5 Myths About Credit Card Processing You Probably Still Believe

Embedding an infographic of processing fees highlights just how critical it is to understand the true cost of accepting credit cards. In practice, fees vary widely—U.S. and Canadian merchants typically pay between 2.3% and 2.9% per sale, with 2024 averages ranging from 1.15% to 3.15% depending on the card and transaction type. With such thin profit margins, it’s not surprising that 87% of consumers feel “nickel-and-dimed” by card fees. Yet, despite this data, persistent credit card processing myths—like “all processors charge the same” or “switching is impossible”—continue to mislead business owners and cost them tens of thousands over time.

These credit card processing myths thrive because the payments industry is complex and often opaque. With dozens of fee categories—interchange, assessment, network, and more—business owners can easily miss hidden costs. Add in fine print, aggressive sales tactics, and confusing pricing models, and misinformation becomes entrenched. The real danger is financial: believing these myths can lock you into overpriced services. Industry research shows merchants can often cut processing costs by 20–25% simply by negotiating or switching to transparent pricing. So, busting myths isn’t just about being informed—it directly protects your bottom line.

Credit Card Processing Myths: Top 5 Busted

Myth #1: All Processors Charge the Same Fees

It’s tempting to think every merchant service provider offers the same rates, but that’s false. In reality, rates and fees vary dramatically between providers and depend on your business type, volume, and sales methods. Behind the scenes, card brands set “interchange” fees that differ by card type (credit vs. debit), brand (Visa, MC, Amex, etc.), and processing method (chip, swipe, online, keyed-in). High-reward cards or certain industries can incur higher interchange fees. Providers then add their markup.

For example, global data show U.S. interchange fees exceed 2% per transaction on average, whereas in Europe, caps are around 0.3%. A U.S. merchant paying a flat 2.9% could actually have an underlying cost of only ~1.5% for many transactions, meaning the processor pockets the difference. The bottom line is that two companies can quote very different rates even for identical sales volume.

Many processors use opaque tiered pricing or flat-rate bundles. For example, flat-rate processors set their fees at the high end of the scale to cover variability, so in many cases, merchants pay more than is necessary. Tiered pricing, which involves bundling transactions into “qualified” or “non-qualified” tiers, can further obscure actual costs. On a $1,000 sale at 2.9% flat, a merchant pays $29, even though the true interchange might be about $15. Over hundreds of transactions, the extra margin adds up. Conversely, interchange-plus pricing charges the exact network rate plus a fixed markup, giving clear insight.

The “hidden fees myth” is a subset of this misconception – many don’t realize extra fees exist beyond the headline rate. For example, processors may tack on monthly statement fees, PCI compliance fees, gateway fees, or per-transaction add-ons. Statement analysis can reveal hidden charges behind their statements. Merchants are warned to watch out for transaction fees, plus an extra fee of up to 50 cents, and other incidentals like PCI or setup fees. Don’t assume your rate is all-inclusive – ask for a detailed breakdown.

Because of this variance, shopping around really can save you money. Studies report that U.S. and Canadian merchants face the highest fees worldwide due to unregulated interchange. Even within the U.S., one provider’s flat rate may be worse than another’s tiered rate. Comparing your current merchant statement against quotes from multiple providers – a “merchant statement comparison” – is key. This analysis is a powerful tool to spot excess costs and find better deals. Don’t fall for the “everyone charges the same” myth – insist on pricing transparency, and interchange-plus is best to ensure you only pay for what you use.

Myth #2: Flat-Rate Pricing Is Always Best

Many small businesses default to flat-rate processors like Stripe, Square, or PayPal, believing the simplicity justifies the cost. But “simple” doesn’t always mean “cheapest.” Flat-rate models bundle all transaction costs into a single percentage, often around 2.6–2.9% plus a small fee. While this is convenient, it often becomes more expensive as a business scales or handles high-ticket sales. In a flat model, the processor essentially overcharges on low-cost transactions to cover potential high-cost ones.

