Merchant Fee Glossary

A fee charged by the card networks (Visa, Mastercard, Discover, Amex) — not your processor — on every transaction. These rates are set by the networks and are the same for every processor. They are non-negotiable and cannot be reduced. Visa currently charges 0.13% per transaction; Mastercard charges 0.1375%.

A per-transaction fee charged every time a card authorization is requested — whether the sale goes through or not. Even a declined card triggers this fee. Processors set their own authorization fees and they vary widely. Anything above $0.10 per auth is above market and worth negotiating.

Address Verification Service fee — charged on card-not-present transactions (online, phone, keyed-in) where the billing address is verified against the card issuer's records. This reduces fraud risk and can improve your interchange rate on those transactions.

Charged each time you close out your terminal and send the day's transactions to be funded — typically once per business day. If you settle daily, this fee applies roughly 22 times per month. Some processors include batch settlement at no charge; others charge $0.10–$0.25 per batch.

When a customer disputes a transaction with their card issuer and the bank initiates a chargeback, your processor charges a fee to handle the dispute. This is a legitimate fee, though the amount varies by processor. You also lose the transaction amount if the chargeback is decided in the customer's favor.

See: Interchange Plus Pricing. The most transparent pricing model — you pay the actual interchange cost plus a fixed processor markup. Also called "pass-through pricing."

Despite the name, this is your main processing charge — the percentage of each sale your processor keeps. The term dates back to when "discounting" referred to the processor advancing funds before the bank cleared the transaction. On your statement, this is the largest single fee line item.

On tiered pricing plans, a downgrade fee is charged when a transaction doesn't qualify for the advertised "qualified" rate and is instead processed at the higher mid- or non-qualified rate. Processors have significant discretion over what causes a downgrade — and the criteria are often not clearly disclosed.

The true overall cost of accepting credit cards, expressed as a percentage of total sales. Calculated as: Total Fees ÷ Total Volume × 100. This is the single most important number to know and track month over month. A rising effective rate is an early warning sign of fee inflation.

A pricing model where every transaction is charged the same percentage regardless of card type (e.g., Square's 2.6% + $0.10). Simple to understand, but typically more expensive than Interchange Plus for businesses with moderate-to-high volume, because you overpay on low-interchange transactions (like basic debit cards).

A monthly charge for the payment gateway — the software layer that connects your website or POS system to the payment network. Typically $10–$25/month plus $0.05–$0.15 per transaction. Some processors include gateway access free; others partner with third-party gateways and charge separately. If you're paying both a processor fee AND a gateway fee per transaction, you may be able to consolidate.

The fee paid to the bank that issued the customer's card, every time a transaction is processed. Set by Visa and Mastercard — not your processor — and published publicly. The same interchange applies to every processor. What varies is the markup your processor adds on top. Interchange rates vary by card type: basic debit is cheapest, premium rewards cards are most expensive.

A pricing model where you pay the actual interchange rate (set by card networks) plus a fixed, disclosed processor markup. Shown as: "Interchange + 0.20% + $0.10." Because the markup is fixed and transparent, you benefit directly when customers use lower-cost cards. This is the most cost-effective and transparent pricing model for most businesses. See full guide: Interchange Plus Explained.

On tiered pricing plans, the mid-qualified rate is the middle tier — higher than the advertised qualified rate but lower than the non-qualified rate. Transactions are moved to this tier for reasons like: the customer used a rewards card, the transaction was keyed in rather than swiped, or the batch wasn't settled on time. This is one of the main mechanisms processors use to increase your effective cost.

A guaranteed minimum monthly fee — if your processing fees for the month fall below this threshold, you pay the difference. Example: $25 minimum, $18 in actual fees = $7 shortfall charge added. Particularly damaging for seasonal businesses. Many processors will waive or reduce this fee if asked, especially for high-volume merchants.

The highest rate tier on a tiered pricing plan, applied to transactions that don't meet the criteria for qualified or mid-qualified. Corporate cards, international cards, and certain rewards cards frequently land here. Non-qualified rates can be 3.5% or higher — more than double what was advertised as the "qualified" rate.

A monthly fee some processors charge for tools, support, or insurance related to PCI DSS compliance. $5–$15/month may be reasonable if real services are bundled. However, many processors charge $19–$99/month for "PCI compliance services" that provide little to no value beyond the free self-assessment questionnaire. See full guide: PCI Compliance Guide.

A monthly penalty charged when a merchant hasn't completed their annual PCI self-assessment questionnaire (SAQ). This fee is entirely avoidable — the SAQ takes 15–30 minutes and is free. Log into your merchant portal, complete the questionnaire, and the fee disappears. If you've already completed it and are still being charged, contact your processor immediately and request a refund.

On tiered pricing, the qualified rate is the lowest tier — the rate your processor advertises when signing you up. In practice, only a fraction of your transactions typically qualify for this rate. Most real-world transactions involve rewards cards, corporate cards, or card-not-present situations that push them into higher tiers.

When a card issuer requests documentation to support a disputed transaction (before it becomes a formal chargeback), a retrieval fee is charged. Responding to retrievals promptly and with good documentation can prevent the dispute from escalating into a chargeback.

A monthly fee charged simply for generating and delivering your merchant statement. Since statements are now electronic and cost processors essentially nothing to produce, this fee is largely a legacy profit item. Many competitive processors have eliminated it entirely.

A monthly fee for leasing a physical credit card terminal from your processor or a third-party leasing company. Typical leases run $35–$75/month on 48-month non-cancellable contracts — totaling $1,680–$3,600 for a device that costs $200–$600 to buy. Terminal leases are widely considered one of the worst deals in merchant services. Ownership or a free terminal program is almost always better.

A pricing model that groups all interchange rates into three tiers (Qualified, Mid-Qualified, Non-Qualified) and charges a fixed rate for each tier. While simple to explain, tiered pricing is the least transparent model because processors have wide discretion over which tier a transaction falls into — and a financial incentive to downgrade transactions to higher tiers. Most industry experts recommend switching to Interchange Plus.