It is virtually impossible to accept credit card payments online without paying processing fees (to the credit card provider, payment provider, or processing gateway). Be wary of companies that claim otherwise.
Fortunately, it is is It is possible to keep credit card processing fees low. You can also avoid them altogether by passing them on to your customers.
This article explains how to avoid credit card processing fees, reduce these fees, and choose a payment processor for your online business.
Overview of credit card fees
Online credit card payments involve higher fees than in-person credit card payments because there is a higher risk of fraud with online transactions.
Below are the fees associated with accepting credit card payments online:
- Exchange rate: Credit card issuers (Visa, Mastercard, AmEx) charge a non-negotiable fee for each card transaction. This fee is paid by the merchant provider or payment processor, but passed on to you, the business owner. It ranges from 1.29% to 3.5% per transaction and accounts for 70% to 90% of the total transaction fee.
- Commercial services margin: These are fees that merchant providers or payment processors charge you for processing payments. They are the most variable of all credit card fees because payment processors use different fee structures. This can also be your basis for deciding which provider to work with – choose one that has the lowest or most transparent margin fee.
- Assessment fees: Also known as card brand fees, card association fees, or network access and brand usage (NABU) fees, these are fixed fees charged by credit card networks for using their credit card brand. They typically range from 0.13% to 0.16% per transaction.
Is there a way to avoid credit card charges?
Credit card processing fees are unavoidable. However, you can pass them on to your customers or choose a different payment method. In some US states, it is legal for merchants to pass on credit card processing fees to customers. But make no mistake: this does not guarantee absolutely zero fees.
When providers say they offer free card processing, you still have to pay merchant processing fees, such as markup fees and transaction fees for debit, ACH, and eCheck transactions.
Add a convenience fee to online credit card payments
A convenience fee is an amount added to transactions made over the phone or online with a credit card. It is usually a flat rate or a percentage of the total amount. For example, service fees seen when purchasing tickets and paying bills online are convenience fees.
Convenience fees are legal in all U.S. states, but you still need to comply with regulations. All card issuers (Visa, Mastercard, and American Express) require convenience fees to be disclosed before a transaction, but they do not require them to be included on receipts.
- Visa: Flat rate
- MasterCard: It can be a flat fee, a percentage, or tiered depending on the transaction.
- American Express: It can be a flat rate, a percentage, or fixed depending on the transaction.
Transfer fees to customers (credit surcharge)
Credit card surcharges are when payment processing fees are added directly to the cost of the product or service being sold at the point of sale. As of 2023, credit card surcharges are legal in all but two U.S. states: Connecticut and Massachusetts. And unlike convenience fees, surcharges are highly regulated by card networks and state laws.
- Visa: Merchants must disclose the fee before the transaction and list it on receipts.
- MasterCard: Merchants must notify Mastercard and the acquiring bank 30 days before implementing surcharges on cards. Like Visa, Mastercard requires full disclosure and transparency prior to transactions.
- American Express: AmEx is the only card issuer that does not allow surcharges on credit cards. It also charges some of the highest interchange fees of any credit card issuer.
Credit card surcharges typically range from 2% to 4% of the total price at checkout. However, keep in mind that even if you've passed the charges on to your customers, you'll still need to pay fees like verifications, PCI compliance, and any monthly fees you have with your payment provider.
Offer alternative payment methods (ACH payments/e-checks)
To avoid credit card fees, you can offer more payment options to your customers, such as ACH (automated clearing house) transfers or accepting e-checks. ACH payments have lower transaction fees (0.5%–1.5%*) but take longer to process.
It's also not suitable for e-commerce or other businesses that use shopping carts, since ACH transfers require customers to enter their bank account and routing numbers.
How to reduce credit card fees
Since I've already established that you can't accept credit card payments online for free, there are still ways to reduce your fees without passing them on to your customers.
Some of my suggestions are:
Offer alternative payment methods: Mobile payments, ACH transactions, and peer-to-peer payments are all affordable alternatives when it comes to fees. Consider their pros and cons before offering them to make sure they're right for your business.
Negotiate new rates with your payment processor: I wouldn’t be ashamed to ask my provider for more affordable rates, especially if my company has a long history with their platform, and neither should you. Remember that the larger your company, the more negotiating power you have.
Minimize chargebacks: Credit card fraud can cost you a lot of money. Protect your payments with chargeback prevention tools and implement workflows to reduce chargebacks and fraud in your business. In addition to lost revenue from the fraud itself, increased chargeback or fraud rates can result in your processor charging you higher fees.
Payment processors with low fees
| Helcim | |||
| Stripe | |||
| X Card |
How to choose a payment processor
Ultimately, choosing a payment processor with low, competitive fees is the solution to paying the lowest fees possible. Below are some of my recommendations for choosing a payment processor for your business.
Check the clear pricing structure and transparency of fees
It's important to choose a provider that has a transparent fee structure, so you know exactly where your money is going. I would avoid providers that offer tiered pricing models, as these are the least transparent pricing methods and the most expensive. Tiered pricing is when the processor charges different fees and commissions depending on the type of card.
If you are a new or small business, opt for solutions with fixed rates and no monthly minimums as these are the most affordable. However, as your business grows, I recommend looking for solutions that have interchange plus or membership pricing as these providers may offer the lowest rates. There are also providers that offer automatic volume discounts for high-volume businesses.
Evaluate accepted payment methods
As a general rule, the more payment methods the provider offers, the more control you have over the fees you'll need to pay. As I said before, ACH payments have lower fees than card payments, but not all processors can handle that payment method.
Also, check if you have to pay fees for each payment method separately. A good solution has everything in one place, so you can easily track and manage your online payments.
Evaluate security features and standards
Use PCI-compliant payment processors that have fraud protection tools such as tokenization and IP and address verification. These tools help prevent and minimize fraudulent transactions.
There is a way to reduce online credit card payment fees
While it's not possible to accept credit card payments online for free, there are ways to reduce processing fees. Ultimately, it all comes down to choosing a payment processor with low, competitive fees and the features you need for your business.
Meaghan Brophy also reviewed this article
