Understanding Dental Merchant Fees: What You Are Really Paying
You process $40,000 in credit cards this month. Your merchant statement shows $1,247 in fees. Is that normal, or are you overpaying?
The Fee Nobody Talks About
Credit card processing is a cost of doing business. Patients expect to pay with cards. Practices that do not accept cards lose patients.
But most practice owners have no idea what they actually pay for credit card processing. They signed up with a processor years ago, the fees come out automatically, and nobody questions it.
That lack of attention costs money. Processing fees vary widely. Two practices with identical transaction volumes might pay vastly different rates. The difference often comes down to pricing structure, negotiation, and understanding what you are actually being charged.
This guide breaks down dental merchant fees so you can evaluate whether you are paying fairly and what you can do about it.
How Credit Card Processing Actually Works
Before diving into fees, understand the players involved in every transaction.
The Four-Party System
When a patient swipes their card, four entities participate:
The cardholder's bank (issuer). The bank that issued the patient's credit card. They take the biggest cut of fees.
The card network (Visa, Mastercard, etc.). The network that routes the transaction. They take a small percentage.
Your bank (acquirer). The bank that receives the funds on your behalf. They take a small cut.
Your processor. The company that provides your terminal and handles the transaction flow. They add their markup.
Every fee you pay gets divided among these parties. Understanding this helps you see where costs come from and where you might have leverage.
Interchange: The Non-Negotiable Base
Interchange fees go to the card-issuing bank. These rates are set by Visa and Mastercard and are non-negotiable. Every processor pays the same interchange rates.
Interchange varies by:
- Card type (debit, credit, rewards, corporate)
- Transaction method (swiped, keyed, online)
- Business category (dental is typically retail/healthcare)
For dental practices, interchange typically ranges from 1.5% to 2.5% depending on the card used. Rewards cards cost more. Debit cards cost less.
The Markup: Where You Have Control
Everything above interchange is markup. This includes your processor's profit, your acquirer's cut, and various fees they add.
Markup is negotiable. It is also where processors make money, so they have every incentive to charge as much as possible.
Common Pricing Structures
Processors package their fees in different ways. Understanding pricing structures helps you compare offers.
Interchange-Plus Pricing
This is the most transparent structure. You pay:
- Actual interchange (varies by card)
- Plus a fixed markup (e.g., 0.25% + $0.10 per transaction)
Example: A $500 payment on a rewards card with 2.1% interchange and 0.25% + $0.10 markup costs: $10.50 (interchange) + $1.25 + $0.10 = $11.85, or 2.37%.
Pros: Transparent, easy to verify, usually lowest overall cost.
Cons: Monthly statements are more complex because each transaction shows different rates.
Tiered Pricing
Transactions are grouped into tiers: qualified, mid-qualified, and non-qualified. Each tier has a different rate.
Example:
- Qualified (swiped debit): 1.79%
- Mid-qualified (swiped credit): 2.29%
- Non-qualified (keyed rewards): 3.29%
Pros: Simple statements, easy to understand.
Cons: Processors control which transactions go into which tier. They often put most transactions in higher tiers, making this structure more expensive than it appears.
Flat-Rate Pricing
One rate for all transactions, regardless of card type.
Example: 2.75% for all transactions.
Pros: Extremely simple, predictable costs.
Cons: Usually the most expensive option. You pay the same rate for cheap debit cards as you do for expensive corporate rewards cards.
Which Structure Is Best?
For most dental practices processing over $10,000 monthly, interchange-plus provides the lowest cost. The transparency also makes it easier to verify you are being charged correctly.
Flat-rate pricing can make sense for very small practices or those wanting maximum simplicity. But you pay a premium for that simplicity.
Avoid tiered pricing. The lack of transparency almost always works against you.
Breaking Down Your Merchant Statement
Merchant statements are notoriously confusing. Here is what to look for.
Key Numbers to Find
Total processing volume. The total dollar amount of credit card transactions. This should match your PMS credit card reports.
Total fees. Everything you paid the processor this month.
Effective rate. Total fees divided by total volume. This single number tells you what you are actually paying as a percentage.
Calculating Your Effective Rate
If you processed $42,000 and paid $1,134 in total fees:
$1,134 / $42,000 = 2.70% effective rate
This is the number that matters for comparison. Ignore the advertised rates. Calculate your actual effective rate.
What Is a Good Effective Rate?
For dental practices, effective rates typically range from 2.2% to 3.2%.
- Below 2.4%: Excellent. You have negotiated well or have favorable card mix.
- 2.4% to 2.7%: Good. Room for improvement but reasonable.
- 2.7% to 3.0%: Average. Worth shopping around.
- Above 3.0%: High. You are likely overpaying.
These benchmarks assume a typical mix of consumer credit and debit cards. If you see a lot of corporate cards or American Express, rates will be higher.
Hidden Fees to Watch For
Beyond the per-transaction fees, watch for:
Monthly fees. Statement fees, account fees, minimum fees. These should be minimal, typically under $25 total.
