Lots of business owners ask us “how much does it actually cost to process a transaction?”. Sometimes they are just curious, and sometimes they want to know for purposes of evaluating what is a good deal. While none of the big credit card processing companies will ever come out and tell the world their cost structure (since that’s a competitive secret), we have a few bits of data that we can piece together for an answer.

First, on the FeeFighters marketplace, the processors markup, over the wholesale cost that they must pass on to Visa and Mastercard, called Interchange, is usually between 0.10% and 0.30% of the volume of the transaction plus between 0.05 and 0.20 per transaction. So, on a $50 average purchase, these processors are offering a cost of about 0.10 and 0.35 per transaction. We know they are NOT making those bids at a price that loses them money.

Second, First Annapolis Consulting, a firm that specializes in studying credit card processing, crawled through the publicly available financial statements of a few processors and came up with a different answer in their September 2007 issue (free account required to read). .

They found that it costs between $0.07 and $0.61 per transaction. However, that analysis INCLUDES sales costs, including the profit that their reseller partners make. So it’s not really the cost of just sending the transaction over the wire and then billing you for it, but it does put us in the ballpark. Ignoring iPayment, which is kind of an anomaly, we can conclude that processing a payment costs no more than $0.07 to $0.30 each.

Why is Chase Paymentech so much cheaper than their competitors? First, it’s bigger, and we know that processing transactions is more cost effective at higher volumes. Second, it has more large customers, and for large customers sales costs are lower on a per-transaction basis.