If you’re a small business owner in the U.S., chances are you accept credit or debit card payments – and pay for the privilege through “merchant services.” Unfortunately, a majority of small businesses are overpaying for merchant services more than they should for these services. Various surveys suggest that roughly 3 out of 4 small businesses are overpaying on credit card processing fees. One report found that over 90% of businesses end up paying more in processing fees than they initially expected. Another survey revealed 52% of business owners believe they’re overpaying each month, and 32% admit they don’t even review their processing statements (essentially paying blindly).
All those extra charges add up – U.S. small businesses were hit with an estimated $153 billion in hidden or unexpected fees in 2024 alone, with over $53.8 billion of that coming just from credit card processing fees. The typical entrepreneur loses around $4,400 per year to these sneaky costs, and for 1 in 5 businesses, those fees were so high they pushed the business into the red (unprofitability). The bottom line? Merchant processing fees are a big drain on small business profits, often a silent one. But it doesn’t have to be this way.
Below, we’ll explain what merchant services are and the common fees involved, why so many businesses overpay (think hidden fees, opaque contracts, bad pricing models), and – most importantly – how you can avoid these pitfalls.
What Are “Merchant Services” (and What Fees Do You Pay)?
“Merchant services” is an umbrella term for the financial services that enable a business to accept customer payments via credit cards, debit cards, and other electronic payments. This includes setting up a merchant account and using a payment processor or provider to handle transactions.
Whenever you swipe a customer’s card or they click “Pay” on your website, multiple parties are involved (banks, card networks, processors) – and each may take a small cut via fees. For a small business, these fees show up as your credit card processing costs. They can be surprisingly complex.
What Are Some Common Merchant Services Fees?
Here are some of the common fees you might see in your merchant services agreement or monthly statements:
- Interchange Fees: This is the base fee paid to the customer’s card-issuing bank on each transaction. It’s usually 1.5%–3.5% of the sale amount plus a small fixed amount (around $0.10–$0.30 per swipe). Interchange rates vary by card type and transaction method (e.g., chip, tap, online), and they’re non-negotiable – Visa and Mastercard set these.
- Assessment Fees: A small percentage charged by the card networks (Visa, Mastercard, etc.) on each transaction, often around 0.13%–0.15%. This is another “built-in” cost from the networks themselves.
- Processor Markup (Service Fee): This is your payment processor’s charge on top of the interchange. It’s the portion you can negotiate or shop around for. It might be quoted as a percentage (e.g., 0.3% above interchange) plus a per-transaction fee, or bundled into other rates. Markups vary widely – some processors take only ~0.1%, while others add 1% or more. This is where a lot of extra cost can hide.
- Transaction Fees: Many providers charge a flat fee per transaction (often $0.05 to $0.30 each), which may be in addition to percentages. For example, you might pay 2.2% + $0.20 on each sale.
- Monthly & Annual Fees: Fixed fees for maintaining your account or providing services. Common ones include a monthly statement fee or account fee (which could be $10–$40 per month), and annual fees for things like account maintenance.
- Payment Gateway Fee: If you accept online payments, there may be a monthly gateway fee (say $5–$25 per month) and maybe a tiny fee per online transaction. This covers the software that securely transmits the card data online.
- PCI Compliance Fee: Often around $100+ per year, this is charged to help cover the cost of maintaining PCI DSS compliance (industry-mandated security standards). Sometimes it’s billed monthly (e.g., ~$10/month). If you don’t complete the required compliance steps, you might also get hit with PCI non-compliance fees on top, essentially a penalty.
- Address Verification Service (AVS) Fee: Usually 1–10 cents per transaction when you use AVS (the system that verifies billing addresses for fraud prevention on card-not-present transactions). Just a few pennies, but for high-volume business, it can add up.
- “Non-Qualified” Surcharge: If you’re on a certain pricing plan, some transactions that are considered higher risk or rewards cards can incur an extra surcharge above your base rate. This could be an extra 1%–3% on those transactions. It’s often not obvious until you see the statement.
- Chargeback Fee: If a customer disputes a charge and it’s reversed (a chargeback), you’ll pay a fee, typically $15–$40 per incident (regardless of whether you win the dispute or not). This is to cover the admin work of the dispute process.
- Early Termination Fee: A penalty for canceling your merchant account contract early. These can range from a couple of hundred dollars to $500+, and are usually buried in the fine print of your contract. Not all providers have this, but many traditional processors do enforce it.
Your total effective rate (the percentage of each sale that you lose to fees) is the sum of all these pieces. With so many moving parts, it’s easy for extra costs to hide in the shadows. On average, a small business loses about $2,400 per year to these hidden processing fees – money that could be funding your business growth instead.
Why Do Most Small Businesses End Up Overpaying for Merchant Services?