Flat-rate pricing bundles various fees into an easy-to-understand rate, but this rate is set at the high end to account for all scenarios. As a result, a merchant with mostly small or low-risk transactions ends up subsidizing the processor’s cushion for risk. Paying 2.9% flat when many transactions only incur around 1.5% interchange means you’re covering the processor’s margin — for example, paying $29 on a $1,000 sale instead of the ~$15 actual cost. Over time, that extra margin multiplies into hundreds or even thousands of dollars a month.

For very small businesses (under $5,000/month) or those with low average tickets like coffee shops, flat rates can feel ideal — they offer predictability, no hidden fees, and no monthly minimums. Flat rates eliminate uncertainty, making budgeting easier, and Square’s pay-as-you-go model suits gig or seasonal sellers. However, even these businesses should check their pricing periodically, as growing volume may result in additional fees from flat-rate providers. An alternative to flat pricing is interchange-plus or membership pricing, where you pay the actual interchange rate plus a fixed markup.

This model is more transparent and typically more cost-effective at scale. While flat rates tend to be more expensive on a per-transaction basis, interchange-plus keeps fees aligned with your actual costs. If your current processor doesn’t offer interchange-plus, it may be worth switching to one that does. The small complexity of varying rates can pay off significantly, sometimes reducing fees by 25% or more.

Ultimately, the best pricing depends on your business model. Only you can determine your volume, average ticket size, and card mix. However, don’t let the myth that “flat rate is best” prevent you from evaluating your options. Comparing your annual fees under flat-rate versus transparent models can reveal hidden overpayments. Even if a flat-rate contract seems easy and predictable, it may be costing you more in the long run. Flat pricing is a convenience, not a rule — and as your business grows, other models like tiered, interchange-plus, or membership pricing might serve you better.

Myth #3: You Can’t Pass Fees to Customers

Many merchants believe it’s illegal or impossible to make customers share credit card fees, but in reality, U.S. law and card network rules allow surcharging, with caveats. The blanket statement “you can’t pass fees” is a myth. Since 2013, card networks have permitted U.S. merchants to add a surcharge on credit card transactions, capped at the merchant’s actual cost. Visa and MasterCard, for example, limit it to either your discount rate or 4%, whichever is lower. Only a few states ban credit-card surcharging entirely.

As of 2025, only Connecticut, Maine, Massachusetts, and California completely prohibit card surcharges, while others, like Colorado, impose specific limits such as a 2% cap. Visa’s official guidance notes that although about ten states have some restrictions, including nuances in New York and Texas, merchants may still apply surcharges in states where it is allowed. Similarly, Bloomberg Law confirms that most states permit surcharging, with a handful imposing bans or limits. The bottom line is that in the U.S., you can legally pass on credit card fees in most locations, up to a 4% cap, as long as you comply with applicable disclosure and state-specific regulations.

If you decide to implement surcharging, it’s important to treat it as a legitimate payment strategy rather than a hidden fee. Card network rules require that merchants disclose the surcharge percentage or amount both at the point of sale and on the receipt. You must not exceed your actual cost, and in no case may the surcharge exceed 4%.

Visa states that surcharges may not surpass the merchant discount rate, and MasterCard sets similar limits, capping the fee at the lesser of the merchant’s rate or the network’s maximum allowed. Furthermore, surcharging must be applied uniformly across all credit card brands—you cannot selectively apply it to certain issuers or networks. In states that prohibit surcharges, you can consider alternative strategies like a cash discount or a convenience fee model, though different rules apply in those cases.

Passing on credit card fees can significantly reduce merchant costs. A modest 2–3% surcharge on credit sales can effectively offset transaction fees. Research indicates that many consumers are willing to pay a small fee rather than abandon a purchase. For those hesitant about direct surcharging, another option is to raise prices slightly to account for processing costs—this achieves the same financial outcome without labeling the cost as a “fee.” Transparency is key: most resistance to surcharging stems from fear of customer backlash, but with clear signage and open communication, most customers accept reasonable convenience fees. Major retailers and airlines already use similar practices, often embedding the cost into posted “cash” prices.

