The payments
glossary
Fifteen merchant-fee terms every business owner should know before signing a processing agreement — defined in plain English, each with a link to a deeper guide.
Why this exists
Processing statements are written in a language built to be hard to audit. Learn these fifteen terms and you can read any quote, spot padded fees, and compare processors on the one number that matters — your effective rate.
Card acceptance really comes down to three costs stacked on top of each other — interchange, assessments, and processor markup — plus the rules and mechanics around them. Master the vocabulary below and no statement will ever be able to hide from you again.
Interchange
Interchange is the fee the card-issuing bank collects on every card transaction. The card networks set it, and it is paid by your processor and passed on to you. It is the single largest component of card-acceptance cost and is effectively non-negotiable — it varies by card type, your business category, and how the card is accepted (in person versus online).
Deeper: interchange vs assessments vs markup →Assessment fees
Assessments are the card networks' own charge — Visa, Mastercard, Discover — for routing a payment across their rails, layered on top of interchange. They are a small percentage of volume plus fixed network-access fees. Every processor pays the same assessments, so this is not a line anyone can discount.
Deeper: where the three cost layers come from →Effective rate
Your effective rate is total processing fees for a period divided by total card volume for that period, shown as a percentage. It folds interchange, assessments, markup, and every monthly fee into one all-in number. It is the only honest way to compare two processing offers, because it cannot be gamed by a headline rate.
Deeper: calculate your effective rate in 5 minutes →Dual pricing
Dual pricing displays two prices — a lower cash price and a higher card price — so the cost of card acceptance is carried by the customer who chooses to pay by card. Applied within card-brand rules, it can move a merchant's net processing cost close to zero while keeping pricing transparent at the point of sale.
Deeper: how dual pricing reaches zero processing cost →Cash discount
In a cash-discount program, the listed shelf price is the card price, and customers who pay with cash get a stated discount at the register. It is a card-brand-compliant way to reward cash rather than to add a fee to card payment — a distinction that matters for how it must be disclosed.
Deeper: cash discount vs surcharge →Surcharge
A surcharge is a fee added specifically to credit-card transactions to offset processing cost. It must be disclosed to the customer and is capped by card-network rules. Surcharging is restricted or prohibited in some states, and it can never be applied to debit or prepaid cards — only credit.
Deeper: the 2026 surcharging rules →Interchange-plus pricing
Interchange-plus passes published interchange and assessments through at cost and adds a fixed, stated processor markup on top — for example "interchange + 0.25% + 8¢." Because the markup is disclosed and identical across card types, it is the easiest pricing model to audit and to negotiate.
Deeper: interchange-plus vs flat rate →Flat-rate pricing
Flat-rate pricing charges one blended percentage — often plus a fixed per-transaction fee — on every card regardless of its true underlying cost. It is simple and predictable, which is its appeal, but it hides the processor markup inside one number and tends to overcharge on debit-heavy volume.
Deeper: which model actually costs less →Tiered pricing
Tiered pricing sorts transactions into buckets — typically qualified, mid-qualified, and non-qualified — each with its own rate. The catch is that the processor decides which transactions land in the expensive tiers, which makes the true cost opaque and easy to inflate over time.
Deeper: tiered pricing, the hidden tax →Downgrade
A downgrade is when a transaction fails to meet the conditions for the lowest interchange category and gets billed at a higher rate instead. Common triggers include missing transaction data, late batching, keyed-in card-not-present entry, and premium or corporate cards.
Deeper: the downgrade problem →Chargeback
A chargeback is a forced reversal of a card payment initiated by the cardholder's bank, usually over fraud or a disputed purchase. The merchant typically loses the sale amount plus a chargeback fee, and a sustained high chargeback rate can raise costs or put the merchant account under review.
Deeper: chargebacks, the hidden tax →PCI compliance
PCI compliance means meeting the Payment Card Industry Data Security Standard, the security requirements for any business that handles card data. Merchants validate compliance each year, and many processors charge a PCI fee — or a steeper non-compliance penalty — on the monthly statement.
Deeper: PCI compliance fees explained →Card-present vs card-not-present
Card-present transactions happen when the physical card is dipped, tapped, or swiped in person. Card-not-present covers online, phone, and keyed-in payments. Card-not-present carries higher interchange and more fraud risk, because neither the card nor the cardholder is physically verified at the moment of sale.
Deeper: card-present vs card-not-present →MCC (merchant category code)
An MCC is a four-digit code the card networks assign to classify a business by what it sells. It influences interchange rates, surcharging eligibility, and the rewards categories customers earn in. An incorrect MCC can quietly raise your processing cost or push transactions into pricier interchange categories.
Deeper: how category and data drive downgrades →Batch / settlement
Batching is the daily submission of your approved transactions for funding; settlement is the movement of those funds into your bank account. Timing matters — late or missed batches can trigger interchange downgrades and delay your deposits by a day or more.
Deeper: batching, settlement, and same-day funding →Sources & how to verify
Definitions here are grounded in the openly published Visa USA Interchange Reimbursement Fee schedules and Mastercard U.S. Interchange Rate program tables, the PCI Security Standards Council's PCI DSS documentation, and Federal Reserve Regulation II on regulated debit interchange. Fee amounts vary by processor and card mix; the only authoritative figure for your business is your own itemized merchant statement.
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