Home Business What Are Credit Card Merchant Fees? The Different Types Explained

What Are Credit Card Merchant Fees? The Different Types Explained

What Are Credit Card Merchant Fees? The Different Types Explained
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If your business accepts credit cards, you are likely to know about credit card merchant fees. It’s the processing fee that’s charged on transactions depending on the value of the product being sold. However, this pricing seems to vary across different service providers, and could also include hidden charges.

In this article, we will look at the different types of credit card merchant fees to help you pick the best one for your business!

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But first, let’s understand the basics of a merchant fee.

Types of Credit Card Merchant Fee

There are commonly 3 types of charges included under credit card merchant fees.

  • Flat rate
  • Tiered
  • Interchange

All of these come with different benefits, so it can’t be said that one is better than the other since it varies as per the business requirements, and a business while one may work better for the business model, the other might not.

Flat Rate Pricing 

As the name implies, this one carries a flat charge on every transaction. Meaning, that whenever a customer swipes their credit card to make a purchase, the business could be charged anywhere between 2.75% to 2.9% as a fee. This is a simple calculation and is ideal for small business owners who have a small percentage of their client base transacting via credit cards. Therefore, if most of your customers prefer to pay using other payment modes as opposed to paying via cards, this is an ideal option for the business. However, keep in mind that in case your business processes a few high-value transactions every month exceeding a certain threshold, then you are better off with a tiered option since the flat rate charges could end up being quite high using a credit card EMI  calculator.

Tiered Pricing 

The tiered pricing type model is broken down into 3 levels:

  • Qualified
  • Mid-Qualified
  • Non-Qualified

Let’s understand the differences between the three.

  • Qualified: It comes with the lowest rates and is offered when a business typically swipes the card for transactions or in case of the card being a normal one without a rewards program built-in.
  • Mid-Qualified:  This is a tad more expensive than the former since it is mostly used for online transactions where the card details have to be manually typed in by the customers.
  • Non-Qualified: This comes with the highest fees since all transactions falling under this category are considered risky. This means, that whenever it’s not possible to accept in-person card payments, or the credit card is a rewards card.

Interchange Pricing 

Interchange pricing models include the interchange fee that is charged by the card networks and a small markup fee that is charged by the credit card processor. This is ideal for businesses with large volumes of sales since everything is transparent in this model and businesses get charged for actual processing. However, since not every customer uses the same credit card; the fee that’s charged is often only realized once the merchant statement gets generated at the end of each month.

As you may have realized by now that these charges come with their own pros and cons and you must choose one carefully depending on the size and scope of your business. While flat rate pricing is great for smaller businesses, interchange pricing is better for businesses with a varied customer base all using different cards across networks through payment gateway.

Now that we have the basics covered for each one of them, we hope you would be able to choose one that’s the most ideal for your business and offers you the most cost effective solution whenever you charge a customer’s credit card!


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