One common myth to avoid is confusing debit card rules with credit card rules. In the U.S., surcharging is allowed for credit cards under specific conditions, but surcharging PIN-based debit or prepaid cards is prohibited. Some states, like Texas, allow a “convenience fee” structure when alternative payment methods are available. While it’s essential to check the specific laws in your state, merchants should understand that they generally have options to mitigate credit card processing costs.

Myth #4: Long-Term Contracts Are Unavoidable

Another pervasive myth is that you must accept a multi-year processing contract to get good rates, but in fact, long-term contracts are often optional and usually a sign to shop elsewhere. Especially for small or online businesses, flexible terms are now the norm, not the exception. Today’s popular processors like Stripe, Square, and PayPal operate on a month-to-month billing with no fixed term.

Even many traditional merchant services are moving in this direction. Industry guides consistently advise small businesses to avoid companies that lock them into annual contracts and instead choose providers offering month-to-month terms or no early termination fees. Payment experts echo this sentiment, stating that honest processors provide month-to-month agreements and that merchants shouldn’t have to pay to leave if they’re dissatisfied.

Many legacy and bank-owned processors still lock merchants into three- to five-year contracts with steep cancellation penalties. These terms are designed to discourage merchants from switching providers and often generate significant profit through early termination fees. However, such practices are increasingly unnecessary. The rise of modern fintech platforms and cloud-based point-of-sale systems has reduced the complexity of switching providers, allowing the market to shift toward price competition instead of contractual entrapment. If a salesperson insists on a long-term agreement, it’s a red flag.

There’s no harm in holding providers accountable. You should feel empowered to negotiate and ask for the removal or reduction of any locked-in term. Many providers are willing to offer shorter agreements or waive cancellation fees to win your business. It’s also important to watch out for auto-renewal clauses. Even if a contract appears to be month-to-month, some agreements include automatic rollbacks to annual terms unless canceled in time. Industry experts and consultants alike recommend carefully reviewing contracts for these hidden traps.

Long contracts often hide additional costs, such as equipment leases. If you’re required to lease a payment terminal on a multi-year plan, you could end up paying significantly more over time. For example, a four-year lease at $25 per month totals $1,200, while the same terminal might cost only around $300 if purchased outright, resulting in a $900 overpayment. A smarter option is to buy your equipment or use bring-your-own-device (BYOD) solutions when possible. While leases may offer short-term convenience, they are rarely cost-effective in the long run.

Myth #5: Changing Providers Is a Hassle

Fear of hassle is one reason many merchants stay stuck in a bad processing deal, but in truth, switching processors has become much easier thanks to plug-and-play gateways and cooperative account setup practices. It’s usually a matter of a few straightforward steps, not an ordeal. Changing your credit card processor can be surprisingly painless today, as modern providers often streamline onboarding to minimize downtime. For example, some processors allow you to run your old and new systems in parallel, offering features like secure customer data migration and zero payment disruptions.

This approach means you can test a new processor while still using the old one, and if the new solution doesn’t meet expectations, switching back involves minimal effort. Many businesses even operate both systems temporarily, comparing statements to ensure real savings.

The steps involved in switching are simple. Typically, you need to choose a new processor based on quotes or recommendations, complete the account application, install or configure their gateway or terminals, and begin accepting payments. If your existing POS and gateway already support the new processor, no new hardware is required. If new devices are needed, many providers ship them pre-configured. Importantly, you don’t have to cancel your current account immediately—you can overlap services to ensure a smooth transition.

There are a few real barriers to switching. The biggest hurdle is often finding your existing statements or negotiating out of a contract, but even early termination fees can sometimes be waived or reimbursed. Some processors offer to buy out your old contract as an incentive to switch. Additionally, federal and state laws may allow you to exit a contract without penalty under certain circumstances, such as when a provider increases fees. In practice, the necessary paperwork is often handled by the new processor, further easing the transition.

Support and speed are also on your side. Many modern processors provide 24/7 support during the transition period, and account approvals typically take only a few business days, or even minutes for online merchants. There’s also no need for extensive staff retraining, since card transactions function the same regardless of the backend processor.

