Payment Processing Fees by Industry: Average Rates and What Businesses Should Expect

Each industry has a different risk level driven by fraud, chargeback rates, and other factors. For instance, low-risk industries typically have chargeback rates as low as 0.1% to 0.3%. Meanwhile, high-risk industries can easily have chargeback rates of 0.7% to 1.5%. Higher chargeback rates lead to more risks for the payment processor. In turn, these costs get passed on to the merchant.

Unfortunately, chargebacks aren’t the only factor that can increase fees. Some industries, like travel, deal with delayed order fulfillment, refunds, and cancellations. All of these factors contribute to higher average payment processing fees.

Before you can negotiate better terms, it is essential to understand the differences in payment processing fees by industry. To learn more, read on.

TL;DR

• Payment processing fees tend to range between 1.5% and 3.5%, but they can be much higher for high-risk fields.
• A merchant’s individual processing fees will be strongly influenced by the overall processing fees for their industry.
• Each industry has different fulfillment timelines, ticket sizes, payment mixes, and chargeback rates, so the risk level can vary significantly.
• In industries that rely on subscriptions and recurring payments, the risk of chargebacks is much higher.
• On the top end of the spectrum, high-risk industries can pay as much as 3.5% to over 6% in processing fees.

By optimizing their payment setups and encouraging more cost-effective payment methods, merchants can reduce the overall amount they pay in processing fees.

Why Do Payment Processing Fees Vary Between Different Industries? 

Even if you have the same volume and ticket size, you may end up paying more processing fees than a similarly sized business. This is because of the variation in payment processing fees by industry. The average payment processing fees range between 1.5% and 3.5%. However, the benchmark for each industry will vary based on transaction patterns, customer behaviors, and risk levels. 

Even within an industry, the type of card used and how a payment is accepted will impact the fees involved. The following are common factors that influence payment processing costs.

Card-Present (CP) vs. Card-Not-Present (CNP) Transactions

One of the largest differences in fees is due to CNP and CP transactions. CP transactions are less likely to be fraudulent, leading to lower risk and reduced fees. Online, phone, and invoiced transactions are more likely to result in chargebacks and fraud disputes. Because of this, card networks charge higher fees for CNP payments.

In practice, this means that industries with high CNP rates pay more, and industries with low CNP rates pay less. Retail stores and restaurants rely primarily on in-person transactions, so they are charged lower fees. E-commerce, SaaS, and subscription-based businesses use CNP transactions, so they generally face higher costs.

Ticket Size

Ticket size is another factor that impacts fees for each industry. Most of the time, payment processors charge a flat fee and a percentage of each transaction. For example, they might charge $0.20 + 1.5%. This fee structure means merchants processing low-value transactions often pay a higher effective rate because of the flat fee. 

For example, consider a $5 and $10 transaction that are charged $0.20 per transaction and 1.5% of the transaction total.

• $5 Transaction: $0.20 + (0.015 x 5) = $0.28
• $10 transaction: $0.20 + (0.015 x 10) = $0.35

The $10 transaction costs more, but $0.35 is only 3.5% of the transaction total. In comparison, the $0.28 charge for the $5 transaction is 5.6% of the transaction total. As a result, merchants are actually paying a higher effective rate for the $5 transaction.

Ticket size can also affect fees in a different way. When transactions have a high value, especially in a high-risk industry like travel, there is a much larger risk for the payment processor. As a result, industries that have larger transactions often pay more in processing fees.

Chargeback Risks

Processors set fees to compensate for higher risks. When an industry has a high chargeback rate, they often face more account restrictions, additional monitoring requirements, and higher pricing tiers. For instance, travel, SaaS, and subscription businesses have more disputes, so they have to pay higher fees. Retail shops and nonprofit organizations have comparably few disputes, so they are charged lower fees.

Payment Mix

How your customers pay can affect your payment processing costs. Debit cards tend to have the lowest fees. Rewards cards have the highest fees because they provide travel perks, points, and cashback. Regular credit cards sit between the two extremes. 

The travel and restaurant industries often have higher costs because more customers pay with reward cards. Meanwhile, utility providers and grocery stores have lower costs because they often receive a higher share of debit card payments, which incur lower fees.

Business Model

Your business model affects how payments are processed. Subscription-based models are more prone to chargeback disputes and failed payments, so they lead to higher fees. Similarly, travel, events, and other industries that rely on delayed fulfillment have a higher chargeback exposure.

Industry Risk Classification

When you apply for an account, you’ll be assigned a merchant category code (MCC). This code reflects the underlying risk associated with your industry. If you are in a low-risk industry, you’ll be charged a lower rate. Meanwhile, high-risk industries must go through a stricter underwriting process and pay higher rates. 

Refunds and Cancellations

Finally, the incidence of refunds and cancellations in the industry will determine how much merchants are charged. If the industry has a high rate of cancellations or more refunds, they’ll pay more in processing fees. 

It’s also important to note that processing fees aren’t always returned. Even if the original transaction balance is refunded to the customer, the processor may still keep some or all of the original transaction fees.

How Payment Processing Fees Compare Across Common Industries

The average payment processing fees will vary significantly depending on the industry you are in. Delayed fulfillment, refund rates, chargebacks, customer behavior, and fraud risks are just a few of the reasons why these rates can be so different.

Retail

In the retail industry, you often see rates between 1.6% and 2.4%. These companies generally have the lowest processing fees because of the comparably low number of CNP transactions. In turn, a higher rate of debit card usage leads to lower interchange costs. Plus, the immediate fulfillment timeline means in-person retail industries often have significantly fewer chargebacks than CNP-heavy industries.