PCI compliance fees. Charges for maintaining payment card security standards. Legitimate but sometimes inflated. Should be under $100 annually.
Batch fees. Charges every time you settle your terminal. Should be minimal, around $0.10-0.25 per batch.
Equipment fees. Monthly terminal rental. Consider buying equipment outright to avoid ongoing costs.
Annual fees. Some processors charge yearly fees. Often negotiable or avoidable.
Early termination fees. Penalties for canceling before your contract ends. Avoid long contracts with these clauses.
Why Dental Practices Often Overpay
Several factors contribute to dental practices paying more than necessary.
Set It and Forget It
Most practices signed up for processing years ago and never revisited it. Processors count on this inertia. Rates creep up. Fees get added. Nobody notices.
Lack of Comparison
Processing is complex. Comparing offers requires understanding different pricing structures and calculating effective rates. Most practice owners do not have time for this analysis.
Bundled Services
Processors often bundle payment processing with practice management software, patient financing, or other services. These bundles seem convenient but often include processing rates higher than standalone options.
Long-Term Contracts
Some processors lock practices into three to five year contracts with auto-renewal and early termination fees. This removes your leverage to negotiate or switch.
Strategies to Reduce Processing Costs
Calculate Your Current Effective Rate
Before doing anything else, know what you are paying. Pull the last three months of statements, calculate your effective rate for each month, and average them.
This baseline tells you whether you need to take action and helps you evaluate alternatives.
Request Interchange-Plus Pricing
If you are on tiered or flat-rate pricing, ask your processor to switch you to interchange-plus. Many will do this to retain your business.
This change alone can save 0.25% to 0.50% on your effective rate.
Negotiate Your Markup
Call your processor and ask for a rate review. Tell them you are evaluating alternatives. In many cases, they will reduce your markup to keep your business.
Focus on the markup portion, not interchange. Nobody can lower interchange.
Get Competing Quotes
Request quotes from two or three processors. Make sure you are comparing interchange-plus pricing. Calculate what your effective rate would be with each option based on your actual transaction volume and card mix.
When you have competing offers, use them as leverage with your current processor.
Review Fees Annually
Set a calendar reminder to review your merchant statement once a year. Calculate your effective rate. Look for new fees. Evaluate whether your current deal still makes sense.
Markets change. New processors enter. Your leverage increases as your volume grows. Annual reviews ensure you stay competitive.
Consider Your Card Mix
Different cards cost different amounts to process. If you see a lot of expensive cards (rewards, corporate, American Express), consider:
- Offering a small discount for debit or cash (where legally permitted)
- Surcharging for credit cards (where legally permitted and disclosed)
- Steering patients toward lower-cost payment methods
These tactics are sensitive and require careful implementation, but they can meaningfully reduce costs for practices with unfavorable card mix.
Reconciling Merchant Fees Monthly
Processing fees affect your profitability. Reconcile them monthly to ensure accuracy.
Match Volume to PMS
Your statement shows total processing volume. Compare this to your PMS credit card payment reports for the same period.
They should match closely. Small timing differences are normal. Large discrepancies suggest either PMS posting errors or processing errors.
Verify Fee Calculations
If you have interchange-plus pricing, spot-check a few transactions. Verify that the interchange rate charged matches what it should be for that card type.
Errors happen. Processors sometimes miscategorize transactions into higher-cost tiers.
Track Effective Rate Over Time
Create a simple log tracking monthly volume, total fees, and effective rate. Look for trends.
If your effective rate is creeping up without explanation, investigate. Processors sometimes add fees or change rates hoping you will not notice.
Watch for Unusual Activity
Large refunds, chargebacks, or unexplained credits should be investigated. These can indicate fraud, processing errors, or customer disputes that need attention.
When to Switch Processors
Switching processors involves effort. Consider switching when:
Your effective rate is significantly above market. If you are paying 3.2% and could be paying 2.5%, the savings justify the switch.
Your processor will not negotiate. If they refuse to discuss rates or match competing offers, they do not value your business.
Hidden fees keep appearing. Processors that nickel-and-dime you with unexpected fees are not good partners.
Service is poor. If disputes take forever to resolve, equipment breaks constantly, or deposits are delayed, the cheapest rate is not worth the hassle.
Your contract is ending. The best time to negotiate or switch is when you have no early termination penalty exposure.
The Cost of Not Paying Attention
Consider a practice processing $50,000 monthly in credit cards.
At a 2.9% effective rate: $17,400 annually in fees.
At a 2.4% effective rate: $14,400 annually in fees.
The difference is $3,000 per year, every year, for essentially the same service.
Over five years, that is $15,000. Over the life of a practice, it is much more.
Processing fees are a lever you control. Most practices leave money on the table by not pulling it.
Want to ensure your credit card deposits match what you should be receiving? Zeldent reconciles your merchant account to your PMS daily, catching fee discrepancies and missing deposits before they become permanent losses. Schedule a demo to see complete payment reconciliation.