Real-world experience confirms that switching isn’t complex. Payment advisors often break it down into just three steps: choose your POS, select a gateway, and pick a processor. With no-contract accounts like those offered by Stripe or Square, there’s virtually no risk—if it doesn’t work out, you can switch back with minimal hassle. And if you run into any issues, support forums and merchant services blogs are filled with helpful advice and community-driven solutions.

What’s True and How to Save Credit Card Processing Cost?

With myths debunked, let’s focus on reality and actionable strategies. Here are key truths and tactics to lower your payment costs:

What to Look for in a Modern Credit Card Processor?

• Transparent pricing: Prefer interchange-plus or membership models over tiered or opaque rates. Ensure you get a clear schedule of interchange costs plus any fixed markups. This “interchange rate clarity” means you pay exactly the network’s fee plus a small margin – no mystery padding.
• No hidden fees: Check for zero or low setup fees, statement fees, monthly minimums, PCI compliance fees, or gateway fees. Avoid processors that tack on random surcharges (e.g., “network access” or “annual account maintenance”). Some providers advertise “no hidden fees” as a selling point; verify it in the contract.
• Equipment choices: Choose a processor that lets you purchase devices outright or use BYOD (mobile readers). Avoid automatic lease agreements. If you need terminals, compare the costs of buying vs. leasing. (As noted, leasing a $300 device at $25/mo for 4 years can cost $1,200.) Buying eliminates monthly rental charges.
• Fast funding: Look for next-day or rapid funding options to beat the “funding delays myth.” Many modern processors offer funding in 24 hours or faster. This improves cash flow. One payments firm notes, “Next business day funding can significantly improve your business’s liquidity.”
• Built-in PCI compliance: PCI compliance is mandatory, not optional, for any merchant taking cards. A good processor will include simplified PCI tools (like free scanning or integrated validation). Don’t pick one that nickel-and-dimes you on PCI fees – your focus should be on compliance, not extra charges.
• Strong support and stability: Check for 24/7 customer service, fraud protection tools, and a track record with businesses like yours. Read reviews on how quickly they resolve issues. A “modern” processor should also stay up-to-date (support EMV chips, contactless, e-commerce tokens, etc.)
• Contract flexibility: Ideally, go month-to-month or at least short-term. If you must sign a term, make sure you can exit with minimal penalty. Transparent, reputable processors will spell out contract details.
• Global reach (if needed): If you sell internationally, ensure the processor has reasonable cross-border rates and supports multiple currencies. Some myths focus only on domestic rules, but global businesses should verify international interchange costs.
• Reputation: Finally, choose well-known providers or those recommended by peers in your industry. Check for BBB accreditation or industry certifications. A processor’s longevity and financial stability matter – you don’t want another surprise when they get acquired.

Questions to Ask Before Signing Any Contract

You must ask some important questions upfront (and demand straight answers) if you want to avoid nasty surprises later. Honest providers will be transparent or will clarify anything hidden. If a rep dodges, take it as a sign. Here are some important ones:

• Pricing model: “Is your pricing flat rate, tiered, or interchange-plus? Can you show me a sample statement so I can see the actual breakdown of fees?”
• Effective rate: “What will my total effective rate be based on my anticipated sales mix? For example, if I process $X in Visa/Mastercard and $Y in rewards cards monthly, what will I pay?”
• All-in cost: “What one-time and recurring fees apply? Are there PCI, statement, gateway, termination, or minimum fees? If so, what are they?”
• Contracts: “Is there a minimum contract term? Are there auto-renewal clauses? What is the cancellation (ET) fee, and under what conditions can I cancel penalty-free?”
• Termination: “Do you offer any support for early termination fees (like a buyout or covering the cost)?” (Some providers, like Helcim, will directly buy out your old contract or credit your account.)
• Funding and settlement: “How quickly are funds deposited into my account? Do you hold any reserves or have rolling reserve requirements?”
• Equipment: “Is my card reader/terminal compatible? If I need new hardware, do I lease it or buy it? What are the costs for each option?”
• PCI compliance: “Do you provide PCI compliance assistance or are there fees for it?” (Ask for proof they are themselves PCI-compliant, and whether they include quarterly scanning.)
• Surcharging and discounts: “Do you support cash discount or surcharge programs? If I want to surcharge or set a convenience fee, will your system handle the requirements?”
• Transaction handling: “Do you offer EMV chip and contactless processing? What about recurring billing, invoicing, or e-commerce gateway?”
• Hidden costs: “How do you handle things like chargeback fees, retrieval fees, or international card fees? Are those fixed or variable?”
• Miscellaneous: “Are any fees subject to change with notice? How do you notify me of rate increases or new fees?”

