What is a Credit Card Processing Fee?

Jessica Ellis

A credit card processing fee is a commission charged by credit card companies and banks to merchants that allow credit transactions. These fees are used by lenders to fund rewards programs and other operating costs. The amount of a credit card processing fee can depend on many different factors, including the lender and local laws.

Credit card logos.
Credit card logos.

The use of cash and checks has diminished rapidly since the introduction of credit and debit cards. More compact and convenient, many people rely on cards for daily transactions as well as large purchases. What some do not know is that using a credit card reduces the amount of profit that goes to the merchant, thanks to the credit card processing fee system.

Interchange fees make up the majority of fees paid by retailers who accept credit cards.
Interchange fees make up the majority of fees paid by retailers who accept credit cards.

A credit card processing fee is usually divided into two parts: the greater amount goes to the bank that issued the card, while a small amount goes to the credit card company. Each bank and credit card company may have different rules and regulations that define the fee amount. The total amount is generally under 3% of the total transaction, but within this limit may vary widely depending on a variety of parameters.

Certain types of businesses may incur a higher credit card processing fee. According to the 2009 fee schedule for one major credit card company, the credit card processing fee for hotels and car rentals was generally considerably higher than that for supermarkets or general retail stores. The fee rate may also vary depending on the type of credit card account and the account priority level; for instance, a diamond or platinum card, reserved for account holders with very high balances, may have a different fee schedule than a basic low-level credit card from the same company or lender.

In addition to charging a percentage of the transaction, it is also standard to charge a flat fee per transaction as part of the credit card processing fee package. When added up against the cost of the goods, low-value transactions can actually cause merchants to lose money on the transaction. Many credit card companies do not allow merchants to pass this fee onto the consumers. Merchants are usually allowed to offer discounts for using cash as an incentive, however.

Credit card processing fees can be a major issue in cases of identity theft. One form of identity theft uses online merchant websites to test credit card numbers and expiration dates for a workable combination. Since thieves may need to do this hundreds or thousands of times to find a match and merchants are often charged processing fees for failed transactions, this can lead to serious losses for online merchants. Experts recommend using theft-protection programs that identifies theft patterns quickly to prevent losses, or that locks out a user after a certain amount of failed attempts.

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