understand them. That way, you can get a clearer picture of your actual overhead and make smarter business decisions.
In this article, we’ll simplify some of the most confusing parts of credit card processing — from pricing structures to interchange rates, and even how to calculate your actual monthly cost.
Credit Card Processing Rates
Most merchants know the processing rate they were quoted when they signed up for an account, or at least have seen rates by various processors.
So why does one processor have a rate of 0.20% + $0.12, another list 2.9% + $0.30, and yet another offer a “Qualified” rate of 1.79% + $0.12?
The answer lies in the three main pricing models:
1. Interchange-Plus Pricing
This model adds the processor’s markup over the wholesale cost (interchange rate) of transactions. It’s the most transparent and often the most cost-efficient for business owners.
2. Flat Rate Pricing
Used by online facilitators such as Square, PayPal, and Stripe, this model charges the same rate for every transaction, regardless of type. It’s easy to understand but usually more expensive.
3. Tiered Pricing
Tiered models categorize transactions as qualified, mid-qualified, or non-qualified, each with its own percentage. While common, this model tends to be less transparent and more costly overall.
The Infamous “Interchange” Rate
Each card and transaction type has a specific interchange fee set by the corresponding card association (Visa, Mastercard, etc.), and that fee is collected by the card-issuing bank.
The interchange rate makes up the bulk of your processing cost and is not negotiable.
It’s influenced by two main factors:
- Transaction type: Was it swiped, dipped, or keyed in?
- Card type: Is it a basic card, a high-reward card, or a corporate card?
Breaking Down the Impact of Interchange
Most pricing discussions hinge on interchange fees because they represent the largest portion of your total cost. Card association fees contribute too, but not nearly as much.
Here’s a simplified example of how interchange fees might vary:
- Basic Credit Card (swiped/dipped): 1.51% + $0.10
- Basic Credit Card (keyed): 1.80% + $0.10
- Traditional Rewards (swiped/dipped): 1.65% + $0.10
- Traditional Rewards (keyed): 1.95% + $0.10
- Preferred Rewards (swiped/dipped): 2.10% + $0.10
- Preferred Rewards (keyed): 2.40% + $0.10
Additional Fees You Might See
On top of interchange and processing costs, other fees can appear on your statements — some charged by your merchant services company, others by networks or third parties.
Common examples include:
- Early termination fee
- Card assessment fee
- Fixed Acquirer Network Fee (FANF)
- MC or Merchant location fee
- PIN debit network fee
- Monthly or annual fee
- Statement fee
- POS software fee
- Payment gateway or hosting fee
- PCI compliance fee
- IRS reporting fee
- On-file fee
- Batch fees
How to Calculate Your Cost-Effective Rate (CER) or Monthly Net Rate (MNR)
Because there are so many moving parts to your processing costs, your Cost-Effective Rate (CER) or Monthly Net Rate (MNR) is the best way to measure where you stand.
This number represents the total cost of all fees and charges in one simple percentage.
The Formula:
Processing Cost Ă· Total Monthly Volume = Monthly Net Rate (%)
Example:
$100 (processing cost) ÷ $1,000 (volume) = 0.10 → 10% monthly net rate
Guidelines:
- For in-person businesses, a rate above 2.5% is usually too high (unless your volume is small).
- E-commerce businesses typically have higher rates because keyed-in transactions carry higher interchange fees.
What Exactly Is a “Processor”?
Processors — also known as Acquiring Banks or Acquirers — act as the middlemen between merchants and credit card associations. They handle batch information and authorization requests so transactions can be completed.
Your Merchant Account Provider (the company you likely call your “processor”) sets up the system that makes these payments possible. They ensure transactions travel through every step securely and that you get paid when accepting credit cards.
Wrapping It Up
Yes, credit card processing can feel complicated — and a little overwhelming. But understanding the basics empowers you to make more confident decisions and spot unnecessary costs.
Once you know how pricing models, interchange fees, and your monthly net rate work together, you can better manage one of the biggest hidden expenses in your business.
Having even a basic understanding puts you in a stronger position to negotiate, evaluate options, and ensure you’re getting the best deal possible.
At Rise Strategic Group, we use our intimate knowledge of how things work behind the scenes in the “corporate world” by helping businesses uncover “lost” revenue that stem from outdated pricing models, deceptive business practices, hidden fees and irrelevant and antiquated programs.
