Credit Card Processing Fees: Where Does the Money Go?

Who sets credit card fees?

Credit Card Network/Association

Visa, Mastercard, American Express, and Discover are the big four credit card networks. These electronic networks provide a platform for approving and processing transactions and moving money between banks.

  • Credit card networks set the interchange fee that merchant’s banks are charged to accept a credit card transaction.

  • Networks pay no fees.

Who pays credit card fees?

Merchant’s Bank/Acquiring Bank

During credit card transactions, the acquiring bank processes the purchase information, forwards the data to the issuing bank, receives the payment, and transfers the money to the merchant’s account, minus any applicable fees.

  • Acquiring banks pay an interchange fee to the issuing bank to cover the cost of processing transactions.

Customer’s Bank/Issuing Bank

An issuing bank provides customers with branded credit cards. Also known as a customer’s bank, these banks issue payment to acquiring banks on behalf of customers.

A credit card charge is really a loan by an issuing bank to a customer. The issuing bank borrows the money at a low interest rate and then passes the loan along to the cardholder at an increased rate. For example, an issuing bank may borrow at a 5% APR and loan the money to the cardholder at a 15% APR. The difference in the interest rate is the bank’s gross profit on the loan.

  • The issuing bank pays interest on money that it borrows on cardholders’ behalf.

  • It also pays association fees to the credit card network to cover expenses such as network use, brand appropriation, data integrity, and card validation.


Naturally, fees and expenses trickle down to the merchants who are using their acquiring banks to handle their transactions with customers.

  • Around 2% of a transaction is interchange fees which are split between the credit card network and the issuing bank. Merchants typically build this expense into their prices. Interchange fees are non-negotiable.

  • Some acquiring banks charge a merchant account provider fee in addition to the interchange rate. These are based on sales volume, business models, and transaction types, and they are often up for discussion. Businesses with lower risk of fraud, for example, can often negotiate for lower fees.

  • Merchant banks may also charge setup and monthly fees to cover support, PCI compliance, and account cancellation.

  • Processing fees cover the expenses of actually processing each transaction, and they come in several varieties, including flat-rate, interchange-plus credit card processing fees, and tiered credit card processing fees.

  • With cybersecurity being such a high priority, many banks have begun charging a PCI compliance fee to cover the expense of keeping merchants compliant with Payment Card Industry standards. Occasionally, this is built into an additional monthly processing fee.

  • Customer service fees are tacked on for phone-based customer service support.

  • Training fees are often charged when a credit card processor provides instruction on how to use their system.

  • When a system must be tailored to meet a merchant’s unique needs, a customization fee may be issued.

  • When credit card processing software has be integrated with a business’ accounting software or e-commerce platform, merchant’s banks may charge a system integration fee.

  • Finally, many merchant’s banks include cancellation fees that make putting an end to that relationship costly.

Too many fees to navigate? Contact Precision Payment Systems.

Back in 2013, Precision Payment Systems founder Alison Burns recognized that finding a reliable processor capable of offering competitive rates packages was one more thing that most business owners didn’t have time for.

Today, PPS simplifies credit card processing for businesses in a variety of industries by analysing your business model, customer base, average ticket, and transaction volume to ensure you are getting the best rate guaranteed. We keep your credit card transactions simple by providing top-quality customer service, from re-stocking your ticket paper to answering questions about your software.

Schedule your free consultation today to learn how we can help your business reduce the costs of proliferating fees and make sense of credit card transactions.