Fees associated with credit card payments for small businesses

Question

I once went to a deli in Boston, and when I attempted to pay with a credit card, they said that the process will cost them almost 10% of the entire sale. This was curious to me since I had always assumed that card fees (those associated with payment terminals) are only around 2-3% in the U.S. Is the following breakdown correct, or are the acquiring bank and association fees usually included in the payment processing fee? I also know that Apple Pay, etc. take a small fee as well, but I have not included that.

Where does my $100 go?

1. Payment Processor: Assume a payment fee of 2.9% plus a flat fee of $0.30
2. Merchant Account Provider: The merchant account providers charge a monthly fee of $20 and a transaction fee of $0.10
3. Acquiring Bank: Acquiring bank could charge fee upwards of 1.5%
4. Card Associations: The card association sets the interchange fee, which let’s assume is 2% of the transaction amount.

Thus, breakdown is as follows:

1. 2.9% of $100 + $0.30 = $3.20
2. $0.10
3. 1.5% of $100 is $1.50
4. 2% of $100 is $2.00 Total fees are $6.80, meaning merchant is left with $93.2

Answer 1

taking your breakdown of a $100 transaction:

2.9% of $100 + $0.30 = $3.20
$0.10
1.5% of $100 is $1.50
2% of $100 is $2.00 Total fees are $6.80, meaning merchant is left with $93.2

and doing it for a $10 transaction

The breakdown is as follows:

2.9% of $10 + $0.30 = $0.29 + $0.30 = $0.59
$0.10
1.5% of $10 is $0.15
2% of $10 is $0.20 
Total fees are $1.04, meaning merchant is left with $8.96

For a small transaction it is just over 10%.

The flat fee parts are what drives up the percentage. That is why vendors want you to avoid plastic when making a small transaction.

Answer 2

You're massively overcounting. ~3% start-to-finish should be correct, that is the merchant receives around 97 cents for $1 charged. This can be seen from all-in-one processors like Square. Even merchant special interest groups (a biased source) say 2-4%.

Payment Processor: Assume a payment fee of 2.9% plus a flat fee of $0.30

That's an all-in-one fee. You stop right there.

Payment processors make money by the difference between their costs and what they charge you. Where they really make money is that debit cards have a much lower rate than credit, yet they still charge credit-like fees on every transaction.

Acquiring Bank: Acquiring bank could charge fee upwards of 1.5%

If it was that high, it would either include interchange, or it's for a high-risk merchant.

Card Associations: The card association sets the interchange fee, which let’s assume is 2% of the transaction amount.

Again, you already paid for that, so don't count multiple times. Card networks keep much less than 1%, but also add on fees like a kilobyte fee or a per-card number fee charged to the issuer.