Restaurants

Meanwhile, restaurants have a processing fee benchmark of 2% to 3%. While they rely primarily on low-risk, in-person transactions, rewards credit cards are heavily used by restaurant patrons. Plus, some orders occur online through apps or via phone, leading to CNP risks. Additionally, tips and varying ticket sizes make processing more complex. Although restaurants still have a rate that is lower than most industries, these factors mean that this industry costs a bit more than retail.

E-Commerce

In general, e-commerce merchants can expect to pay between 2.5% and 3.5%. This industry has an increased incidence of CNP transactions, which leads to a higher rate of fraud and pushes up interchange costs. A lack of physical card verification also increases fraud rates. Unlike in-person retail shops, e-commerce stores have to set up online payment gateways as well, resulting in added payment processing complexity.

SaaS

SaaS merchants generally pay around 2.5% to 3.5% for payment processing services. These businesses have many of the same risks as e-commerce sites, as well as a few extra challenges. 

Often, SaaS uses recurring billing and subscriptions. These can lead to failed payments, chargebacks, and disputes. For example, the customer may forget that an upcoming charge will occur. Alternatively, they may file a chargeback after an unclear cancellation policy led to an additional charge.

On top of risks due to the industry’s billing style, this field also has a high rate of CNP transactions. Because some of the customers are international, they may also use higher-cost cards.

Healthcare 

In the healthcare industry, merchants often pay between 2% to 3%. This industry is generally considered a medium risk. It has a mixture of in-person and CNP transactions. While larger transaction sizes increase the risk from refunds and chargebacks, it typically has a much lower rate of fraud than e-commerce.

Travel

The travel industry normally faces average payment processing fees between 2.8% to 4%. This rate is due to how the industry operates. When customers reserve a hotel room or flight, they do so online and in advance. Because of the delayed fulfillment, there is a higher rate of cancellations and no-shows. Plus, the larger transaction sizes worsen the risk of chargebacks and fraud.

High-Risk Businesses

High-risk businesses can pay a broad range of payment processing costs. For many high-risk businesses, the fees will add up to between 3.5% and over 6% of the transaction cost. These industries have elevated exposure, high chargeback rates, more regulatory requirements, and an increased likelihood of fraud, so processors require them to pay more. 

The following are just a few examples of high-risk businesses.

• Gambling and gaming
• CBD-related businesses
• Vape products
• Nutraceuticals
• Adult content
• Multi-level marketing
• Debt collection

Average Payment Processing Fees for Each Industry

The payment processing fees by industry can vary significantly. The following table is a snapshot of major industries, the processing fees they pay, and the reason why they pay that amount.

Industry	Average Payment Processing Fees	Reason for This Fee Level
Retail	1.6% to 2.4%	Retailers rely heavily on in-person transactions, which are less prone to fraud. Additionally, many transactions are lower risk because they are made with debit cards.
Restaurants	2% to 3%	Rewards cards are used more frequently at restaurants, which can increase the interchange fees.
Hospitality	2.5% to 3.8%	High ticket sizes, increased cancellations, and more no-shows lead to more chargebacks and a higher risk level.
Healthcare	2% to 3%	This industry relies on a mixture of in-person transactions and card-on-file billing. It’s considered a moderate risk.
Travel	2.8% to 4%	High-value transactions, delayed fulfillment, and the potential for cancellations pose significant risks for the travel industry.
E-Commerce	2.5% to 3.5%	CNP transactions increase the risk of fraud.
Subscription-Based Businesses	2.5% to 3.8%	A recurring billing model can lead to more disputes if billing and cancellation processes aren’t clear
SaaS	2.5% to 3.5%	SaaS also relies on subscription billing, which leads to more retries and chargebacks.
Nonprofits	1.8% to 2.9%	This industry tends to have low dispute rates. It’s also eligible for discounted processing rate programs, which reduces the cost even more.

How PayCompass Can Optimize Your Payment Processing Experience

If you are unsure how your fees stack up against the average payment processing fees for your industry, we can help. At PayCompass, we can analyze your existing processing and gateway setup. Then, we can help you compare your interchange fees, assessment fees, and processor markups to the most affordable processing options available in your industry.

Our team can also help you experiment with small changes that can make a major impact on your overall cost. Encouraging debit card payments, adopting ACH options, and using targeted step-up authentication can lower your overall costs. Plus, our smart payment routing and retry logic can help you avoid card declines and boost your authorization rates.

Once we’ve found the right system, our work isn’t done. Through our performance management and monitoring tools, we can track your ongoing performance and make changes as needed. Advanced analytics and reporting allow you to instantly see when chargebacks or fraud rates spike. With these tools, you can easily optimize your payment processing approach as time goes on.

Final Thoughts

Whether you run a brick-and-mortar retail store or an online gambling platform, the right payment processing setup makes a big difference in your revenue stream, approval rates, and overall costs. The first step toward optimizing your processing experience is understanding your industry’s benchmark. 

There are major differences between payment processing fees by industry. Variations in chargeback rates, CNP transactions, fraud levels, fulfillment speeds, and regulatory requirements mean that the processor bears more risk in specific fields. These processing fees end up getting passed on to the merchant.

By understanding your risk profile, you can figure out which processing fees are fair. You can also discover ways to optimize your existing setup so that you can negotiate lower fees and better terms.

To learn more about the typical processing fees for your industry, reach out to PayCompass today.