Why Are Credit Card Processing Fees So High? The Real Reasons Behind Those Painful Charges

In an ideal world, fees wouldn’t be a thing and everyone would keep whatever profits they made. Yet, you could argue that would be unfair to the companies that help to move your money from place to place – they have to earn their cut somewhere along the line, after all. That’s where credit card processing fees come in. Yet, one of the most commonly asked questions is: Why are credit card processing fees so high?Let’s take a deeper look at the complexity that often drives these costs and work to give a solid answer. After all, payment processing costs can easily eat into your profits, and you want to keep as much as possible in your bank account.

TL;DR

• Interchange fees (set by Visa/Mastercard) make up a large percentage of your processing costs and vary wildly based on card type.
• Multiple parties take cuts from every transaction, including card networks, processors, and banks all want their piece.
• Fraud prevention and security requirements cost processors millions, and they pass these expenses to you.
• Visa and Mastercard control most of the market, giving them massive pricing power with little competitive pressure.
• Premium reward cards cost merchants significantly more to process than basic cards.
• Online transactions carry higher fees due to increased fraud risk compared to in-person payments.
• Monthly fees, equipment costs, and penalty charges can double your actual processing expenses.

The Multi-Layer Fee Structure That’s Bleeding Your Business Dry

When you receive a payment by credit card, or indeed if you make your own payment by card, there are several parties involved. It’s easy to think that it’s just the card network, e.g., Visa or Mastercard, but there are many other stages the payment goes through. This creates a series of fees that end up costing you a considerable amount in credit processing fees over a period of time. 

The Card Network Ecosystem: Everyone Wants Their Cut

Card networks, issuing banks, acquiring banks, and payment processors are all part of the chain that ensures smooth processing of credit card payments. Some fees are set, but some vary. You can explore the table below for a clearer idea. 

Party	Role	Fee Type	Typical Rate
Card Networks (Visa, Mastercard)	Payment routing and authorization	Assessment fees	0.13% – 0.15%
Issuing Bank	Issues customer’s credit card	Interchange fees	1.15% – 2.50% + $0.05-$0.10
Acquiring Bank	Processes merchant payments	Various fees	Varies
Payment Processor	Facilitates transaction	Markup fees	0.1% – 1.0% + monthly fees

Interchange Fees: The Monster Eating Most of Your Money

One of the main reasons why credit card processing fees are so high is because of interchange fees. These make up the largest chunk of entire processing costs, and they’re set by the card network, e.g., Visa or Mastercard. Yet, these fees aren’t set; they vary based on things like card type, merchant category, and the transaction method. So, if you’re in the high-risk business category, you’ll end up paying higher interchange fees. 

This can be an issue when you’re looking for a payment processor in general. Many don’t accept high-risk businesses, including Stripe, Square, and PayPal. Yet, that’s where PayCompass swoops in and saves the day. We’re experts in the high-risk category; in fact, we’ve designed our merchant accounts to help you overcome these specific challenges. 

Assessment Fees: The Network Tax You Can’t Avoid

Another part of the average merchant credit card transaction fees picture is assessment fees. This is the amount card networks charge for the privilege of using their network. The good news is that these fees are far less than interchange fees, but they still add extra costs when you want to keep things low. 

Processor Markup: Where Payment Companies Make Their Profit

Of course, payment processors also need to take their cut, and this is in the form of a markup that can be anything from 0.1% to more than 1%. In addition, there may be monthly fees, service fees, and gateway charges. 

Processor markups are part of the reason why it’s so important to carefully select your payment processor. This fee isn’t an ‘across the board’ deal; it varies wildly from choice to choice, and some processors may not advertise everything up front. In that case, hidden fees may be found lurking in their terms and conditions, and may only come to the fore when you find yourself paying more than you realized. For that reason, always look for transparent pricing, with everything clear and upfront. 

At PayCompass, that’s exactly what we offer – competitive and transparent pricing with nothing hidden from day one. 

Risk Management and Security: The Price of Protection

We live in a world where many different types of fraud lurk behind every corner, so security is paramount. Naturally, there are always going to be risks with electronic payments, and this is partly what causes processing costs to be as high as they are. 

When we’re exploring how much credit card companies charge vendors, it’s key to keep a balanced mind in terms of cost versus protection. Payment processors these days prioritize fraud protection and security – and rightly so. The cost of this investment is passed through to merchants, but it’s also something that keeps your business, and your customers, safe.  

Fraud Prevention: Fighting Criminals Costs You Money

When we’re talking about fraud protection, we mean advanced detection systems that make use of sophisticated machine learning algorithms. Additionally, real-time transaction monitoring allows you to keep an eye on everything and spot problems before they occur. These are huge investments that processors have to make, but think about how much cumulative fraud costs they save every single year. 

The checklist below gives some useful hints on what to look for when choosing a payment processor and the fraud prevention measures you can also take. Remember, at PayCompass, we also offer sophisticated fraud protection and real time monitoring as standard. 

