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High Processing Fees: What They Are, Why They're High & How to Lower Them

As a merchant, you're likely all too familiar with processing fees. They're an inevitable cost of running a business, especially if your establishment accepts credit cards. Unfortunately, high processing fees are more common than not, adding up quickly and eating into your profit margins.

In this blog from ModPay Solutions, we'll explore processing fees, why they tend to be high, and, most importantly, how to lower them.

High Processing Fees: What They Are, Why They're High & How to Lower Them

Table of Contents:

  1. Defining Processing Fees

  2. Why Are Processing Fees So High?

  3. High Processing Fees: How to Lower Them

  4. Conclusion

People Also Ask:

Why are payment processing fees so high?

Interchange Fees. The interchange fee usually makes up a big chunk of the total credit card processing fee. It's typically on the higher side because it covers things like billing services, the risks of fraud, and the costs that card issuers have when moving money from the cardholder to the merchant.

Are companies allowed to charge processing fees?

The answer is yes, but it depends on the state where your business operates. Currently, only three places in the U.S. - Connecticut, Massachusetts, and Puerto Rico - prohibit adding extra fees to credit card transactions (known as credit card surcharges). So, in most states, companies are allowed to charge processing fees.

Defining Processing Fees

Processing fees are charges businesses must pay a credit card processing company for their services. These services often include payment processing, fraud detection, and chargeback resolution.

It's important to note that fees can vary depending on the type of transaction and the credit card company. Typically, processing fees range from 1.5% to 3.5% for each transaction. These percentages might not seem like much individually, but if you're a merchant processing thousands of dollars daily, these percentages add up.

Why Are Processing Fees So High?

There are several reasons why processing fees can be high. First, credit card companies (Visa, MasterCard, etc.) need ways to help cover the costs of their services.

Necessary services often include fraud checks, installing payment gateways, paying for customer service, and handling chargebacks. These services all cost money and are typically funded by the processing fees charged to each transaction.

Another reason for high processing fees is the risk level of the business. High-risk businesses are those more prone to chargebacks or fraud. As a result, they may face higher rates and fees because they represent a greater liability to the provider.

Finally, another reason for higher processing fees is your business's payment processing. Some payment processing methods, such as virtual terminals, often come with higher fees than others.

High Processing Fees: How to Lower Them

As a business owner, high processing fees can be a major concern. They can eat into your profits and potentially discourage customers from making purchases.

However, it's important to remember that you also have options! If you're unhappy with how much you're paying in processing fees, you can take steps to lower these fees and even eliminate them altogether.

Negotiate with your payment processor: If you're a high-volume merchant or can demonstrate a lower risk of chargebacks and fraud, you may be able to negotiate lower processing rates with your payment processor.

Shop around: You can check with multiple processors to find the best rates out there, and you can compare their rates, fees, and overall services provided.

Consider alternative processing: The beauty of operating in a highly competitive business market is that processors now offer alternative solutions. For example, At ModPay Solutions, we offer 0% processing. This means you can accept credit card payments without paying traditional processing fees.

Pass on the fees: Consider passing on the processing costs to customers by implementing a surcharge or convenience fee. However, be aware of the legal and ethical implications of this strategy.

Ensure PCI compliance: Being PCI compliant can also lower fees, as it shows that you are taking measures to ensure the security of your customers' payment information.

Implement fraud prevention tools: Investing in fraud prevention software and tools can help you reduce the number of fraudulent transactions and chargebacks, saving you money in the long run.


Processing fees are a costly business expense, but taking the necessary steps to reduce them can help put you on the path to long-lasting profitability. By shopping around, exploring your options, and considering alternative processing solutions, you can lower or even eliminate high processing fees for good. These steps will ultimately help you optimize your bottom line and allocate more resources toward growing your business.

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