One of the big decisions you have to make when running your business is how to collect payments. And if you’re going to accept online payments, you’ll need to choose the payment processor that works best for you. Regardless of which one you go with, you’ll be paying processing fees on your transactions.

Here are some important terms used throughout this post:

Interchange rate: A fee charged by banks to support the cost of processing card-based transactions
Payment processor: A company that executes the transactions (i.e. PayPal or Stripe)
Merchant account: The account where the money will go once processed
Gateway fee: The monthly cost for using a payment processor

So, how do you figure out what these payment processing fees might add up to?

First you need to understand the pricing models for each payment processor. Many processors use what is called “Interchange Plus Pricing” or “Cost Plus Pricing”. That means you pay the Interchange rate set by the credit card companies plus the processor’s advertised rate. The attractive Interchange rates they often advertise will be for basic non-premium credit cards for in-person transactions. You’ll likely find that many of your clients have premium cards (aka rewards cards, cash back cards, etc.). For the convenience of your families and to lessen your workload, you’ll likely be accepting payments online. “Card not present” transactions (aka online payments) have an even higher rate than what’s typically advertised.

Here are some of the common credit card types you’ll likely be accepting:

Credit Card Type Interchange Rate – Card Not Present  Payment Processor Rate  Additional Fees
Visa Rewards Traditional 1.95% + $0.10  0.1 – 1% One-time setup fee
Anywhere between $0 and $100Monthly gateway fee
Typically $10-$50/yearPCI compliance fee
Typically $60-$150/yearOther miscellaneous charges
Chargeback fees, monthly minimums, etc.
Visa Rewards Signature 2.7% + $0.10  0.1 – 1%
Visa Rewards Signature Preferred 2.3% + $0.10  0.1 – 1%
MasterCard Consumer 1.89% + $0.10  0.1 – 1%
MasterCard Enhanced 2.04% + $0.10  0.1 – 1%
MasterCard World 2.05% + $0.10  0.1 – 1%
MasterCard World Elite 2.95% + $0.10  0.1 – 1%


While you may be enticed by a processor offering a 1.89% + $0.10 rate, what you’re not being told is that rate is only for one specific type of card. As we can see from the chart, processing all those non-qualified cards (aka rewards cards, cash back cards, etc.) could be north of 3% and this will be in addition to your monthly fees and other miscellaneous service charges.On top of that, many payment processors are charging a monthly fee just to use the service, plus hidden fees you may not even realize you’re paying! Payment processors, like Stripe, have taken into account what types of cards most consumers use and factor that into their one blended rate (2.9% + $0.301) and no additional monthly or hidden fees.To figure out what the most cost-efficient payment processor is for your business, you’ll want to calculate your effective rate:

  • Add up all the transactions you’ve put through XYZ Corp
  • Add up ALL the fees charged (statement fee, gateway fee, batch fee, transaction fees, etc.)
  • Divide the sum of the fees by the sum of transactions and multiply by 100

With all of these points being considered, it can take some time to determine what your best option will be. When you’re running your business, you don’t necessarily have time to be able to do that! TutorBird makes it easy. We never take a cut of your payments, and we integrate with Stripe, PayPal and PayPal Pro. Subscribed TutorBird members even get the $30 PayPal Pro monthly fee waived2!

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1 For users in Canada and the US, at the time of writing this article
2 Users in Canada and the US only