The Credit Card Processing Fee Glossary

The bank that "owns" your merchant account and is responsible to the card networks for your activity. Every legitimate processor partners with a Visa/Mastercard member bank to sponsor their accounts.

Small fees the card networks (Visa, Mastercard, Discover) charge on every transaction — typically 0.13% – 0.14% plus a tiny per-transaction amount. They flow to the brand, not your processor.

The processor's per-transaction charge for getting an approval from the issuing bank. Usually 5¢ – 25¢ per transaction. Charged on top of any percentage rate.

A fraud-prevention system that matches the billing address entered with the address on file at the issuer. Standard for card-not-present transactions.

A "batch" is the group of transactions you settle at the end of the business day (or whenever you close out). Some processors charge a small fee — typically 10¢ – 25¢ — every time you do.

The first six digits of a card number that identify the issuing bank. Used by processors to determine the interchange category. Now sometimes called IIN.

Any transaction where the physical card isn't swiped, dipped, or tapped — including phone orders, mail orders, and e-commerce. Interchange is higher for CNP because fraud risk is higher.

A transaction where the card is physically read by your terminal (swipe, chip, or tap). Has the lowest interchange because fraud risk is lowest.

A transaction reversed by the cardholder's bank, usually because the cardholder disputed the charge. Funds are pulled from your account and you must respond with documentation or accept the loss.

The flat per-incident fee your processor charges whenever you receive a chargeback. Industry standard is $15 – $25. Some processors charge $35 – $50, which is excessive.

The 3 – 4 digit code on the back of the card (or front, for Amex). Used in CNP transactions to verify the cardholder has physical possession of the card. Not stored after authorization — PCI prohibits storing CVV.

A small interchange surcharge (typically 0.40% – 0.80%) on cards issued outside the U.S. when used in the U.S. Pure pass-through.

The bank account where your processor deposits your daily net settlements (sales minus refunds and fees).

An old industry term for the percentage taken out of your sales — historically a "discount" applied at settlement. On Interchange Plus statements, it's broken into interchange + assessments + processor markup.

When a transaction is processed at a higher interchange category than your processor expected — for example, a rewards card processed without AVS. On tiered pricing, "downgrades" get pushed into Mid-Qualified or Non-Qualified buckets.

Total fees ÷ total volume × 100. The single most useful number to evaluate whether you're being overcharged.

The chip-card standard. EMV transactions have lower interchange than swiped magnetic-stripe transactions because the chip authentication makes them harder to clone.

A single rate that covers all costs — e.g., Square's 2.6% + 10¢ per swipe. Easy to understand. Typically the most expensive option once you're processing more than $15k – $20k a month.

The software layer that securely transmits card data from your website or virtual terminal to the processor. Authorize.Net, NMI, Braintree are gateways. Required for e-commerce.

The fee that flows to the card-issuing bank (Chase, Capital One, etc.) on every transaction. Set by the card networks twice a year (April and October). Pure pass-through cost.

The most transparent pricing model. You see actual interchange + assessments charged at cost, plus a small fixed markup (e.g., "Interchange Plus 0.25% + $0.10"). Easy to evaluate.

A company authorized to sell merchant accounts on behalf of a sponsor bank. NMS is a registered ISO. Most processors are technically ISOs of one of the few back-end platforms (Fiserv, Worldpay, TSYS).

A 4-digit code that classifies your business — 5812 for restaurants, 7230 for beauty/barber, 5411 for grocery, etc. Determines which interchange categories apply.

A specialized bank account that lets you accept card payments. Funds settle to your DDA after a 1 – 2 day delay.

A 12- or 16-digit number that uniquely identifies your merchant account. Listed on every statement.

A Mastercard-specific per-transaction fee, currently $0.0195. Pass-through.

Under tiered pricing, the highest rate bucket. Rewards cards, business cards, and downgraded transactions usually end up here. Often 1.0% – 2.0%+ higher than the qualified rate.

The full 16-digit card number. Sensitive data — PCI rules govern how it can be stored, transmitted, or displayed.

The Payment Card Industry Data Security Standard. Annual self-assessment (SAQ) most small businesses must complete. Free to do yourself; only takes 20 – 30 minutes for a typical small merchant.

The monthly $19 – $99 fee processors charge when you haven't completed your PCI questionnaire. Pure leverage — designed to push merchants into the processor's PCI program.

Debit cards run as debit (PIN entered) rather than credit. Different interchange table — sometimes cheaper, sometimes not, depending on the network.

Under tiered pricing, the lowest rate bucket. Marketed as the headline rate (e.g., "1.69%") — but in practice, only a fraction of transactions ever qualify for it.

Money held back by the processor to cover potential chargebacks or fraud losses. Common for high-risk industries (travel, future delivery, subscription).

A request from the issuing bank for documentation about a specific transaction — usually because the cardholder is questioning a charge. Not a chargeback, but it can become one if you don't respond.

The process of finalizing a batch of authorized transactions and moving funds from the issuer to your account. Usually 1 – 2 business days after the sale.

Adding a fee to credit card transactions to offset processing costs. Legal in most U.S. states but governed by specific rules (must be disclosed, capped at the actual processing cost, can't be applied to debit). Not the same as a "cash discount" program.

A pricing model that sorts transactions into Qualified / Mid-Qualified / Non-Qualified buckets and charges a single rate per bucket. The markup is hidden inside those rates and the processor decides which transactions go in which bucket. Typically 30 – 50% more expensive than Interchange Plus.

Replacing a card number with a non-sensitive surrogate value (token) for storage and recurring billing. Reduces PCI scope and protects against breaches.

An older approval method where the merchant calls the issuer by phone. Rare today; mostly seen in specific high-ticket or fraud-flag scenarios.