The three layers of every card fee
When a customer pays $100 by card, the money passes through four parties: the customer's bank (the issuer), the card network (Visa, Mastercard, Discover or American Express), the merchant's bank or processor (the acquirer), and whoever sold you the account (an ISO, a payment facilitator or the processor's own sales team). Each takes a slice, and your statement is those slices added up.
- Interchange goes to the issuing bank. The networks publish the rates, the bank collects them, and no processor can change them. This is usually 70 to 85 percent of your total cost.
- Assessments and network fees go to the card networks. Also published, also non-negotiable, and small: roughly 0.13 to 0.15 percent plus a few cents per transaction, plus some fixed monthly items.
- Processor markup goes to the acquirer and the ISO. This is the only layer a merchant can negotiate, and the only layer that varies from one provider to the next. Every pricing model is really a different way of packaging this layer.
A $100 sale on a consumer rewards credit card, card present
| Layer | Who receives it | Approximate amount |
|---|---|---|
| Interchange (roughly 2.10% + $0.10) | Issuing bank | $2.20 |
| Assessment (roughly 0.14%) and per-item network fee | Card network | $0.16 |
| Processor markup (example: 0.25% + $0.10) | Acquirer / ISO | $0.35 |
| Total cost | $2.71 (2.71%) | |
| Deposited to the merchant | $97.29 |
The reason this matters: a statement that shows one blended rate is hiding the split. A statement that shows all three layers lets you check the first two against published tables and negotiate the third.
Interchange: what moves the rate
Interchange is not one rate. Visa and Mastercard each publish a few hundred categories, and every transaction lands in exactly one of them based on the answers to a handful of questions:
- What kind of card is it? Debit is cheaper than credit. Basic consumer credit is cheaper than rewards or premium credit. Commercial and business cards are the most expensive. A debit card from a large bank (over $10 billion in assets) is capped by federal regulation; the same card from a small bank is not.
- How was it presented? Chip or tap in person costs less than a card-not-present transaction, which costs less than a card number typed into a terminal by staff.
- What data came with it? Address verification (AVS) on keyed and online transactions, and Level 2 or Level 3 line-item data on commercial cards, each qualify the transaction for a lower category.
- What is your business type? Some merchant category codes (MCCs) have their own rates: supermarkets, fuel, utilities, charities, government and a few others.
- How fast did you settle? Batches that settle more than a day or two after authorization can fall out of the best category.
The table below gives the shape of the current US rate card. Treat it as orientation, not a price list: the networks update interchange every April and October, and the exact category names differ between Visa and Mastercard.
| Card and situation | Approximate interchange | Notes |
|---|---|---|
| Regulated debit (issuer over $10B in assets), any channel | 0.05% + $0.21 | Capped by the Durbin amendment; an extra $0.01 applies when the issuer has a fraud program |
| Exempt debit (small bank), card present | 0.80% + $0.15 | Prepaid cards are similar |
| Exempt debit, card not present | 1.65% + $0.15 | |
| Consumer credit, basic, card present | 1.50% + $0.10 | The category most retail quotes are based on |
| Consumer credit, basic, card not present | 1.80% to 1.95% + $0.10 | Requires AVS and a clean authorization to qualify |
| Consumer rewards / premium credit, card present | 2.10% to 2.40% + $0.10 | Signature Preferred, World Elite and similar |
| Consumer rewards / premium credit, card not present | 2.40% to 2.70% + $0.10 | |
| Commercial and business credit | 2.50% to 2.95% + $0.10 | Drops by roughly half a point or more with Level 2 or Level 3 data |
| Standard / downgraded (any card that missed its category) | 2.70% to 3.15% + $0.10 | See the downgrades section |
US consumer and commercial cards, approximate, for orientation only. American Express sets its own rates under its OptBlue program, typically between 2.3% and 3.3% plus a per-item fee, and is billed by the processor rather than by the card brand.
Two practical consequences follow. First, the mix of cards your customers carry sets a floor under your costs that no processor can lower. Second, the way your staff and systems present transactions does move the number, which is why the downgrades section below is worth reading twice.
