Payment processing fee – What and Why?


Consumers’ payment habits have completely changed due to the recent COVID-19 outbreak. The most obvious trend is a dramatic uptake in digital payments which is slated to account for 65% of all payments in India by 2026. During the peak of the pandemic, contactless payment, NFC and QR helped quell the transmission of the virus. To lessen the effect of the COVID-19 pandemic on national economies, government officials in several nations are encouraging digital payments, which is driving up demand for payment processing solutions.

Because internet usage is increasing, it is expected that the online deployment model is expected to expand at a CAGR of about 10% through 2028. The majority of the big e-commerce companies choose online transactions for their company operations, although there is a payment processing fee associated with these transactions. This isn’t to say that offline transactions don’t come with processing fees.

Offline merchants, especially small and local businesses, often struggle with bearing processing fees. In addition to losing customers online, they seek out payment solution providers who offer cost-effective

According to a study analysis by Global Market Insights Inc., the payment processing solutions market will surpass USD 180 billion by 2028.

What is Payment Processing Fee?

Customers using credit cards or making online payments are charged a payment process fee to cover the costs of the payment processor conducting the transaction. For instance, a credit card company may charge businesses a portion of the sale known as a merchant account fee.

Factors affecting Payment processing fee

The transaction fee associated with processing payments varies depending on several variables.

  • Interchange Rate

    The card issuer charges the receiving bank a fee each time a customer uses a credit card to make a purchase; this fee is known as the interchange rate.

    For a processing fee example, when a consumer swipes their ICICI credit card on an Innoviti terminal, ICICI will collect the interchange charge on the Visa payment network. It aids the issuing bank in paying the transaction’s handling and credit card processor fees. It also aids in eliminating any transactional fraud.

Typically, three cost factors are considered:

  • The operating expense
  • The charges for the merchant’s payment assurance
  • The cost of preventing fraud

When using a POS system to swipe your card, the interchange fee is lower than when paying online.

  • Merchant Account Provider Fee

    The credit card network and a merchant account must be connected to handle credit card payments. The merchant account is used to receive payments, and the merchant account provider regularly pays the money into the merchant’s bank account.

    The merchant account provider levies a minor fee in addition to the interchange fee, depending on the number and nature of transactions. It might also charge a monthly maintenance cost and an extra fee for transactions that customers dispute in addition to the fee for each transaction.

    While these fees might seem intimidating and exorbitant, as a business owner these fees form but a fraction of the overall transactions that a business incurs on a daily basis.

Card Processing

The method used to process the card has an impact on the processing charge as well. Different types of transactions, such as manual card swipes, contactless payments, online purchases, and phone purchases, carry varying degrees of risk.

With the digital payment space comes the increased risk of fraud and hacking, but swiping on POS machines like Innoviti continues to be a safer option. Swiping in person not only allows for secure transactions but also gives consumers a wider choice of purchase options, deals and discounts. Additionally, because it is significantly safer to swipe the card at a POS, the transaction cost is lower. On the other hand, phone and online transactions are significantly riskier because hackers have sophisticated methods to steal and use card information to make purchases.

Having unpacked processing fees, let’s explore some associated fees that will help deepen your understanding:

Types of fee

  • Flat Fees

    These fees are payment methods in which the payment processor deducts a fee from each transaction, regardless of the card’s kind, manufacturer, or whether it’s an online or in-person purchase. These fees are charged annually or monthly to your merchant account or credit card.

  • Interchange Fees

    These are the charges your business bank must make to the banks of your clients each time a transaction takes place. These fees have two primary objectives: to maintain and support handling costs while reducing the dangers of online and online transaction fraud. These fees are not negotiable, so you must pay them.

  • Assessment Fees

    Card issuers levied these fees to allow them to use their card brand. It includes the expenses related to the payment network’s transaction processing. They are entirely non-negotiable even though they are often cheaper than exchange rates.

  • Tiered Fees

    The processor in this approach holds different interchange fees and categorizes them into three groups based on the associated risks in each transaction. There are three categories of rates: qualified, mid-qualified, and non-qualified. The following are the specifics of the various tiers:

    • Qualified Rate

      To be placed in the qualifying rate tier, a transaction must meet the processor’s processing requirements. In-person Transactions at a physical terminal using a conventional credit card, for example, are classified as low risk and hence have the lowest rates.

    • Mid-Qualified Rate

      Transactions that do not meet all of the payment processors’ requirements are relegated to the mid-qualified or non-qualified tiers. Keyed-in transactions, such as direct-mail or phone orders when the credit card isn’t physically present, have a higher chance of fraud; hence firms pay a higher rate to offset the increased risk.

    • Non-Qualified Rate

      Non-qualified rates apply to transactions that do not qualify for the qualified or mid-qualified categories. This category includes reward card transactions, e-commerce purchases, and signature card transactions. The non-qualified tier has the most competitive fees.


Business owners incur costs associated with processing consumer payments. A merchant’s payment processing fees are determined by several variables, including the transaction’s level of risk, the type of card used, and the price structure that a particular payment processor prefers.

For any transaction to be honored, there is a processing fee that is charged to cover the logistics that is involved. When a customer swipes their card at a merchant’s terminal, the desired amount has to be moved from the customer’s bank account via the payment processor to the merchant’s account, which the bank will then deposit in the merchant’s personal account. In addition, if the customer’s bank is different from the merchant’s bank, there is an added fee involved. To cover these transactional logistics, a processing fee is charged.

A processing fee is charged while using a payment provider’s terminal as well. However, until a merchant is cautious, payment companies often levy exploitative processing fees. Innoviti has designed reasonable and affordable fees.


The processing fee is computed as a percentage of the total.

The following equation determines processing costs: (order amount x percentage fee) (transaction fee x a number of transactions).


You should expect increased processing rates if your company falls into the “high-risk” category. If a processing firm believes you will lose money, they will charge you more to compensate for the risk. High-risk enterprises may exist, and transactions have higher processing costs due to the increased fraud risk.

Yes, there are fees associated with debit card processing, but they are significantly lower than those associated with processing fee credit card processing.

Now that you have sufficient knowledge on the mechanics of processing fees, you can use your PoS terminals consciously and in ways that best serve your business interests. Apart from being seamless, fast and reliable, Innviti’s terminals are configured to give merchants the best value in terms of processing fees and other costs. Use POS devices integrated with the Innoviti platform to streamline your business.