Transaction Fees

What are per-transaction fees?

Per-transaction fees are charges a merchant pays each time it processes an electronic payment (card or other digital payment). They typically consist of a percentage of the transaction (commonly around 0.5%–5%) plus one or more fixed cents-per-transaction fees.

How they work

Merchants use a merchant acquiring bank and a payment processor to handle electronic payments. The acquirer manages the merchant account—the deposit account that receives transaction funds—and coordinates communication between the merchant, card networks, and issuing banks. The processor routes and settles transactions. Together, these parties determine what fees the merchant will pay.

Main components of per-transaction fees

• Acquirer fees: Charged by the merchant’s acquiring bank for account management, authorization, and settlement services.
• Processor fees: Charged by the payment processor for routing and technical processing of each transaction.
• Card network (wholesale/interchange) fees: Fixed or variable fees set by card networks (Visa, Mastercard, American Express, Discover) and by issuing banks; these are often called interchange fees and are paid for each transaction.
• Terminal or gateway fees: Additional charges may apply for using payment terminals, POS systems, or online gateways.
• Card type premiums: Cards that offer rewards or benefits typically carry higher interchange rates.

Fee structures vary by acquirer and processor; some can negotiate lower wholesale fees based on volume or network relationships.

Merchant account statements and fee models

Merchant statements typically present fees using one of these formats:
– Interchange-plus: Separates card network (interchange) fees from processor/acquirer markup, providing transparency.
– Tiered pricing: Groups transactions into tiers (e.g., qualified, mid-qualified, non-qualified) with different blended rates depending on transaction type (in-person, online, keyed).
– Subscription or flat-fee models: A fixed monthly/annual fee plus specified per-transaction charges.

Understanding the statement format helps merchants identify where costs originate and where savings might be achieved.

Who ultimately pays?

Card transaction fees are charged to the merchant, not the cardholder. Merchants may:
– Absorb the cost as a business expense.
– Raise prices to offset fees, effectively passing costs to customers.
– Add a surcharge or service fee specifically for card use (allowed in some jurisdictions but banned in others).
– Set minimum purchase amounts for card transactions to avoid losing money on small purchases.

How consumers can avoid fees

Consumers can avoid merchant card-related surcharges by paying with cash. However, whether fees affect a consumer depends on merchant practices—price increases, surcharges, or minimums may still shift costs to buyers indirectly.

Typical cost considerations

• Typical effective rates vary widely by industry, transaction method (card-present vs. card-not-present), card type, and merchant volume.
• Reward and premium cards generally incur higher fees.
• Small or low-margin merchants are more likely to impose minimums or surcharges to offset per-transaction costs.

Bottom line

Per-transaction fees are a routine cost of accepting electronic payments and are composed of multiple parts—acquirer/processor markups, card network interchange, and optional terminal/gateway charges. While merchants pay these fees, consumers can be affected indirectly through higher prices, surcharges, or minimum-purchase policies. Understanding fee components and statement formats helps merchants manage and potentially reduce costs.