Smart Fee-Reduction Tactics That Work

Implementing these tactics can shave percentage points off your processing costs:

• Pass on costs legally: If permitted, implement a small credit-card surcharge (up to your processor cost, e.g., 2–3%) or a cash discount program. As Homebase suggests, “charging a convenience fee, raising your prices slightly, or setting a minimum purchase amount” are legitimate ways to offset processing costs. Just ensure compliance with state laws and network rules.
• Encourage cheaper payment methods: Promote debit (especially PIN-debit) or ACH payments for costlier recurring charges. Debit transactions often incur a flat fee rather than a high percentage, saving you money. Offer a small discount for cash/check payments if feasible.
• Negotiate volume pricing: If your sales grow significantly, renegotiate. Processors may offer tiered discounts or remove minimums once you hit new volume levels. Even without growth, you can use competitive quotes: show your statement to another provider and have them offer a better deal as leverage.
• Avoid card-not-present fees: Encourage customers to pay in person with chip cards rather than keyed-entry or manual entry online. Card-not-present transactions (phone/internet) carry higher rates. If you do e-commerce, use AVS/CVV verification to qualify for lower CNP rates.
• Use level 2/3 data for commercial cards: If you bill B2B or government, send Level 2 (for CMCC) or Level 3 (for commercial/interchange-plus) data to lower interchange. Many gateways support this. It can drop fees from ~3% to ~1–1.5% on corporate cards.
• Watch for hidden fee traps: Regularly audit your statements for any mysterious charges (PCI, batch fees, statement fees, etc.). Ask your provider to waive any unjustified charges. For example, Helcim warns that undisclosed “PCI non-compliance fees” should not be buried as higher transaction costs.
• Utilize technology: Some fintech solutions offer “free” processing by embedding fees in other services (cash-back programs, gift card systems, etc.). Others bill a flat monthly fee. Evaluate those if you qualify. But always do the math (free isn’t free!).
• Combine providers: As Helcim recommends, it’s sometimes smartest to open a second account temporarily. Run high-fee transactions through a cheap processor (like ACH/remote debit for large bills) and keep credit cards for others. This splits volume, forcing competition. Many small businesses use one account for regular sales and another for high-ticket or e-commerce sales, balancing cost vs. convenience.
• Negotiate contracts: Finally, remember that contracts are negotiable. If terms look bad (long lock-in, high fees), try a larger company or a broker. We noted you often don’t have to accept the first offered deal.

Final Thoughts: Don’t Let Misinformation Cost You

Credit card processing doesn’t have to be confusing or costly. Many common myths—like “everyone charges the same,” “flat rates are best,” or “you can’t pass fees to customers”—simply aren’t true. Long-term contracts aren’t mandatory, and switching providers is easier than ever. Instead of accepting outdated assumptions, merchants should focus on facts: compare providers, demand transparency, and scrutinize contract terms. Tools like statement analyzers and resources from modern processors can help you uncover hidden fees and make better choices.

By using agile, transparent processors offering features like interchange-plus pricing and free contract buyouts, small businesses can often save up to 25% on processing costs. That’s real money back into your business—enough to reinvest in staff, marketing, or operations. Staying informed about industry trends, legal changes, and pricing models can prevent overpayment and lead to smarter decisions. In short, be an informed buyer, not a passive payer—your bottom line depends on it.

Frequently Asked Questions