Assessments and network fees
The networks charge for the use of their rails separately from interchange. These fees are small individually and appear as a cluster of oddly named lines. The important ones:
| Fee | Approximate amount | What it is |
|---|---|---|
| Visa assessment / Mastercard assessment | 0.13% to 0.14% of volume | The basic network fee on every transaction. Mastercard charges slightly more on transactions over $1,000 |
| Visa Acquirer Processing Fee (APF) / Mastercard NABU | About $0.02 per authorization | A per-attempt fee, charged on declines too |
| Visa Fixed Acquirer Network Fee (FANF) | A few dollars to a few hundred dollars per month | Fixed monthly, based on number of locations for card-present merchants and on volume for card-not-present merchants |
| Mastercard Digital Enablement Fee | About 0.02% of card-not-present volume | Only on card-not-present transactions |
| International service assessment / cross-border fees | Roughly 0.4% to 1.2% of the transaction | When the card was issued outside the US; a currency conversion fee may stack on top |
| Misuse of Authorization, Zero Floor Limit, Transaction Integrity Fee | Cents per transaction | Penalty fees for authorizations that were never settled or reversed, settlements with no matching authorization, and debit transactions that missed the qualified category |
Approximate US amounts. The networks publish these; your processor should pass them through at cost.
Assessments are not negotiable, but they are checkable. If the assessment line on your statement is meaningfully above 0.14 percent of the matching volume, the processor is padding it. The penalty fees in the last row are also worth watching: a steady stream of Misuse of Authorization charges means your system is authorizing and then not settling, which is a fixable process problem.
The pricing models, and what each one hides
Every processor charges you interchange plus assessments plus their markup. The pricing model is just how they present it.
Interchange-plus (also called cost-plus or pass-through)
You pay the actual interchange and assessments for each transaction, plus a fixed markup, quoted as a percentage and a per-item fee, for example 0.25% + $0.10. The statement lists interchange by category so you can check it against the published tables. This is the most transparent model and, for most businesses above a few thousand dollars a month, the cheapest. The markup is the whole negotiation.
Flat-rate
One rate for everything, for example 2.6% + $0.10 in person or 2.9% + $0.30 online, with a higher rate for keyed transactions. Simple to understand and cheap to set up, which is why payment facilitators use it. The catch is that the flat rate is set high enough to cover the most expensive cards, so every debit and basic credit transaction is overpaying. It suits low-volume or highly seasonal businesses and businesses that value predictability over cost.
Tiered (qualified, mid-qualified, non-qualified)
The processor sorts each transaction into two, three or four buckets with a rate for each. The problem is that the processor decides which bucket a transaction goes in, and the definitions are not published. Debit cards and rewards cards, which have very different costs, can end up in the same tier. Tiered statements are the hardest to audit and the model most associated with quiet rate increases. If your statement shows lines labelled qualified, mid-qualified and non-qualified, you are on tiered pricing.
Subscription or membership pricing
A fixed monthly fee, for example $99, plus interchange and assessments at cost plus a small per-item fee, for example $0.08, with no percentage markup. This is interchange-plus with the markup moved into a monthly fee. It is good value for businesses with high volume and high average tickets, and poor value for low volume.
A worked example
Take a business doing $50,000 a month across 1,000 transactions, an average ticket of $50, all card present, with a typical card mix: 30 percent regulated debit, 20 percent exempt debit, 35 percent consumer credit (half of it rewards), 15 percent commercial. Using the approximate interchange above, the pass-through cost comes out near $750 of interchange and $90 of assessments and per-item network fees, about 1.7 percent, before any processor markup. The table shows what the same month costs under each model. The markups are typical quotes, not the best or worst available.
| Model | Quoted as | Monthly cost | Effective rate | Can you verify it? |
|---|---|---|---|---|
| Interchange-plus | 0.25% + $0.10, $10/month | about $1,090 | 2.2% | Yes: every interchange line can be checked against the published tables |
| Subscription | $99/month + $0.08 per item, interchange at cost | about $1,030 | 2.1% | Yes, same as interchange-plus |
| Tiered | 1.69% / 2.29% / 3.19% + $0.10 to $0.15 | about $1,250 | 2.5% | No: the processor decides which tier each transaction lands in |
| Flat-rate | 2.6% + $0.10 | about $1,400 | 2.8% | Trivially, but there is nothing to negotiate |
Illustrative. Real interchange depends on your actual card mix, and the markups shown are typical rather than negotiated.
Note that the gap between the models grows with volume. At $5,000 a month flat-rate is often the sensible choice. At $50,000 the difference above is more than $3,500 a year; at $500,000 it is the salary of an employee.
Anatomy of a statement
Statement layouts vary by processor, but almost all of them contain the same six blocks. Find each one on yours before you try to read the numbers.
- Summary. Total sales volume, transaction count, total fees, and the net amount deposited. This is where you get the inputs for your effective rate.
