What to expect from credit card processing fees

Any time you accept credit card transactions for your business, you’ll be responsible for processing fees. Since credit cards are the most preferred payment method for clients, learn what you can expect from credit card processing fees. 

For most small businesses, accepting credit cards is an essential part of doing business. Though many business owners may try to avoid them, credit card transactions incur fees whether you provide services in person or are completely online.

That’s why it’s important to understand what credit card processing fees are, how they work, and some tips for lowering your fee costs when possible.

Jump to:

• What are credit card processing fees?
• What is the typical credit card processing fee?
• Reducing the costs of accepting payments
• Payment processing for independent businesses
• Accept credit card payments and more on HoneyBook

What are credit card processing fees?

Credit card processing fees are the charges you incur whenever you accept a payment via credit card. These fees are essential to your business operations, as they impact your overall profitability and cash flow. Understanding credit card processing fees involves recognizing the types of fees you’re paying and how they are calculated and allocated. 

These credit card processing fees are designed to cover the costs of moving a payment from your client through various financial networks to your business. Here’s a closer look at how these fees are distributed:

Interchange fee

The interchange fee is a key component of the transaction fee and goes to the credit card issuing bank. This fee compensates the bank for the risk associated with lending money and managing the credit card account. It helps cover costs like fraud protection and account maintenance. The rate can vary based on factors such as the type of card used (e.g., rewards or premium cards), the nature of your business, and the transaction amount.

Assessment fee

The assessment fee is paid to the credit card networks such as Mastercard, American Express, Visa, and Discover. This fee supports the networks’ role in processing transactions between the merchant and the cardholder. It is typically a percentage of the transaction amount and can vary depending on the network. Understanding these fees helps you get a clearer picture of the costs associated with different credit card companies and how they impact your overall expenses.

Gateway fee

The gateway processor fee is the amount charged by the payment processor for handling the credit card transaction. This fee covers the costs of the technology and infrastructure required to securely process payments. Gateway fees usually range from 1% to 4% of the transaction amount, plus an additional charge of $0.25 to $0.50 per successful transaction. These fees can vary depending on the processor and the specific services they provide, such as fraud prevention and transaction reporting.

Currency conversion fee

The Currency conversion fees come into play if your business accepts international transactions. These fees cover the cost of converting payments from the customer’s currency to your local currency. Currency conversion fees are usually a percentage of the transaction amount and can vary depending on the payment processor and the currencies involved. For businesses dealing with international customers, understanding these fees is crucial for accurate pricing and cost management.

Chargeback fees

Chargeback settlement fees are incurred when a customer disputes a transaction or makes a fraudulent purchase. This fee is charged by payment processors or banks to cover the cost of handling the dispute and reversing the transaction. Chargeback fees can vary widely and are typically assessed per incident. Managing chargebacks effectively is important for minimizing these fees and protecting your business from potential losses.

For business owners, fees from your credit card processor can vary based on several factors, including the number of transactions you process, the type and size of your business, the types of credit cards you accept, and the fee structure of your processing provider. These factors can significantly impact the overall cost of processing credit card payments, so it’s important to choose a solution that aligns with your business needs.

What is the typical credit card processing fee?

The average credit card processing fee is between 1.5% and 3.5%. However, there may also be extra charges that affect the overall cost, such as monthly fees. By law, surcharges are capped at 4%. There are different types of credit card processing fees to be aware of:

Types of credit card processing fees to be aware of

Flat fee per transaction: Some processors charge a fixed amount for each transaction, regardless of the transaction size. This type of fee structure can be easier for small businesses with low transaction volumes to manage and budget for. It offers predictability in costs and simplifies accounting.

Flat-rate pricing: With flat-rate pricing, businesses pay a fixed percentage of each transaction amount, plus a small fixed fee per transaction. This model simplifies cost management as it provides a predictable rate for each transaction, which can be beneficial for budgeting. It’s particularly useful for businesses with varying transaction sizes but can be more expensive for high-volume transactions compared to other pricing models.

Percentage-based fee per transaction: Other processors charge a percentage of the transaction amount. This model can be more suitable for businesses with higher transaction volumes or larger average transaction sizes. It scales with your sales, so you pay a proportional fee based on the value of each transaction.

