For many businesses, credit card processing is the largest financial-services fee. According to First Annapolis Group, a consultancy focused on the credit card industry, small businesses pay an effective rate of between 2.45% and 3.57% on their credit card transations. Similar analysis from the Philadelphia Federal Reserve finds that, on average, small businesses pay around 1.8% of their total sales (including cash and check sales) for credit card processing.

Credit card processing statements can be difficult to understand, with incomprehensible line items, for example “Batch Header Fee”, “Rewards 2” and “Visa WAT” and “ECI CPU”. Since each credit card processor has it’s own billing format, the best way to compare rates between processors is to find the total amount you were billed for processing, and divide it into the total amount of processing volume, to calculate your effective rate. Then compare your effective rate to the interchange rates set by Visa and Mastercard. The interchange rate is the biggest cost for credit card processors, and your rate should be a reasonable markup above interchange, in proportion to the quality of service that your processor provides. You can also compare your effective rate to the effective rate of similar businesses with similar average transaction sizes, since they should be around the same.

The analysis I described above can be tedious, so we created a free, anonymous tool called the credit card processing calculator. If you are curious about how your current credit card processing rates compare, try it out, or watch the demo below.