Credit card processing fees, explained line by line

Every card sale splits into three pieces. Interchange is paid to the bank that issued your customer's card and is typically 70% to 80% of your total cost. A debit swipe might run 0.05% plus 22 cents, while a premium travel rewards card keyed by hand can exceed 2.7% plus 10 cents.

Assessments are the card networks' own charge for running the rails. They are small, fixed and untouchable. The third layer, processor markup, is what your provider keeps. That is the only number you are actually negotiating when you shop quotes.

Interchange-plus passes through the true cost and adds a disclosed markup, for example interchange plus 0.25% and 8 cents. It is the only model where you can see what your provider earns.

Flat rate charges one blended number, commonly 2.6% plus 10 cents in person. It is predictable and fine at low volume, but you overpay on debit, which is where most grocery, quick service and convenience volume sits.

Tiered pricing sorts transactions into qualified, mid-qualified and non-qualified buckets. The processor decides what lands where, and rewards cards keep landing in the expensive tier. If your statement shows those three words, you are almost certainly overpaying.

Pull one statement. Take total fees charged, including monthly, PCI, gateway, batch and statement line items, and divide by total card volume processed. Multiply by 100. A merchant paying $2,480 on $96,000 of volume has a 2.58% effective rate.

Do this for three consecutive months. Seasonality and card mix move the number, and a single month can flatter or punish a provider unfairly. If your average moves more than 0.2% month to month without a change in sales mix, ask why.

Watch for PCI non-compliance fees of $20 to $50 per month, annual PCI program fees of $99 to $199, batch fees per settlement, monthly minimums, gateway fees, IRS reporting fees and vague "network access" charges. Individually they look trivial. On $20,000 of monthly volume, $70 in junk fees is another 0.35%.

Also check for a rate escalation clause. Many contracts allow annual increases with notice buried in a statement message, which is how a 0.20% markup becomes 0.45% by year three.

First, move to interchange-plus once you clear roughly $8,000 monthly. Second, make sure address and zip data is passed on keyed transactions so they downgrade less. Third, enable Level 2 and Level 3 data if you take corporate or purchasing cards, which can cut interchange by 0.5% or more on those tickets.

Fourth, batch daily. Late settlement downgrades transactions. Fifth, complete your PCI attestation so the non-compliance fee stops. That last one is free money most merchants leave on the table for years.