- Deposits. A list of daily batch deposits. Under monthly discount, deposits equal gross sales and all fees are debited once a month. Under daily discount, fees are netted out of each deposit, so no deposit ever matches a day's sales. Daily discount is why so many bookkeepers cannot reconcile card deposits.
- Interchange detail. Only present on interchange-plus and subscription pricing. One line per interchange category, each showing the category name (for example "VS CPS RETAIL CR" or "MC WORLD ELITE"), the number of transactions, the volume, the rate, the per-item fee and the total. This is the block to audit.
- Assessments, dues and network fees. The network items from the section above, usually labelled with the network's abbreviation.
- Processor fees. Everything charged by the acquirer and ISO: the markup (sometimes called the discount rate), per-authorization fees, monthly service or statement fees, gateway fees, PCI fees, batch fees, chargeback and retrieval fees, and any minimum monthly charge.
- Adjustments. Chargebacks and their reversals, ACH returns, and corrections to previous months.
What an interchange-plus fee block typically looks like (simplified excerpt; a real statement lists many more interchange categories)
| Description | Count | Volume | Rate | Per item | Amount |
|---|---|---|---|---|---|
| VS CPS RETAIL DEBIT (regulated) | 298 | $14,905.10 | 0.050% | $0.22 | $73.01 |
| VS CPS RETAIL CREDIT | 171 | $8,611.44 | 1.510% | $0.10 | $147.13 |
| VS SIGNATURE PREFERRED RETAIL | 88 | $4,487.20 | 2.100% | $0.10 | $103.03 |
| MC WORLD ELITE MERIT 3 | 84 | $4,290.00 | 2.300% | $0.10 | $107.07 |
| MC COMMERCIAL DATA RATE I | 61 | $3,102.55 | 2.650% | $0.10 | $88.32 |
| VS EIRF (downgrade) | 14 | $702.00 | 2.300% | $0.10 | $17.55 |
| VI ASSESSMENT | $28,705.74 | 0.140% | $40.19 | ||
| MC ASSESSMENT | $21,294.26 | 0.130% | $27.68 | ||
| VI APF / MC NABU | 1,000 | $0.0195 | $19.50 | ||
| VI FANF | $15.00 | ||||
| DISCOUNT RATE (markup) | $50,000.00 | 0.250% | $125.00 | ||
| AUTHORIZATION FEE | 1,000 | $0.10 | $100.00 | ||
| MONTHLY SERVICE FEE | $10.00 |
Two habits make this block readable. Compare each interchange rate to the published table for that category; they should match to the basis point. And add up everything that is not interchange or assessment; that total is the markup, whatever it is called.
Your effective rate, and what a good one looks like
The effective rate is total fees divided by total volume for the month. It is the one number that lets you compare offers, months and providers regardless of pricing model.
Effective rate = (all card processing fees for the month) ÷ (gross card volume for the month)
Include every fee on the statement: interchange, assessments, markup, monthly fees, PCI fees, gateway fees, chargeback fees. Exclude the chargeback amounts themselves and any equipment lease, which are not processing costs.
Rough benchmarks for a US merchant with an ordinary card mix, after all fees:
| Situation | Typical effective rate | Worth investigating above |
|---|---|---|
| Card present, retail or restaurant, interchange-plus | 1.8% to 2.3% | 2.6% |
| Card present, flat-rate | 2.5% to 2.9% | Consider switching models above $10,000 a month |
| Card not present (online, invoicing, phone), interchange-plus | 2.4% to 3.0% | 3.3% |
| Card not present with many commercial cards, Level 3 data | 2.0% to 2.6% | |
| Keyed phone orders with no AVS | 3.0% to 3.6% | This is a process problem, see downgrades |
Ranges vary with average ticket and card mix; a business selling $8 items pays a higher percentage because of the per-item fees.
Track the number monthly. A slow drift upward with no change in your business almost always means either a rate increase buried in a notice you did not read, or a growing share of downgraded transactions.
Downgrades: paying more for the same card
A downgrade is a transaction that qualified for a good interchange category but was processed in a way that pushed it into a worse one. On the statement they show up under names like EIRF, Standard, Non-Qualified or Data Rate I. They are the most common reason two businesses with the same processor and the same customers pay different rates.
