12 Credit Card Processing Fees for Small Business, Explained

When it comes to credit card processing fees, small businesses have valid questions. What services do these fees cover? Which ones are standard, and which ones are up for debate? 

Fortunately, fees don't have to be mystifying. This article offers simple definitions for navigating a standard credit card processing agreement.

Credit Card Processing Fee #1: Transaction Fee

Among credit card processing fees, small businesses can't avoid transaction fees. Payment processors charge a transaction fee when they exchange information with your business. This applies whether you use a credit card machine or software.

Don't confuse this with a transaction rate, which is a percentage based on the volume of a transaction.

Credit Card Processing Fee #2: Processing Fee

The next credit card processing fee small businesses should know is a processing fee. This type of fee is set by individual credit cards, such as Visa or Mastercard. While there is some variation, you can count on paying around 2% of each sale. 

The good news is that processing fees are often negotiable. Before settling on a payment processor, ask if they can offer a better rate than the one advertised.

Credit Card Processing Fee #3: Authorization Fee

Authorization fees are one of the core credit card processing fees small businesses pay. 

Why is authorization so important? It's an important way to prevent credit card fraud. In fact, it's not possible to complete a credit card transaction without authorization.

An authorization fee covers the steps necessary to complete the process. No matter what type of payment processor you use, it will authorize transactions with your customer's bank.

After verifying the customer's identity and available funds, the transaction will go through.

Credit Card Processing Fee #4: ACH Batch Fee

The next credit card processing fee small businesses should know about is an ACH batch fee. Most merchants process credit card transactions once per day. This process is called batching.

Merchants pay a small fee for each batch of credit card transactions. In most cases, this fee is insignificant — you can expect to pay less than $1 per batch.

Credit Card Processing Fee #5: Voice Authorization Fee

Voice authorization is another security feature. Unlike the authorization process described above, voice authorization isn't used for every transaction. In most cases, voice authorization only occurs if a transaction attracts suspicion.

If required, a customer will have to approve and confirm the transaction over the phone. 

For example, an expensive purchase might trigger voice authorization. A purchase made in an unusual location, such as a foreign country, could require voice authorization, too.

Fortunately, voice authorizations are relatively rare. If they do occur, merchants usually pay a flat fee. Though the cost can vary, it's unlikely that the fee would be significant. Some processors charge as little as 75 cents.

Among all the credit card processing fees small businesses could pay, voice authorization is worth the added security.

Credit Card Processing Fee #6: Address Verification (AVS) Fee

Address verification is another credit card processing fee small business may have to pay. 

Address verification might occur as part of the overall authorization process. In this process, the customer's address should be the same for both their bank and their credit card billing address. 

Note that the match could be imperfect without indicating fraud. 

Credit Card Processing Fee #7: Encryption Fee

With cybercrime on the rise, all merchants need to protect their customers from fraud. While parsing credit card processing fees, small businesses might encounter an encryption fee.

If you're asked to pay this fee, don't hesitate. It's typically a fraction of a cent — well worth the investment in your customers' safety.

Credit Card Processing Fee #8: Application Fee

An application fee might appear among credit card processing fees for small business. Typically, application fees don't deal with applying to work with a payment processor. Instead, an application fee applies to credit customers who have bad credit.

Experts warn that high application fees can cannibalize a customer's credit limit. 

Credit Card Processing Fee #9: Minimum Processing Fee

A minimum processing fee is one of the most intuitive credit card processing fees small businesses can encounter. As the name suggests, this fee occurs if merchants' transaction processing fees don't equal an established minimum. 

This fee is most likely to apply to merchants who have low monthly sales. It ranges from approximately $10 up to $35 on the high end. However, most merchants have a high enough sales volume to avoid this fee altogether.

Credit Card Processing Fee #10: Early Cancellation Fee

If there's one credit card processing fee small businesses should question, it's an early cancellation fee.

An early cancellation fee resembles an apartment lease. If you decide to move six months into a twelve month lease, there are two possible outcomes. You could have to pay a fixed fee to break your lease. (Some landlords simply keep your security deposit.) Or, you may be responsible for paying the remaining six months' rent. 

Similarly, a payment processor might charge a flat fee if you break away early. In other cases, they might attempt to charge liquidated damages, which amount to what you would have paid if you remained their client. 

Needless to say, a flat fee provides greater transparency and peace of mind. You may be able to negotiate for a flat early cancellation fee — or even no cancellation fee at all.

Credit Card Processing Fee #11: Monthly Statement Fee

As more companies go green, some are charging a fee for paper versions of monthly statements. Today, you might see surcharges of $2-3 for each paper bank statement.

This is one credit card processing fee small businesses can avoid by going digital. Plus, experts point out that avoiding paper statements can increase security. 

Credit Card Processing Fee #12: Annual Membership Fee

If a payment processor charges an annual membership fee, be on high alert. As far as credit card processing fees for small businesses go, experts say annual membership fees are "generally bogus."

It's possible that a payment processor will charge an annual fee instead of a monthly one. But it's worthwhile to confirm so you know what you're signing up for.

Want deeper insight into credit card processing for small business? Download our free fact sheet to learn more about credit card payments today!