Blended fee structure: This approach combines a flat fee with a percentage-based fee. It can be beneficial for businesses with varying transaction sizes and volumes, as it can offer cost savings compared to a purely flat fee model. This structure is particularly useful for businesses with a mix of high and low transaction volumes.

Fee structure	Description	Pros	Cons
Flat fee per transaction	A fixed amount charged for each transaction, regardless of size.	Easy to manage and budget for. Predictable costs. Simplifies accounting.	May not be cost-effective for larger transactions.Less flexibility with varying transaction sizes.
Flat-rate pricing	A fixed percentage of each transaction amount plus a small fixed fee per transaction.	Predictable rate for budgeting. Simplifies cost management. Useful for varying transaction sizes.	Can be more expensive for high-volume transactions. May not be ideal for very low-value transactions.
Percentage-based fee per transaction	A percentage of the transaction amount is charged.	Scales with sales. More suitable for high transaction volumes. Proportional to transaction size.	Costs can be higher for small transactions. Less predictable costs.
Blended fee structure	Combines a flat fee with a percentage-based fee.	Offers potential cost savings. Useful for businesses with mixed transaction sizes.	Can be complex to understand. May not be as beneficial for businesses with very low or very high transaction volumes.

Processing fees from top credit card companies.

Payment processor	Monthly fee	Transaction fees
HoneyBook	*$19 for Starter plan *$39 for Essentials plan *$79 for Premium plan	2.9% + $.25 for credit cards 1.5% for ACH transfers
Payline Data	$10 for online payments $20 for in-person payments	Interchange plus 0.4% + $0.10 for in-person transactions + $10 per month Interchange plus 0.75% + $0.20 for online transactions + $20 per month Pricing varies by card type for manually keyed transactions
Stripe	$0 for standard $2 for Stripe Express	2.7% + $0.05 for in-person transactions 2.9% + $0.30 for online transactions 3.4% + $0.30 for keyed transactions 3.9% + $0.30 for currency conversion or international cards
Square	$0	2.7% for swiped transactions 3.5% + $0.15 for keyed transactions 2.9% + $0.30 for online transactions
PayPal	$$0 for standard service $5 for Payments Advanced $30 for Payments Pro	2.29% + $0.09 for card-present or QR payments through PayPal Zettle 2.99% + $0.49 for credit card and debit card payments 2.89% + $0.49 for online card payments through Payments Advanced or Payments Pro 3.49% + $0.49 for digital payments
Clover	$79	2.3% to 3.5% + $0.10
Dharma Merchant Services	$25	Interchange plus 0.15% + $0.08 for in-person transactions Interchange plus 0.20% + $0.11 for online transactions Interchange plus 0.25% + $0.08 for in-person American Express transactions Interchange plus 0.30% + $0.11 for online American Express transactions

Reducing the costs of accepting payments

For small business owners, freelancers, consultants, and entrepreneurs, managing finances is crucial for maintaining profitability and sustaining growth. Credit card processing fees, while often an unavoidable part of accepting payments, can significantly impact your bottom line. Understanding and reducing these fees is not just about saving money—it’s about making informed financial decisions that can lead to better cash flow and more effective budgeting. 

Here are some strategies to help lower these processing costs and keep more of your hard-earned money.

1. Consider adding a surcharge: One way to offset credit card processing fees is by adding a surcharge, which is an additional fee passed on to your clients to cover the cost of processing their payment. Be sure to check your state’s regulations, as surcharges are not allowed everywhere. If you do implement a surcharge, make sure to include any required disclaimers to stay compliant with the law.

2. Shop around for the best rates: Not all payment processors charge the same fees. Take the time to compare different providers and their fee structures. You might find that switching to a different processor can result in lower costs. Additionally, if you have a solid credit history, a high transaction volume, or a long history with a processor, you may be in a good position to negotiate better rates.

3. Negotiate fees: Don’t hesitate to negotiate with your merchant service provider. If you can show an increase in sales volume or a long-term relationship with your current processor, you may be able to secure a lower rate. The more leverage you have, the better your chances of getting a more favorable deal.

4. Implement fraud prevention measures: Chargebacks and fraud can lead to additional fees and higher costs. By taking proactive steps to prevent fraud—such as using secure payment gateways, verifying transactions, and monitoring suspicious activity—you can reduce the risk of chargebacks and associated fees.

