Ultimate guide to transaction fees: What they are and how to save on this cost

Key takeaways:

• Transaction fees, also known as credit card processing fees, are a significant expense for merchants, totaling $172.05 billion in the U.S. in 2023.
• These fees are a combination of smaller fees—including interchange fees, network fees, chargeback fees, and subscription fees—each serving a specific purpose and paid to different parties.
• Merchants can minimize transaction fees by understanding different types of fees and partnering with a payment optimization provider like Astra.

For many merchants, transaction fees are a frustrating part of doing business. They know credit card payments aren’t going anywhere, so these fees seem inevitable. 

Sound familiar? We have good news: There are ways to manage and reduce those transaction fees. 

The first step is understanding the basics of this expense. Read on to learn what goes into each transaction fee and how you can minimize them for good.

What is a transaction fee?

The term transaction fee—also called a credit card processing fee—is the fee merchants pay each time a consumer pays for goods or services with a credit card.

Fees range from 1.5% to 3.5% and vary based on the transaction amount. Even the smallest purchases are subject to these fees, making it challenging for retailers to create a margin on low-cost items after they account for transaction fees.

How much do transaction fees cost companies today?

According to the Nilson Report, payment processing fees for U.S. merchants totaled $172.05 billion in 2023. These fees were charged on over $11.24 trillion in purchase volume. Since sales volume was up almost 7% year over year (YoY), fees were up as well. As merchants sell more, they pay more in fees accordingly.

What are examples of transaction fees?

While a merchant may only consider the total fee paid on a transaction (3.5%, for example), these transaction fees are actually a bundling of smaller fees, each with a specific purpose and paid to a different party. They include interchange fees, payment processor fees and assessment fees.

Parties that charge fees include the following:

• Merchant bank: the retailer’s bank account that receives the credit card payments
• Card issuing bank: the bank providing the credit card to the customer (Chase, Bank of America, etc.)
• Payment network: Visa, Mastercard, American Express
• Third-party credit card processing companies: businesses that handle credit card processing for the merchant

We’ll reference these parties as we describe each type of credit card transaction fee. 

Interchange fees

Interchange fees are what the card issuing bank (Chase, Barclays, etc.) charges the merchant’s bank. It covers the cost of risk and expenses associated with card issuance.

The fee amount is set by the payment networks (Visa, Mastercard, Discover, American Express). The fee varies based on: 

• The payment network’s pricing model
• Where the purchase takes place (online, POS or via an app)
• The merchant’s industry, with some considered higher risk and subject to higher fees

Interchange fees aren’t the same as Interchange Plus Pricing, which is a type of pricing model set by credit card processors. In Interchange Plus Pricing, the actual interchange fee is marked up to include additional margin for the processor. It’s charged as the processor’s service cost to business owners.

Network fees

Network fees are also set by the card networks, but these go to the networks themselves. So, a Visa network fee would be set by Visa and go to Visa to help cover the cost of running a payment network. Network fees aren’t based on individual transactions but rather on a merchant’s monthly sales volume.

Chargeback fees

Chargeback fees are an added cost that occurs when a customer successfully disputes a transaction charge. A merchant pays this fee on top of the purchase amount for the disputed transaction.

How does this work? Let’s imagine a customer purchases an all-inclusive cruise for an upcoming summer date. When the departure time arrives, the cruise ship is out of service. The customer cannot take their trip and finds it impossible to get their money back through the cruise liner’s refund process.

Most credit cards have protections for cardholders that include disputing charges in situations like this. Since the customer didn’t get what they paid for, they can escalate the situation with their card company. If successful, the customer gets their money back, and a chargeback is issued. The cruise liner then has to pay the card issuer back for the amount of the cruise, along with the chargeback fee.

Beyond being expensive, chargebacks signal to the card issuer that the merchant engages in unsatisfactory business practices. Merchants should pay attention to chargeback volume to avoid additional penalties or loss of card processing privileges.

Subscription fees

Along with the different fees we’ve already mentioned, merchants may pay additional subscription fees to payment processors or merchant payment service providers. These add-on fees can cover any number of perks, such as enhanced data and analytics capabilities to help them catch chargebacks or optimize business practices.

Some card processors even charge monthly fees for priority customer service or flexible billing options. The catch-all category of subscription fees is rarely mandatory for doing business and is the easiest for budget-minded merchants to reduce.

Fees for bank payments (ACH, RTP, FedNow)

Bank payment methods such as ACH, RTP, and FedNow don’t incur interchange fees since those fees are specific to transactions over card networks. Instead, these bank payments typically cost a small, flat rate of $0.05 to $1.50 per transfer. Although cheaper, these sorts of payments are less popular for consumer transactions because most consumers prefer the simplicity and benefits of paying with a debit or credit card.

Can you pass transaction fees to customers?

It’s legal in most U.S. states for merchants to pass card processing costs on to the customer (also known as “surcharging”). However, there are a few common conditions: 

• Surcharging is typically limited to a set amount of the total transaction.
• It doesn’t apply to debit cards, even if the customer chooses to have the debit transaction processed as credit at the point of sale. 
• Some states may have legal limits on how much of the cost can be passed along, and this amount may be much lower than the actual processing cost.

So, should you pass on transaction fees if they’re allowed where you operate? The answer depends on your competitors and customer preferences. When given a choice between a company that surcharges and a company that doesn’t, customers are likely to choose the latter, which hurts the surcharger.

One alternative to surcharging is to discount goods and services for customers who pay in cash. A clearly communicated “cash discount” policy at the register may be all it takes to get customers to willingly leave their plastic in their pockets, giving merchants a break on the growing category of card fees.

Before picking a plan, merchants should consult their state commerce laws to determine how to pass along fees legally. Card legislation changes frequently, and advice found online can quickly become outdated. You can get up-to-the-minute info from each state’s attorney general’s office or consumer protection department and federal guidance from the Consumer Financial Protection Bureau (CFPB) and the Federal Trade Commission (FTC).

How Astra can help with transaction fees

Navigating transaction fees can be overwhelming, to say the least. Merchants have to sift through so many types of transaction fees with different costs if they want to find meaningful savings opportunities.

Astra’s fee optimization and management capabilities can help. Using the platform, businesses can pass along fees to help offset the cost without alienating customers. 


Astra users can:

• Set programmatic fees on each transaction to help generate revenue for the merchant.
• Access an intuitive dashboard to track transactions and processing fees and pull insights for future savings opportunities.
• Create webhooks for enhanced status monitoring by sharing relevant event information across apps and tools.
• Manage the risk of chargeback fees by categorizing customers as high-risk and restricting their transfer activity. 

A personalized approach to transaction fees

Transaction fees are a real and significant cost of doing business in an already tight economy, but an instant payments partner like Astra can help ease the burden. Contact us to learn how to save on transaction fees through an optimized plan that prioritizes both your brand mission and fiscal goals.