If the fees above made your head spin, you’re not alone. The complexity of merchant services is one big reason many businesses overpay. Providers don’t always make it easy to understand what you’re paying for, and busy business owners have a million other things to worry about. Here are the common reasons why so many small businesses overpay for merchant services:
- Hidden Fees and Surcharges
A big culprit is fees that are not immediately obvious. Payment processors might advertise a super low rate (like “1.69% for qualified transactions!”) but bury additional fees in the contract or statement details. For instance, you might sign up for what looks like a 1.69% rate, only to later find many transactions are categorized as “non-qualified” and charged 3 %+, plus monthly fees you didn’t realize. Merchant providers often lump fees under generic labels (“service fee,” “processing fee”,) which makes it hard to tell what you’re paying.
Hidden fees like those for PCI compliance, equipment, or statement charges can quietly inflate your costs without you noticing immediately. Over time, these little charges add up, which is exactly why small businesses collectively paid tens of billions in such fees last year.
- Lack of Transparency (Confusing Pricing Models)
Not all pricing plans are created equal. Many small businesses are put on tiered pricing plans, where transactions are grouped into categories like “qualified,” “mid-qualified,” and “non-qualified” with different rates. Tiered pricing is notoriously confusing and often more expensive because it’s hard to know which sales got downgraded to a higher rate. Your statement might just show a blended rate or a few line items that obscure the true markup. Interchange-plus pricing (also known as cost-plus) is much more transparent – it separates the exact interchange fees and the processor’s margin on your bill.
But if your provider hasn’t put you on interchange-plus, you might be paying a padded rate. The complexity of fees in general also hurts transparency – different cards (Visa, Amex, rewards cards, corporate cards) all have different costs. Many merchants simply throw up their hands. In one study, 73% of people don’t fully read the terms when signing up online (and 17% of those who do read them don’t understand them) – meaning business owners often agree to processing contracts without digesting all the cost details. An opaque contract is the perfect place for a provider to hide fees or less favorable terms that lead to overpayment.
- Bad Contracts and Gotchas
Speaking of contracts, a lot of small businesses get locked into multi-year merchant services agreements that have stiff early termination fees. This means even if you discover you’re overpaying, it’s painful to switch providers. Some contracts also auto-renew annually without clear notice, extending your commitment (and fees) unless you cancel within a small window. Additionally, some providers enforce monthly minimums – if you don’t process a certain amount, they charge you extra to make up the difference.
These contract tricks ensure the processor gets paid (and you potentially overpay) even when it’s not in your best interest.
- Inattention or Lack of Awareness
Most small business owners aren’t payment experts, nor do they have time to scrutinize every line of a merchant statement each month. Many simply pay the bill without question. In that Fattmerchant survey, 32% of owners said they don’t even look at their merchant processing bill before paying it. If fees inch up or new charges appear, they go unnoticed. Also, if you’re not comparing your rates to market standards, you might assume “that’s just what it costs.”
Over the years, a processor might increase your rates or add fees, and without vigilant monitoring, you end up overpaying by inertia. Hidden fee creep is real – a slight 0.5% increase in fees can cost a business thousands of dollars annually, yet it might slip by if you aren’t watching.
- Misleading Sales Tactics
Unfortunately, some merchant service sales reps use tactics that can lead to overpayment. They might highlight a low headline rate but gloss over the surcharges or the fact that the rate only applies to a narrow set of transactions. Or they might promise “no upfront cost” by giving you a “free” card terminal, which locks you into a higher processing rate or a costly lease in the fine print.
We’ve all heard the phrase “if it sounds too good to be true, it probably is”. Many small businesses learn this the hard way with merchant accounts. A lack of industry knowledge can make it easy to agree to a deal that isn’t truly cost-effective. By the time the first statement arrives and reality hits, you’re already locked in.
How to Stop Overpaying: Tips to Lower Your Merchant Fees
So, how can you avoid overpaying for merchant services? The key is to be proactive, informed, and willing to make changes. Here are some clear, actionable tips for small businesses to ensure you get a fair deal on payment processing:
- Review Your Statements Regularly:
It all starts with awareness. Make it a habit to actually read your monthly merchant account statements (or online reports). Look for any unfamiliar charges or surcharges. Are there line items labeled in cryptic ways like “BT Fee,” “Batch Fee,” or “Regulatory Compliance Fee”? Don’t just shrug and assume they’re inevitable.
Call your processor and ask them to explain every fee you don’t recognize. You might discover fees for services you don’t use or mistakes that can be corrected. Regular reviews also help you notice if your rates creep up over time. The simple act of monitoring can save you money – you can’t fix what you don’t know is there.
- Understand Your Pricing Model (and Consider Interchange-Plus):
Find out how your processor is charging you. Are you on a tiered plan, flat-rate, or interchange-plus? This might be indicated on your statement or in your contract. If you see terms like “qualified”/“non-qualified” or a three-tier structure, you’re on a tiered plan. Interchange-plus is generally the most transparent and often the cheapest for growing businesses, because you pay the true interchange costs plus a fixed markup.