The usual causes, and the fix for each:
| Cause | What happens | Fix |
|---|---|---|
| Batch settled late | Transactions authorized more than a day or two before settlement lose their qualified category | Auto-close the batch daily; check that the terminal or gateway is actually settling |
| Keyed transaction without AVS | A card typed in without address verification is priced as high-risk | Collect ZIP and street number on every keyed transaction, or stop keying cards (see below) |
| Commercial card without Level 2 / Level 3 data | Business and purchasing cards fall to the top commercial rate | Send tax amount and customer code (Level 2) and line items (Level 3) on B2B invoices |
| Settled amount differs from the authorized amount | The transaction misses the qualified category and may trigger a Misuse of Authorization fee | Authorize for the final amount; use incremental authorizations where tips or adjustments are normal |
| Recurring charge sent without stored-credential flags | The issuer treats it as an unqualified card-not-present transaction and declines more often | Flag the first transaction and every follow-on as merchant-initiated; see CIT vs MIT |
| Phone orders keyed by staff | MOTO transactions carry the worst consumer rates and the highest decline rates | Send the customer a link so they enter the card themselves: a text-to-pay or emailed link is a customer-initiated e-commerce transaction with AVS and CVV |
The last row is the one most service businesses miss. A payment the customer completes on a hosted page is priced and risk-scored as an e-commerce transaction with full verification data, while the same card read out over the phone and typed by an employee is the most expensive and least likely to be approved version of the same sale.
Fees that are not really fees
Some lines on a statement pay for nothing. Others pay for something real but are priced far above cost. Go through this list against your last three statements.
| Line item | Typical amount | Verdict |
|---|---|---|
| PCI non-compliance fee | $20 to $40 per month | Avoidable: complete the annual self-assessment questionnaire and it goes away. A plain "PCI compliance fee" of a few dollars is common and less objectionable |
| Annual fee | $50 to $150 | Negotiable, usually removable |
| Statement or paper fee | $5 to $15 per month | Removable; ask for electronic statements |
| Batch fee | $0.10 to $0.35 per batch | Legitimate but small; matters only if you settle many batches a day |
| Regulatory, compliance or "network" fee from the processor | $5 to $20 per month | Often a made-up line; ask exactly which network charges it |
| Monthly minimum | $10 to $25 | Only bites in slow months; negotiable |
| Gateway fee | $10 to $30 per month plus cents per transaction | Legitimate if you use a gateway; watch for being charged twice, by the gateway and by the processor |
| Chargeback fee | $15 to $25 per dispute | Legitimate; the way to reduce it is fewer chargebacks, see chargeback prevention |
| Early termination fee | $250 to $500, or "liquidated damages" | Negotiate it out before signing; it is why ISOs can be relaxed about raising rates later |
| Equipment lease | $30 to $100 per month for years | Almost never worth it; a terminal costs a few hundred dollars to buy |
| Padded interchange or assessment | A few basis points on every transaction | Compare the rates on your statement to the published tables; any difference is markup in disguise |
A ten-step statement review
- Pull the last three monthly statements. One month can be unusual; three show the pattern.
- Compute the effective rate for each month using the formula above.
- Identify the pricing model from the fee block: interchange categories listed means interchange-plus; qualified and non-qualified tiers means tiered; one rate means flat.
- If you are on interchange-plus, spot-check five interchange lines against the current published Visa and Mastercard tables.
- Find every downgrade line (EIRF, Standard, Non-Qualified, Data Rate) and total them. Anything above a few percent of volume is a process fix waiting to happen.
- List every fee that is not tied to a transaction. Decide which are legitimate, which are negotiable, and which should simply go.
- Check how you are taking card-not-present payments. Keyed phone orders should move to a link the customer completes.
- If a meaningful share of your invoices are large, consider ACH for them. A bank debit is typically a flat fee of under a dollar rather than a percentage.
- Ask your current provider for an interchange-plus quote in writing. Ask two others for the same. Compare the markup and the monthly fees only; everything else is identical.
- Put a reminder in the calendar to repeat this every quarter. Rate notices arrive as a paragraph on page four of a statement, and the increases compound.
Where FloPay fits
FloPay does not set your processing rates; the processor you connect does. What the platform changes is how much of your volume lands in the good categories and how easily you can see what each provider is costing you.
- Multiple providers on one dashboard, so you can add a second processor for a quote comparison, or move volume, without changing your integration.
- Routing by percentage or provider, so a cheaper account for a particular card type or channel actually receives that traffic.
- Text to pay and hosted checkout turn keyed phone orders into customer-initiated transactions with AVS and CVV, which is the single biggest downgrade fix for service businesses.
- ACH for large invoices where a percentage fee makes no sense.
- Analytics that show volume, declines and approval rates by provider, so the statement numbers can be checked against the transaction data behind them.
See every processor on one screen
FloPay puts multiple gateways behind one integration, routes volume where you want it, and shows declines and approval rates by provider. Bring a statement and we will walk through it with you.
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