Fraud Prevention Checklist:

• ☐ Implement EMV chip card readers
• ☐ Enable address verification service (AVS)
• ☐ Use CVV verification for all transactions
• ☐ Set up real-time fraud monitoring alerts
• ☐ Train staff to recognize suspicious transactions
• ☐ Maintain PCI DSS compliance
• ☐ Review transaction reports regularly

Chargeback Risk: When Disputes Become Your Problem

Chargebacks are a huge headache for both merchants and payment processors alike. This is one of the reasons why some platforms, such as PayPal, don’t accept high-risk businesses. These companies have a higher chance of fraud and more chargebacks compared to lower-risk businesses. Much of the time, credit processing fees are higher because processors pass on the cost of chargebacks to businesses instead. 

However, at PayCompass, we help you overcome this with high-quality chargeback prevention tools. 

PCI Compliance: Security Standards That Cost a Fortune

PCI DSS is a regulation that all businesses and payment processors have to adhere to – it’s not a choice, it’s a mandatory requirement. However, there are costs involved in this, including expensive infrastructure, third-party audits, and compliance monitoring over time. Again, these operational costs are passed through via merchant fees – going some way to answering why credit card processing fees are so high.

Industry Economics: Why Competition Isn’t Driving Prices Down

In most industries, the more competition there is, the lower the prices. Yet, the credit card processing industry doesn’t play by the same rules. Instead, it drives prices up, rather than down. 

The biggest problem is that there is very little strong competition within this industry anyway – Visa and Mastercard control much of it. With increasingly robust regulatory requirements and many barriers to entry into the industry, it’s unlikely to change any time soon. This means that the main power sticks with the major players, and fees remain relatively high. 

The Duopoly Problem: When Two Companies Control Everything

We know that Visa and Mastercard control the overwhelming majority of the credit card market in the US. Obviously, this gives them a huge amount of power over things like interchange fees because there isn’t enough competition to reduce credit card fees in general. In this case, charges can be set from a profitability standpoint, rather than cost concerns. 

Regulatory Burden: Compliance Costs That Never End

It’s probably no surprise that the credit card processing industry is heavily regulated, and these regulations are in place to protect businesses and customers. However, the cost of compliance is hefty, including the need for dedicated staff, monitoring systems, and regular audits. These operational fees are then passed onto customers via fees. 

Anti-Money Laundering: Watching Every Transaction Costs Money

PCI DSS isn’t the only vital regulation that has to be complied with. AML regulations are also key – or Anti-Money Laundering. This requires sophisticated monitoring systems and dedicated staff to spot suspicious patterns and ensure compliance. The human element, along with the technological investments, is what drives up costs that are passed onto customers. 

Know Your Customer: The Expensive Process of Merchant Vetting

You’ve probably heard of KYC, or Know Your Customer. This is a vital step in reducing fraud and ensuring AML regulations are adhered to. However, this is also something which requires a lot of extra training and equipment. There are significant operational costs to conducting merchant background checks, monitoring accounts regularly, and completing the necessary documentation. This is another reason why credit card processing fees are so high. 

Transaction-Specific Costs That Vary Based on How You Get Paid

A little earlier, we mentioned that interchange fees vary depending on the type of transaction. That’s simply because some transactions carry a higher level of risk than others, while being harder to process. The fee structure changes to reflect this, but it can be unpredictable, especially when you don’t know how much of a charge to expect. 

Premium Cards: When Customer Rewards Become Your Expense

If customers pay with a credit card that has a detailed reward program, such as a premium card, it’s likely to have higher interchange fees attached to it. This is the same for cards that have cash back benefits or corporate perks. The reason is because these premium cards are somewhat funded by higher merchant fees, so in effect, you’re subsidizing your customers’ rewards. 

The table below gives a bit more information on how much credit cards charge merchants for various types. 

Card Type	Typical Interchange Rate	Example on $100 Transaction	Annual Cost Difference (1000 transactions)
Basic Consumer Credit	1.51% + $0.10	$1.61	$1,610
Rewards Credit Card	2.10% + $0.10	$2.20	$2,200
Premium Rewards Card	2.40% + $0.10	$2.50	$2,500
Corporate Card	2.50% + $0.10	$2.60	$2,600

International Cards: Foreign Fees That Hurt

Another issue is foreign-issued cards. These carry additional assessment fees and there are also currency conversion costs to take into account – all increasing the overall transaction expense. 

How You Process Matters: Risk Equals Higher Fees

It’s not only the type of card that affects credit processing fees, but how the payment is processed. This is because there are different risk levels associated with specific types of payments, and the higher the risk, the higher the fees. 

Online Payments: The Card-Not-Present Penalty

It’s probably unsurprising that online transactions, as well as phone payments, have the highest fees compared to transactions via chip and PIN. This is due to a much higher risk of fraud because the card isn’t physically there. So, card not present transactions often trigger higher rates in general. 

