Taking Card Payments: Merchant Accounts, Processors and What They Cost
When you open a business in Canada and your first customer wants to pay with a Visa instead of cash or e-transfer, you need to know which bank is taking what cut and how long until the money actually lands in your account. The cost of taking card payments in Canada is a stack of separate fees rather than a single line item. A newcomer’s assumption that processing is instant and nearly free — the pattern from SA’s newer fintech shops — is wrong in ways that affect your cash flow and your profit margin. The gap between a customer swiping a card and you spending that money is real, and it works very differently than most South African business owners expect.
The three players and how the cost stacks
When a card is swiped, three separate entities take a cut. First, the card network (Visa, Mastercard) takes a percentage. Then the customer’s bank adds a fee. Then your processor takes a percentage and a flat per-transaction fee — often a small number like $0.25 or $0.30 per transaction plus 1.5% to 3% of the sale, depending on whether you’re a high-risk merchant and which processor you choose.
Total fees for a small business typically run 1.8% to 3.5% per transaction, sometimes higher for online payments or industries the processor considers risky. A $100 sale costs $1.80 to $3.50 to process — money that comes out of your revenue, not added to the customer’s bill. What you see in your account is the sale minus all three layers.
The difference between a merchant account and a payment processor is the detail most newcomers miss. Your bank holds your merchant account (a special account that receives card payments), but your processor is the company that handles the technical side — the swipe device, the online gateway, the settlement into your bank account. Scotiabank might be your bank and Square might be your processor, and the card fees go partially to each.
Settlement time and cash flow
A payment processed today does not show up in your account today. The network takes one business day to move money from the card network’s clearing house to your merchant account. Most processors then settle once per day, often overnight, but sometimes on a 2-day hold — meaning a Tuesday morning sale lands Thursday morning. This matters when you’re running lean and a customer asks when the refund will clear, or when you’re counting on payment for an order to pay your supplier.
Some payment gateways like Square and Shopify Payments settle to a Canadian bank account next business day. Others (older Paypal models, some processor plans) hold money for 7–14 days. Read the terms before you sign up, because “when does the money land” is the difference between making payroll on Friday and being two days short.
What’s negotiable and what isn’t
The card networks’ fees are fixed by Visa and Mastercard, so those don’t move. Your processor’s margin is negotiable if you process high volume — $20,000+ per month gets you a call from a merchant services rep offering a better deal. At $2,000 per month, you’re locked into the published rate.
The one line item that disappears for some Canadian businesses is the per-transaction fee. Flat-rate processors like Square and Stripe charge only a percentage (2.9% + $0.30 for Stripe Canada, 2.7% + $0.25 for Square), no setup fees, no terminal rental. You own the card reader and can cancel anytime. A traditional merchant account (through your bank) often bundles a terminal lease, statement fees, minimum monthly charges and per-transaction fees — the math works only if you’re high-volume enough to spread the fixed costs.
Can you charge the customer?
The next question is the obvious one: can you pass card fees on to Canadian customers? Canadian consumer protection law generally allows it if you disclose the surcharge upfront, but it’s unusual to see a small business do it. Customers will shop around or switch to cash or e-transfer if you’re visibly charging a 3% “credit card surcharge.” Restaurants sometimes build it in quietly; card-only shops don’t flag it. The competitive move is to absorb it as a cost of taking card payments, which is how most small business owners handle it.
For self-employed work — consulting, contracting, freelance — accepting e-transfer or bank deposit (free to you) and passing card payments to your accountant’s desk is a common strategy to keep your margins whole.
Cape2Canada’s guides on self-employment and business costs don’t cover payment infrastructure specifically, but understanding the gap between a customer’s payment and your cash landing is part of the calculus when you’re building a budget for your first months self-employed in Canada.