How Merchant Fees Work: Types of Merchant Fees Explained

Managing an ecommerce budget means keeping a close eye on every expense—from shipping and fulfillment to marketing and platform fees. But one cost that often slips under the radar is merchant fees: the charges tied to processing credit card payments.

These fees might seem negligible, but as your sales grow, they can add up—and they can seriously affect your bottom line. In 2024 alone, US businesses spent more than $187 billion in fees to process nearly $11.9 trillion in card payments, according to the Nilson Report. Here’s what you need to know to stay informed and in control.

What are merchant fees?

Merchant fees are fees businesses pay to accept debit or credit card transactions. Your payment processor—the company that handles transactions—typically charges a single fee, often a small percentage of the sale plus a flat amount (e.g., 2.5% + 30¢).

Your payment processor then splits the fee accordingly:

• The payment processor keeps a portion of the fee for its services.

• The customer’s issuing bank (e.g., Chase Bank or Capital One) gets a cut as compensation for managing the payment card, the associated accounts, and the risk involved in extending credit.

• The customer’s card network (e.g., Visa or Mastercard) gets part of the fee to cover the costs of maintaining the card networks, network infrastructure, fraud prevention measures, and other services.

These fees are usually deducted from the transaction amount before you receive your funds. Your payment processor may add other fees, too, like an optional monthly subscription for additional features. If you use Shopify Payments, for example, a basic plan starts at $29 per month, which you pay in addition to credit card transaction fees. A higher tier of service entails lower transaction fees.

Common merchant fees

• Assessment fees
• Interchange fees
• Minimum monthly fees
• Monthly statement fees
• Payment gateway fees
• Payment processing fees
• Setup and equipment fees
• Chargeback fees
• Early termination fees
• Incidental fees

Here are some of the common merchant fees you may pay for credit card transactions and debit card transactions:

Assessment fees

Card networks like Visa, Mastercard, and American Express charge merchants this fee for running credit card payments through their rails. You won’t pay this type of fee directly to the card networks. Instead, your payment processor bakes the fee into your total processing costs and routes the appropriate amount to the card network.

Interchange fees

Interchange fees are the transaction fees your customer’s issuing bank charges every time someone makes a purchase with a credit or debit card. These fees are set by the card networks (like Visa and Mastercard) and are paid by your payment processor, which passes the cost on to you.

These rates vary based on factors like your industry, transaction method, and risk level. Online transactions, for example, typically cost more due to a higher fraud risk.

Together, the interchange fee and assessment fee makes up what’s known as credit card processing fees or swipe fees—the total amount that it costs to accept a card payment.

Minimum monthly fees

Some payment processors require you to hit a certain amount in processing fees each month. If you fall short because of a sales slump, you may be charged the difference.

Monthly statement fees

Some processors charge a small monthly fee for generating and sending your transaction summaries. While modern ecommerce platforms have mostly eliminated this, it still lingers with some legacy providers.

Payment gateway fees

A payment gateway securely passes your customer’s card info from your online checkout to the processor. If your processor doesn’t come with a built-in gateway, you may need to pay for one separately. Expect either a per-transaction fee, a monthly charge, or both.

Payment processing fees

Payment processing fees cover the costs of handling card payments and go directly to your payment processing provider (like Shopify Payments).

Some providers charge a flat rate per transaction, others use a percentage-based model, and some combine both. Depending on your provider, you might also pay monthly service fees. 

Setup and equipment fees

Most ecommerce stores don’t need physical point-of-sale (POS) hardware, but you might still run into setup fees if you’re opening a merchant account with a traditional provider. Shopify waives setup fees.

Chargeback fees

If a customer disputes a charge—maybe they didn’t recognize it or claim the item never arrived—you could face a chargeback. On top of refunding the payment, you’ll likely pay a fee to your processor to handle the dispute, which can range from $15 to $25 or more.

Early termination fees

If you signed a long-term contract with your payment provider but decided to switch early, you might face cancellation fees. This isn’t an issue with most modern ecommerce platforms, but is still something to watch for in your payment processor agreement.

Incidental fees

These one-off or add-on charges vary by provider. You may, for example, pay extra for paper statements, batch processing, PCI non-compliance, or even account maintenance. Not all providers charge them, but it’s worth checking the fine print.

Merchant fee pricing models

• Flat-rate
• Interchange-plus
• Tiered

Merchant fee pricing can be flat-rate, interchange-plus, or tiered rates, which dictate how your payment processor charges you for each card transaction. Here’s how they differ:

Flat-rate

Flat-rate pricing is exactly what it sounds like: You pay the same processing fee for every transaction, no matter what card your customer uses. It’s a popular choice for ecommerce businesses because it’s easy to understand and helps estimate costs.

With this model, the payment processor combines the interchange fee, assessment fee, and payment processor markup into a set amount. It includes a fixed percentage of the total card transaction plus a small dollar amount. For example, the Shopify Basic plan starts at 2.9% + 30¢ for online sales.

Interchange-plus

Interchange-plus pricing is one of the most transparent credit card processing models, making it a popular choice for ecommerce merchants who want to see exactly what they’re paying for. With this model, the payment processor charges a consistent, flat markup and passes the interchange fees directly to the merchant.

The fee structure consists of:

• An interchange fee paid to the cardholder’s bank

• An assessment fee charged by the card network

• Payment processing fees, which are the markup or the “plus” part

For instance, if a customer pays $100 with their credit card in person, the fees might be:

• Interchange fee: 0.15% + 4¢

• Assessment fee: 0.08%

• Payment processing fees: 0.2% + 5¢

Each transaction’s fees can vary based on the card type, payment method, and risk factors, but the pricing model itself is straightforward—no hidden fees or confusing rate tiers. In the above example, the total merchant fee would be 52¢.

Tiered

With tiered pricing, your payment processor groups credit card transactions into categories—like “qualified,” “mid-qualified,” and “non-qualified”—and assigns a different rate to each. These categories are based on factors like the type of card used (credit versus debit), how the payment is processed (swiped versus keyed in), and other criteria set by your provider.

Tiered pricing may seem simple at first, but it often results in higher costs and less transparency because processors bundle fees into vague categories, hide true interchange rates, and charge more for common ecommerce transactions. For ecommerce businesses—where most transactions are card-not-present—this unpredictability can make it hard to forecast monthly processing fees.

How to reduce merchant fees

Merchant fees eat into your earnings, but there are ways to mitigate the costs. Try these strategies:

• Compare payment processor plans. Your processor has the biggest influence on your fees. Look for one with transparent pricing, terms that fit your sales volume, and competitive rates for the transactions you typically handle. Some payment processors are also willing to negotiate rates, especially if you have a high transaction volume.

• Encourage lower-cost payment methods. Payment methods like debit cards and bank transfers often come with lower processing fees. Encouraging these at checkout—with incentives or discounts—can significantly reduce your overall payment costs. 

• Stay on top of chargebacks and fraud. Chargebacks come with extra fees and can push your rates up over time. Using address verification tools, screening for fraud, and setting clear return policies can help you reduce disputes. Fewer chargebacks results in lower long-term costs.

• Monitor your fees regularly. Processing fees aren’t always static—some providers quietly raise rates or tack on extra charges. Reviewing your statements each month helps you catch errors, unnecessary add-ons, or areas where you could switch to a better plan or provider.

• Ensure PCI compliance and use reliable tech. Staying PCI-compliant protects you from fines and keeps your customers’ data safe. Using trusted ecommerce platforms like Shopify helps automate this, while ensuring your checkout tech is efficient, secure, and optimized for conversions—ultimately improving profitability.