NYTimes published an interesting article today called Small Business Owners Lobby to Cut Credit Card Fees.  We think they did a really good job of explaining how part of the profit goes to interchange and the rest to the processor / merchant acquirer.

A typical merchant card payment has two parts: an “interchange fee,” which includes an average 1.7 percent of the sale price and a flat per-transaction fee, and a separate fee that goes to the merchant’s bank. Take, for example, a driver who pays for a $1,000 car repair with a credit card. The bank that issued the consumer’s card receives an interchange fee of $17.10 (including a 10-cent flat fee), while the repair shop’s bank gets $4, or four-tenths of 1 percent of the total sale. The repair shop pockets $978.90.

The author is assuming that they are using a rewards card or that the card wasn’t swiped.  Here is what a the garage would pay in interchange, assuming that the card was swiped and it was a Visa card (the MasterCard rates are very similar):

Debit card: 1.03% + 0.10 = 10.4
Non-rewards credit card: 1.54% + 0.10 = 15.5
Rewards card: 1.65% + 0.10 = 16.6
Business card: 2.20% + 0.10 = 22.1

As for the portion that goes to the acquiring bank or credit card processor, 0.40% is also a low estimate.  Most small businesses (like this theoretical auto repair shop) pay a higher markup to their processor.

For example – this article from the Philadelphia Federal Reserve estimates that the average small business pays its merchant acquirer 1.82% on top of interchange.  Informed-merchant.com, based on their analysis of First Analysis and Morgan Stanley publications, estimates that a business with $1M in credit card revenue / year pays their processor a markup of about 0.70% with smaller businesses paying much more (average credit card processing rates).

We highly recommend checking out the NYTimes article.

Of course, if you want to see what your business is paying in interchange fees and processing markup, you can use our free credit card processing calculator.