Ask a small retailer what their point-of-sale system costs and they will quote the monthly subscription. Ask what they pay in card processing fees and the answer is often a shrug. Yet for many shops, processing is the larger number. A system that charges a modest monthly fee and a high percentage on every card sale can cost far more over a year than one that charges more upfront and takes less per sale.
Card processing fees are also the least transparent part of the bill. They are made up of several layers, quoted in different units and described in terms that sound similar and mean different things. This guide explains how the fees are built, the main pricing models, where extra charges appear and how to total the real cost, so that you can compare systems on the whole bill, not the headline.
Read this if you have a quote for a POS system that lists a monthly price and nothing about card fees. You can skip it if you already know your effective processing rate to the decimal.
In this guide
- Who gets paid when a customer taps a card
- Pricing models
- Comparing the models
- Other fees on the statement
- How to total the real monthly cost
- Average sale size matters
- Bundled processing and your choice of processor
- Contracts and hidden terms
- Reducing your processing costs
- Seasonal considerations
- Questions to ask a vendor
- The short version
- Processing fee myths
Who gets paid when a customer taps a card
When a customer pays by card, several parties are involved, and each takes a share.
- (such as Visa or Mastercard) sets rules and charges fees.
- that issued the customer’s card receives a fee, known as interchange.
- that handles the transaction on your behalf charges its own markup.
- if different, may add a further charge.
Together these make up what you pay. Interchange, set by the card networks, varies by card type, how the card is used and the kind of business. Premium rewards cards and online transactions typically cost more than debit cards swiped in person.
Pricing models
Processors price their services in a few common ways.
Flat-rate pricing
A single percentage plus a small fixed fee on every transaction, whatever the card type. It is simple and predictable, which suits small and new businesses. It may cost more than other models for shops with lots of low-cost debit sales or large transactions.
Interchange-plus pricing
The processor passes through the actual interchange and card network fees and adds a fixed markup, usually a small percentage plus a per-transaction fee. It is more transparent, and it can be cheaper for businesses with larger volume, but statements are more complex.
Tiered pricing
Transactions are sorted into tiers, often called qualified, mid-qualified and non-qualified, each with its own rate. The sorting rules are set by the processor and can be opaque. Many transactions fall into higher tiers than shops expect. It is the model where it is hardest to know what you will pay.
Subscription or membership pricing
A monthly fee in exchange for lower per-transaction rates. It can be good for steady, higher-volume shops but may not pay off for small ones.
Comparing the models
| Model | Predictability | Transparency | Often suits |
|---|---|---|---|
| Flat rate | High | High | Small, new or low-volume shops |
| Interchange-plus | Moderate | High | Shops with growing volume |
| Tiered | Low | Low | Rarely the best choice; check carefully |
| Subscription | Moderate | Moderate | Steady, higher-volume shops |
Other fees on the statement
Beyond the per-transaction rates, look for:
- if you sell online.
- related to payment-card security requirements. Sometimes there is a monthly fee for these.
- charged when a customer disputes a payment.
- if you leave a contract.
- charged if your volume is low.
- for each day’s settlement.
- since some processors do not return the original processing fee.
- which are more expensive than chip or tap.
We do not give compliance advice. Payment-card security standards apply to businesses that accept cards, and your processor can explain what applies to you.
How to total the real monthly cost
A worked method is better than any single figure.
- and the number of transactions.
- hardware costs and other recurring fees.
- averaged per month, such as chargebacks or annual fees.
- to get the effective rate.
Compare the effective rate between vendors. A system with a low monthly fee and a high rate can be more expensive than one with a higher fee and a lower rate, depending on your volume. Be sure to use realistic numbers, including your average ticket size, since fixed per-transaction fees weigh more on small sales.
Average sale size matters
A fixed fee of a few cents per transaction is a small percentage of a large sale and a large percentage of a small one. A coffee cart with five-dollar sales feels the fixed fee far more than a furniture shop with thousand-dollar sales. If your average sale is small, look closely at the per-transaction fee. If it is large, the percentage rate matters most.
Bundled processing and your choice of processor
Some POS systems require you to use their own processing, which makes setup simple but may limit your ability to negotiate or switch. Others let you choose a processor. Having a choice gives you leverage, but it also means managing a separate relationship. Ask whether you can take your processing elsewhere without changing POS and what the cost would be.
Contracts and hidden terms
Read the contract. Look for:
- The length of the contract and automatic renewal.
- Early termination fees.
- Rights to change rates and with how much notice.
- Equipment leases, which can run for years and be hard to cancel.
- Minimums and what is charged if you do not meet them.
We do not interpret contracts or advise on disputes. If a contract is significant, a qualified adviser can review it.
Reducing your processing costs
You can often reduce costs without changing system.
- of your rates once you have a few months of volume.
- where permitted. Rules on surcharging and discounts for cash vary by state and card network. We do not give legal advice on this; ask your processor and a qualified adviser.
- which are cheaper than keyed transactions.
- and process refunds carefully.
- from competitors.
- on your statements.
Seasonal considerations
Holiday sales raise both volume and the number of small transactions. Check that your plan and your processor can handle the volume, and that your rates do not change at higher volumes. Our guide to getting the checkout ready for the holiday rush covers readiness, and our overview of choosing a POS system explains how fees fit into the decision.
Questions to ask a vendor
- What is the pricing model and the exact rates?
- What fees apply other than the per-transaction rate?
- Do I have to use your processing, and can I move later?
- What are the contract term and cancellation terms?
- How are chargebacks and refunds handled?
- Can rates change, and with what notice?
- Can you show me an example statement?
The short version
Processing fees are the largest and least visible cost of a POS system. Understand the pricing model, look for the extra fees, total the real monthly cost using your own sales and compare the effective rate. Ask for the contract in writing and read the termination and renewal terms, and never judge a system by its subscription price alone.
Processing fee myths
Myth: The monthly subscription is the main cost.
Reality: For many shops card processing is larger. Total the six cost lines.
Myth: Flat-rate pricing is always the cheapest.
Reality: It suits small, low-volume shops. At higher volume interchange-plus can cost less.
Myth: A low fixed fee per sale is negligible.
Reality: On small tickets a fixed fee is a large share of the sale.
