Credit Card Processing Fees Explained: Interchange, Assessments and Markup

Who gets paid when a customer uses a card

When a customer pays by card, several organizations play a part in approving and settling the transaction, and each takes a share. The total you pay is usually described as your processing cost, but it is really a stack of separate charges. For the step-by-step journey, see how credit card processing works.

The three main layers are:

1. Interchange, paid to the bank that issued the customer’s card
2. Assessments and network fees, paid to the card network, such as Visa or Mastercard
3. Processor markup, paid to your payment provider for its service

Interchange: the largest piece

Interchange is the fee that compensates the card-issuing bank for things like the cost of credit, fraud risk and cardholder rewards. It is set by the card networks, not by your processor, and it is usually the largest component of your cost.

Interchange is not one rate. It varies based on factors such as:

• Card type: debit, standard credit, premium rewards cards and commercial cards are typically priced differently.
• How the card is accepted: card-present transactions often qualify for different rates than card-not-present ones. See card-present vs card-not-present transactions.
• Transaction data: whether certain data is passed with the transaction can affect which rate category applies.
• Merchant category: the type of business you operate.
• Region: rules and rate schedules differ between countries.

Networks publish and update their interchange schedules periodically, and in some markets rates are shaped by regulation or voluntary commitments. Because of that, any specific rate quoted in an article can go out of date. Check the current published schedules or ask your provider for the categories that apply to your business.

In Canada, debit transactions over the Interac network are often priced differently from credit cards. Check your statement to see how they appear.

Why two similar sales can cost different amounts

Because interchange depends on the card and the context, two sales of the same amount on the same day can carry different costs. A customer tapping a basic debit card at your counter and a customer keying a premium rewards credit card into your website are likely to fall into different interchange categories. You did nothing differently, but the inputs changed.

This is also why a month with more online orders, more premium cards or more international customers can show higher costs even though your pricing agreement is unchanged. When you review your statement, look at the card mix and channel mix before assuming something is wrong.

Assessments and network fees

Card networks charge their own fees for using their infrastructure. These are often called assessments, plus a range of smaller network fees that may apply per transaction, per authorization or in specific situations such as cross-border payments. Like interchange, these are set by the networks and passed through by your provider, and the network can change them.

They are typically much smaller than interchange, but they add up, and they can look confusing on a statement because they often appear under abbreviated names. Our guide to reading a processing statement helps decode them.

Processor markup

Markup is what your payment provider charges for its service: processing, the gateway, support, risk management, reporting and payouts. Unlike interchange and assessments, markup is negotiable and is where providers actually compete. It might be expressed as a percentage, a per-transaction amount, a monthly fee or some combination.

A hypothetical worked example

To see how the layers fit together, take a purely hypothetical $100 card sale with round illustrative numbers. These are not real rates and not representative of any card type or provider:

• Interchange: $1.50
• Assessments and network fees: $0.10
• Processor markup: $0.30
• Total cost: $1.90, so the merchant receives $98.10 before any other account fees

The point is the structure, not the numbers. On a real statement, each layer will vary from transaction to transaction depending on the factors above.

How pricing models present these fees

The same underlying costs can be packaged in very different ways:

• Interchange-plus passes interchange and network fees through at cost and adds a disclosed markup. It is the most transparent, because you can see each layer.
• Flat rate charges one blended rate for most transactions. It is simple and predictable, but you cannot see the underlying costs, and the provider sets the blend to cover its expected mix.
• Tiered groups transactions into buckets, often labelled qualified, mid-qualified and non-qualified. It can be hard to tell why a transaction landed in a given tier.
• Subscription or membership pricing passes through cost and charges a fixed monthly fee in place of a percentage markup.

We compare the two most common models in detail in interchange-plus vs flat-rate pricing. To see how Cirqle approaches pricing, visit our pricing page.

Fees beyond the transaction

Transaction costs are only part of the picture. Look for:

• Monthly account or statement fees
• Gateway fees for online processing
• PCI compliance or non-compliance fees
• Chargeback and retrieval fees
• Terminal purchase, rental or lease costs
• Early termination fees in your contract

Chargeback fees in particular can be avoided with good practices. See how to prevent chargebacks.

Calculate your effective rate

The most useful single number is your effective rate: total fees for a period divided by total card volume for the same period. It captures every layer and every extra fee, so it is the fairest way to compare one month to another or one provider to another, provided the volume and card mix are similar. Our fee calculator can help you model scenarios, and our payments glossary defines the terms you will meet along the way.

Practical ways to keep costs down

• Pass complete transaction data and use secure, modern acceptance methods so transactions qualify for the categories they should.
• Reduce chargebacks and keep your PCI status current to avoid avoidable fees.
• Review your statement monthly and question anything you do not recognise.
• If your volume or business has changed significantly, ask whether your pricing still fits. If it does not, read how to switch payment processors.

The bottom line

Processing fees make sense once you separate them into interchange, assessments and markup. Interchange and network fees are set by the card networks and change over time; markup is the part your provider controls. Choose a pricing model you can understand, track your effective rate and read your statement. If you would like a second pair of eyes on yours, contact us.