Credit Card Processing Fees Explained for Local Shops

If you run a local shop, card fees are probably one of your top 5 expenses, and one of the least understood. Your statement shows a long list of charges with names like “assessment,” “non-qualified” and “PCI fee,” and it’s hard to tell whether you’re paying a fair price.

This guide breaks down what each part of a credit card processing fee is, how the main pricing models compare and what the rules say about passing fees on to customers. By the end, you’ll be able to calculate your real rate and know which questions to ask your processor.

The 3 layers of every card fee

Every time a customer taps or inserts a card, the money you receive is reduced by 3 kinds of fees.

1. Interchange

Interchange is the largest part. It goes to the bank that issued the customer’s card. Visa describes interchange reimbursement fees as transfer fees between acquiring banks (your processor’s bank) and issuing banks, and publishes its US interchange rate tables on its website. Mastercard does the same.

Interchange varies by:

• Card type: Rewards and business credit cards usually cost more than basic credit cards. Debit cards usually cost less.
• How the card is taken: In-person chip or tap payments are usually cheaper than keyed-in or online payments, because the fraud risk is lower.
• Merchant category: Some industries, such as grocery or utilities, have their own rates.

Debit cards from large banks have a federal cap. Under the Federal Reserve’s Regulation II, which implements the Durbin Amendment, the 2011 rule set the maximum interchange for covered issuers at 21 cents plus 0.05% of the transaction, with an extra 1 cent possible for fraud prevention. In October 2023 the Fed proposed lowering that cap; check the Fed’s Regulation II page for the current status.

2. Network or assessment fees

Card networks like Visa, Mastercard, Discover and American Express charge small fees on each transaction, often listed as “assessments” or “network fees.” They are smaller than interchange but show up as several line items.

3. Processor markup

This is what your processor or POS company keeps for its service. It’s the only part of the fee you can really negotiate. It might be a percentage, a fixed cents-per-transaction fee, a monthly subscription or a mix of all 3.

Visa makes an important point: merchants don’t pay interchange directly. They pay a “merchant discount” to their processor, which bundles interchange, network fees and the processor’s charges together. How that bundle is priced is your pricing model.

Pricing models compared

Flat rate in practice

Flat-rate pricing is common with all-in-one POS systems. Square, for example, publishes US rates on its Free plan of 2.6% + 15 cents for in-person payments, 3.3% + 30 cents for online payments and 3.5% + 15 cents for keyed-in payments, with lower in-person and online rates on its paid Plus and Premium plans. Square also says businesses processing over $250,000 a year can ask about custom pricing.

The upside is simplicity: you know exactly what a $50 sale will cost. The downside is that you pay the same rate on a low-cost debit card as on a premium rewards card.

Interchange-plus in practice

With interchange-plus, your statement shows the real interchange for each card plus a fixed markup. If your processor’s markup is, say, 0.3% + 10 cents (a hypothetical example), you pay interchange and network fees on each sale, plus that markup. Because debit and basic credit cards have lower interchange, your average cost can be lower than flat rate, especially if many customers pay with debit.

Key takeaway: The only part of a card fee you can negotiate is the processor’s markup. Interchange-plus pricing makes that markup visible, which is why it’s often the better deal once your volume grows.

Other fees to look for on your statement

Beyond per-transaction fees, processors may charge:

• Monthly or account fees for the merchant account or software
• PCI compliance or non-compliance fees if you don’t complete your annual self-assessment
• Statement and batch fees for each statement or daily settlement
• Chargeback fees for each dispute, win or lose
• Early termination fees if you cancel before the contract ends
• Equipment lease payments, sometimes from a separate leasing company
• Instant payout fees for same-day deposits

Not every processor charges all of these. Ask for a written fee schedule before signing, and read our guides on preventing chargebacks and PCI DSS compliance to avoid the avoidable ones.

How to calculate your effective rate

Your effective rate is the single number that tells you what you’re really paying.

Effective rate = total processing fees for the month ÷ total card sales for the month

For example, if you processed $20,000 in card sales and paid $620 in total fees, your effective rate is 3.1%. Include every fee on the statement, not just per-transaction charges.

Do this for 3 months in a row to smooth out seasonal swings. Then use your effective rate to compare quotes. Give every competing processor the same numbers: monthly volume, average ticket size, share of debit versus credit and share of in-person versus keyed or online sales.

Surcharges, cash discounts and the law

Many shops want to pass card costs to customers. You can, but the rules come from 2 places: the card networks and your state. This is not legal advice; confirm the current rules with your processor or an attorney before you start.

Card network rules

Visa’s US rules allow surcharging credit cards only, under these conditions:

• The surcharge can’t exceed your merchant discount rate for that card or 3%, whichever is lower
• You can’t surcharge debit or prepaid cards, even if the customer chooses “credit” at the terminal
• You must notify your acquirer at least 30 days before you start
• You must disclose the surcharge at the store entrance and at checkout, and show it on the receipt

Mastercard and other networks have similar requirements.

State rules

State laws change often, and several have changed in the past 2 years. As of October 2026:

Puerto Rico also bans surcharges. A proposed class-action settlement between Visa, Mastercard and merchants could change some surcharging and card-acceptance rules in the future, so check with your processor periodically.

Cash discounts and dual pricing

A cash discount program lowers the price for cash payers rather than adding a fee for cards. Connecticut’s consumer protection department, for example, says cash discounts are allowed as long as the discounted price isn’t advertised as the regular price. New York’s guidance lets you post both a cash price and a card price. Make sure your signs, menus and receipts match what your state requires.

Where to start: 5 steps to lower your card costs

1. Pull 3 months of statements and calculate your effective rate.
2. Identify your pricing model. If your statement shows “qualified” and “non-qualified” rates, you’re on tiered pricing and likely overpaying.
3. Push more payments in person. Chip and tap payments usually cost less than keyed-in ones. Use card-on-file or payment links instead of typing card numbers.
4. Get 2 to 3 written quotes using identical volume figures. Include your POS or online payment provider and at least 1 interchange-plus option.
5. Check exit costs before switching: termination fees, equipment leases and data transfer. Our POS system checklist for small business covers these in detail.

If you’re weighing surcharges, check your state law and network rules first, then decide whether a surcharge, a cash discount or a small price increase is the cleanest option for your customers. Faster settlement options, covered in our guide to real-time payments, may also affect which processor fits your cash flow.

Conclusion

Credit card processing fees look complicated, but they come down to 3 layers: interchange, network fees and your processor’s markup. Flat-rate pricing is simple and predictable; interchange-plus is usually cheaper at higher volume. Know your effective rate, compare quotes with the same numbers and follow both card network and state rules before adding a surcharge. A 30-minute review of your statement once a year can save a local shop real money. Browse our glossary for payment terms and our top lists for tools.

Sources

• Visa: Interchange reimbursement fees and merchant surcharging — what interchange is, published rate tables and the 30-day surcharge notice
• Visa: U.S. Merchant Surcharge Q&A — 3% cap, debit and prepaid ban and disclosure rules
• Federal Reserve: Regulation II (Debit Card Interchange Fees and Routing) — debit interchange cap and the 2023 proposal to lower it
• Square: Understanding our fees — example published flat-rate pricing by plan
• Maine Revised Statutes: Title 9-A, § 8-509 — Maine’s credit and debit card surcharge prohibition
• Connecticut Department of Consumer Protection: Credit card surcharge — Connecticut’s surcharge ban and cash discount guidance