How merchant processing works
Every card sale passes through several companies, and each one takes a small piece. These six short chapters show where your card fees go.
- CH 1The pathWhat happens when a card is run.
- CH 2–4Three layersInterchange, assessment and markup.
- CH 5TogetherOne $100 sale, split up.
- CH 6Other feesWhat else is on your statement.
- NEXT STEPSaveSee the cash discount guide.
Move between chapters with ← → or the buttons above. Tap Listen in any chapter to have it read to you.
What happens when a customer pays by card
It feels instant. But in a few seconds, the payment makes several stops.
- The customer taps, inserts or swipes their card.
- Your terminal sends the sale to your processor. The processor is the company that handles card payments for you.
- The processor passes it to the card brand, such as Visa or Mastercard.
- The card brand asks the customer's bank if the money is there.
- The bank says yes, and the answer comes back to your terminal.
- Later, the money lands in your account, minus the fees.
- Customer's card
- Your terminal
- Processor
- Card brand Visa, Mastercard
- Customer's bank
- Money lands in your account
Layer 1: Interchange
Interchange is the biggest piece of your card fees.
- It goes to the customer's bank, the one that issued their card.
- Rewards cards and business cards cost more.
- Debit cards cost less.
- So two sales for the same amount can cost you different fees, depending on the card.
The longer the bar, the more interchange you pay.
Layer 2: Assessment
The assessment is a small fee that goes to the card brand.
- Visa and Mastercard are card brands. They run the network your payment travels on.
- The assessment is their fee for that.
- It is much smaller than interchange.
- American Express is different. It is both the brand and the bank.
Visa and Mastercard
Brand only
A separate bank issues the customer's card.
American Express
Brand and bank
One company does both jobs.
Layer 3: The processor's markup
This is the part your processor charges. It is often called the discount rate.
- It sits on top of the first two layers.
- It pays your processor for moving the money and supporting you.
- Interchange and assessment are set by the banks and card brands. The markup is set by your processor.
- So when you compare offers, this is the layer to compare.
Put it together
Think of it like buying stock for your shop.
- Interchange is the wholesale price.
- The assessment is the shipping.
- The processor's markup is the store's markup.
One $100 sale
- Interchange: $1.90
- Assessment: $0.14
- Processor's markup: $0.50
- Total fees: $2.54
- You keep: $97.46
The whole sale
The $2.54 in fees, zoomed in
- Interchange $1.90
- Assessment $0.14
- Markup $0.50
The other fees on your statement
The three layers are charged as a percentage of each sale. Your statement has more on it than that.
- Per-transaction fees. A few cents each time a card is run.
- Monthly fees. Flat charges, such as a statement fee or a gateway fee.
- A PCI fee. PCI is the card industry's security standard.
- That is why you should look at your whole bill, not just the rate.
A cash discount program is one way to bring the whole bill down.
See the guide: Why go cash discountWhere your card fees go
Three layers on every sale, plus the flat fees on your statement.