Manual Entry: The Most Expensive Way to Get Paid

Another high-fee type is a keyed transaction. These don’t have proper card verification, so they have a much higher risk of fraud and chargebacks. In general, when security features aren’t verified, premium rates apply to cover the potential costs of disputes. 

Hidden Fees and Surprise Charges That Add Up Fast

We’ve talked a lot about how much credit card companies charge vendors and why, but there are a few other things to talk about before we finish – namely hidden fees and surprise charges. When you’re not expecting something, it can eat into your profits, while also arriving at a bad time for your cash flow. For this reason, it’s vital to understand the full fee structure when you’re deciding on which payment processor to go with. 

At PayCompass, we’re not about adding extra stress onto your shoulders. We know you’ve got enough to deal with already, without having to worry about nasty financial surprises. That’s why we never throw any hidden fees your way – we’re upfront and transparent about everything. 

Monthly Overhead: The Fees That Never Stop

Some payment processors charge fixed monthly fees, and in some cases, these can be substantial. Small businesses often feel the pinch of these more than larger companies, especially if they have low transaction volumes. Such recurring charges may be for software access, terminals, or payment gateways, and they can significantly increase how much you need to budget to cover all your processing costs. 

The checklist below will help you understand any monthly costs you might encounter, allowing you to make an informed decision. 

Monthly Fee Evaluation Checklist:

• ☐ List all monthly recurring fees from your processor
• ☐ Calculate monthly fees as percentage of transaction volume
• ☐ Compare gateway fees across different processors
• ☐ Determine if your transaction volume justifies the monthly costs
• ☐ Negotiate waiver of monthly fees for high-volume accounts
• ☐ Review contract for automatic fee increases
• ☐ Identify which services are actually being used

Equipment Costs: The Hardware That Keeps on Charging

If you purchase or lease equipment from your processor, this also needs to be factored into your monthly costs. Here, we’re talking about card readers, POS terminals, and software licensing fees. The cost of these may be far more than you realize at first, so it’s important to have a clear idea before you make a decision. 

Penalty Fees: When Problems Become Expensive

Whether payments come through card not present means, mobile payments, or something else entirely, if you’re not compliant with specific parts of your contract, you’ll end up paying penalties. Often, these fees catch business owners by surprise, and, unless you catch them quickly, they can spiral into a huge expense. 

Chargeback Fees: Getting Hit Twice for the Same Problem

When a customer files a chargeback dispute, it’s not only the actual transaction amount you may lose if the dispute is successful. There are additional fees to take into account, which vary between processors. In some cases, there are penalties that are triggered for businesses who hit a specific chargeback ratio. If you’re within the high-risk category, you’ll quickly notice that you spend more on fees than you envisaged. 

For this reason, it’s important to put into place effective chargeback prevention strategies. These not only reduce the number of disputes you need to deal with, but cut down on fees too. And of course, at PayCompass, we help you with this via our chargeback prevention tools. 

Compliance Penalties: The Cost of Falling Behind

There are also high fees associated with not meeting PCI compliance standards. This is a monthly charge that can be anything between $50 to more than $500 depending on the situation and your business. Over time, these penalties quickly build up and can cause significant expenses. That’s why it’s so vital to ensure you’re compliant with these important regulations from the start, while also looking carefully at the tools your processor can give you to ensure you cover your side of the situation. 

Contract Traps: Expensive Exits and Switching Costs

If you decide to change payment processors, you may find that you need to pay early termination and cancellation fees. This can be anything from a few hundred dollars into the thousands. Again, this varies across all payment processors, but it certainly ties you in and stops you from finding the best fit for your needs as your business grows. You may also find that you end up missing out on better rates elsewhere. 

It might sound concerning, but there is some good news – at PayCompass, we’re on hand to help you navigate all of this with ease. We don’t hide anything, we don’t have any surprise fees, and we’re more about helping you than hindering you. 

Final Thoughts

It’s easy to wonder why credit card processing fees are so high. At first glance, it seems like only a few people are involved. You accept the payment, and it should land in your account Yet, we now know that there are several entities involved in the process, and each of these want their slice of the pie. In addition to this, there are many hidden fees that you need to be careful of if you don’t want your profits sliding down the drain faster than you can catch them. 

Of course, opting for the cheapest payment processing deal isn’t always the best idea either. It’s far better to take your time and research exactly what you need before making a decision. That way, you’ll cut costs, get exactly what you need, and your payment processing journey will be a lot smoother as a result. 

While you can’t cut out the need to pay credit card fees completely, you can understand them and side-step the unnecessary ones. This information can revolutionize your payment strategy and keep cash in your bank account where it belongs. If you’re tired of wondering why you need to pay so many charges and you find your payment processor causes more frustration than anything else, it’s time to contact PayCompass. We specialize in helping businesses just like yours cut through the complications and grab cost saving opportunities. We believe you should be the one in control of your processing costs, not the other way around. So, if you’re ready to learn more, reach out to us today. We’re waiting for your call!