Transaction Fees are costs that merchants incur every time a customer purchases goods or services using a credit card, debit card, or another type of payment card.
These fees are usually composed of a percentage of the transaction amount plus a fixed fee and are paid to various entities involved in processing the payment, including the following:
- the issuing bank
- acquiring bank
- payment processor
For example, a transaction fee may be 2.5% of the transaction amount plus $0.10. So, for a $100 purchase, the merchant would incur a fee of $2.60 ($2.50 + $0.10).
These fees can vary based on a variety of factors, such as the type of card used, the method of transaction (e.g., swiped, keyed-in, online), the merchant’s industry, and the merchant’s agreement with their payment processor.
Some payment processors offer flat-rate pricing, where the merchant pays the same rate for all transactions, regardless of the type of card used or how the transaction is processed. Others may offer interchange-plus pricing, where the merchant pays the interchange fee set by the card networks plus a markup charged by the payment processor.