Whereas, tiered pricing can mask high markups, and flat-rate providers (like some popular app-based processors) may charge a comfortable margin to cover all scenarios. If you suspect your plan is expensive or opaque, ask your provider if they offer interchange-plus pricing. Getting a transparent breakdown of fees can immediately reveal where you might save. Many savvy businesses have saved a lot by switching from a tiered plan (full of hidden surcharges) to a straightforward interchange-plus plan.
- Compare Providers and Rates:
Don’t assume your current processor is giving you the best deal – shop around. It’s easy to get quotes from other merchant service providers. You can often send them a recent processing statement and they’ll analyze it to show what you’d pay them. This outside comparison will show if you’re overpaying.
Competitive pressure works: if Provider B offers a much lower rate or fewer fees than Provider A, you either switch to B or use that info to negotiate with A. Keep an eye on reputable, transparent providers (look for no long-term contracts, clear pricing, and good reviews). Even if you prefer to stay with your current company, knowing the market rates gives you leverage. Remember, nearly 37% of business owners who faced high fees decided to switch providers in one survey – you’re not married to a bad deal forever.
- Negotiate Your Fees:
You might not realize it, but many processing fees are negotiable, especially the processor’s markup and those ancillary fees. If you have a decent volume of sales or have been a loyal customer, call up your processor and ask for a better deal. You can request lower rates, or ask them to waive certain monthly fees or the annual PCI fee, etc.
The worst they can say is no. In fact, about 65% of merchants who tried to negotiate succeeded in lowering at least one fee. It’s common to negotiate things like monthly statement fees, gateway fees, or even the percentage markup if you can demonstrate that you could get better elsewhere. Also, if your contract is coming up for renewal, that’s a prime time to negotiate – they’d rather keep you at a lower rate than lose you entirely.
- Watch Out for Contract Traps:
Before you sign any merchant agreement, read the fine print (or have someone tech-savvy/financially savvy review it). Specifically, look for terms about the length of the contract, auto-renewal, and cancellation fees. Ideally, choose providers that offer month-to-month service with no early termination fee.
They are out there – many modern merchant service companies tout “no contracts” or no cancellation penalties as a selling point. If you’re currently stuck in a contract, mark your calendar for when it ends so you can renegotiate or shop around at that time. Don’t let it silently renew for another term. By avoiding long commitments, you keep your freedom to switch if fees become unreasonable.
- Optimize Your Processing (Avoid Costly Mistakes):
Sometimes you can cut costs by changing how you process payments. For example, always use chip or tap (EMV) transactions in-person – they typically have lower fraud risk and thus lower interchange rates than keyed-in manual entries (plus you avoid liability for fraud). If you key in a lot of cards, consider investing in a card reader or a better POS to lower those rates. For online transactions, use tools like Address Verification (AVS) and CVV checks – not only do they reduce fraud, but they can also help prevent transactions from downgrading to higher fee tiers.
If you do B2B or B2G sales, look into providing Level II/III data (like invoice numbers, tax info) with the transactions – this can qualify you for lower interchange rates on corporate or purchasing cards. Also, ensure you remain PCI compliant – complete your annual SAQ (Self-Assessment Questionnaire) and maintain good security practices. This avoids any monthly non-compliance fines and also reduces the risk of a costly breach.
- Cut Out Unneeded Services:
Check if you’re paying for add-ons you don’t use. For instance, some processors charge for premium reporting tools, business coaching services, or other add-ons bundled in. If you’re not using them, try to remove them.
Similarly, equipment leasing is often a big money sink – if you’re leasing a credit card terminal for $30 a month, you might save by returning it and buying one outright (many modern terminals can be bought for a few hundred dollars or less). The goal is to streamline your setup to only pay for what you actually need.
- Consider Newer Pricing Models:
In recent years, alternatives to the traditional per-transaction model have emerged. Some providers offer membership or subscription-based pricing – for example, you pay a flat monthly fee and then only the direct interchange costs with no markup. These can be cost-effective for businesses with higher volume.
Others have cash discount or surcharge programs (where you pass on the fee to customers who pay with cards, as long as it’s done within legal rules). 34% of merchants now add surcharges to customer card transactions to offset processing costs, though be careful, as this can affect customer experience. The point is: be open to different models that might suit your business. Just ensure they are transparent and compliant with card network rules and state laws.
Conclusion
Most small businesses are paying more than necessary for merchant services — not because they’re careless, but because the system is complex, full of hidden charges, and often designed to benefit the provider more than the customer. From confusing pricing models and padded contracts to subtle fee increases and hard-to-understand statements, it’s easy for unnecessary costs to slip through the cracks.
But once you understand how these fees work and where they’re coming from, you can take steps to reduce them. Whether it’s switching to interchange-plus pricing, regularly reviewing your statements, negotiating with your provider, or exploring newer pricing models, even small changes can lead to real savings. Merchant services are a necessary part of doing business, but overpaying doesn’t have to be.