5. Set minimum transaction amounts: To avoid paying fees on small transactions, consider setting a minimum transaction amount for credit card payments. This means customers would need to spend a certain amount before using a credit card. Setting a minimum of around $10 can help you avoid processing fees on very small purchases.

Is it legal to pass credit card fees to customers?

The legality of passing credit card processing fees onto customers depends on your location. In some states, you can add a surcharge to cover these fees, but you must follow specific rules, such as clearly disclosing the surcharge to customers before the transaction is completed. However, other states have laws that prohibit surcharging altogether.

To ensure compliance, check the regulations in your state and consult with a legal professional if needed. If surcharging is not allowed, consider alternative ways to manage credit card processing costs, such as adjusting your pricing strategy to absorb the fees.

Why are credit card processing fees so high?

Credit card processing fees can seem high due to several factors involved in the transaction process. Understanding these factors can help you better navigate the complexities of credit card processing fees and make informed decisions about how to manage and reduce them.

Here’s why these fees might be steeper than you’d expect:

1. Transaction complexity: Credit card processing involves multiple parties, including the card issuer, the credit card network, and the payment processor. Each of these entities takes a cut of the transaction, which adds up to higher fees for you.

2. Risk management: Credit card companies and processors take on significant risk with each transaction. They invest in fraud prevention and chargeback management, and these costs are reflected in the fees they charge merchants.

3. Technology and infrastructure: The technology needed to process payments securely and efficiently involves substantial investment. Payment processors use advanced systems to protect against fraud and ensure transactions are completed swiftly, and these costs contribute to the fees.

Market dynamics: The credit card processing industry is competitive, but fees can still be high due to the market structure and the costs associated with maintaining compliance with regulatory standards.

Payment processing for independent businesses

Online payment processors make it easy for independent businesses to accept payments and for your clients to pay invoices quickly and conveniently. Accepting online payments is a way to attract clients and guarantee repeat business.

Using an all-in-one platform that combines invoicing and payment processing is another way to make invoicing and paying bills more convenient for you and your clients. You won’t have to constantly switch between sites to bill clients, communicate with them, and accept payments. Letting clients handle paying their invoices securely in one place could inspire loyalty and trust and provide clients with the best experience.

With the help of a platform like HoneyBook, you can manage all of your client interactions in one location. Sending contracts that comply with legal requirements is easy, and you’ll be notified instantly when clients sign contracts or pay invoices.

Send booking requests and proposals, or use customizable invoice templates and send clients digital invoices. Clients can conveniently use the HoneyBook platform to pay their invoices without going to another website.

Accept credit card payments and more on HoneyBook

Small businesses that accept credit card payments must cover the cost of credit card transaction fees. Independent businesses can reduce some of their costs by being aware of the different types of fees they might incur and implementing strategies to reduce them.

Online payment processing for your clients’ payments is possible through HoneyBook’s platform. On HoneyBook, you can accept multiple forms of payment, including credit cards and ACH transfers. You can mark cash and checks as paid in HoneyBook without incurring any fees, but credit cards and ACH payments are subject to transaction fees.

Compared to other payment processors, HoneyBook has some of the lowest transaction fees on the market. HoneyBook has integrated payment directly into the platform, so independent business owners are not required to look into, set up, or integrate payment processing accounts elsewhere. The HoneyBook payment platform offers benefits for independent businesses, such as automated invoice generation, adjustable payment terms, and specialized dispute support.

On the HoneyBook platform, you can:

• Use legally compliant contract templates
• Get notified when your clients sign documents
• Send proposals to clients
• Schedule bookings
• Use online invoice templates or customizable invoices
• Auto-fill your invoices with information from previous invoices
• Get notified when your clients pay invoices in real-time
• Process online payments, including ACH bank transfers
• Accept credit cards as payment from all the major credit cards
• Set up automatic payments for recurring services or retainer fees

*Starting February 4, 2025, changes to HoneyBook pricing will take effect. Sign up today to lock-in current rates for the next year. Existing HoneyBook members will automatically receive a 20% discount on all plans for one year. Visit the HoneyBook pricing page for more details.