You may have noticed that your purchases have cost a little more than they used to. Inflation is a significant factor, but credit card fees might be another. Merchants pay a percentage of the purchase price transacted by a credit card to the card issuer.
According to a recent J.D. Power 2025 U.S. Merchant Services Satisfaction Study, 34 percent of small businesses add a surcharge when a customer pays with a card. But what are these fees, and in what ways do they impact you?
Credit Card-Processing Costs
According to Capital One Shopping Research, in 2024, credit card transactions totaled an estimated 56.2 billion, for an average of 153.9 million per day.In 2024, the average American cardholder made 257 credit card transactions annually.
It’s convenient for the consumer to swipe that card, but expensive for the merchant.
Merchants need to accept credit cards to be competitive. But that comes at a price. According to Swipsum, the fees typically charged to merchants range from 1.5 percent to 3.5 percent per transaction.
For example, if a small business does $30,000 in card sales a month and pays a 3.5 percent processing fee, that’s $1,050 per month, or $12,600 per year. You can see why some have passed this on to the consumer.
The wide swing is due to factors such as industry, transaction volume, and payment method.
For example, Visa’s fees are approximately 1.3 percent to 2.6 percent. Discover’s fees are approximately 1.55 percent to 2.45 percent.
Rates fluctuate for individual issuers based on transaction method (in-person or online), cardholder rewards programs, and merchant category.
Debit Card-Processing Costs
Many merchants encourage customers to use a debit card because the fees are lower than credit cards.Merchant Cost Consulting reported that the cost of processing a debit card transaction is 0.73 percent. This average is lower than the credit card processing fee.
How Credit Card-Processing Fees Work
There are three types of fees charged to the merchant:- Interchange fees: These are set by card networks like Visa or Discover and paid to the issuing bank.
- Assessment fees: These go to the networks.
- Processor fees: The merchant’s credit card processor charges these, which should cover their services.
It’s important for a merchant to research fees on the internet that they see on their statement. They should double-check that the interchange fee on the network’s site is the same as what the processor is charging.
Why Are There Merchant Credit Card Fees?
According to Stripe, a payment processing platform, interchange fees serve various purposes.Issuing banks are compensated for providing and maintaining the payment card (including debit cards), managing associated accounts, and managing the risk involved in extending credit.
Interchange fees are used to maintain and operate the network. They cover the infrastructure and fraud prevention services.
Credit cards use the fees not only to cover administrative costs but also to offer rewards for using their cards. Those points and cash back you’re earning are funded by the merchant’s fees.
Merchants Charge Credit Card Users
When it comes to the consumer, merchants may use various ways to deal with credit card fees, including:- Raise prices (both cash and credit card users end up paying)
- Require a minimum purchase to use a credit card
- Tack on a surcharge to the credit card user to match the fee
Or the plumber may take a percentage of your bill. The fee is calculated from the total cost of the service. For example, if the bill is $60 and the surcharge is 2 percent, the total bill will be $61.20.
But is it legal to add a surcharge to a credit card transaction?
According to Merchant Cost Consulting, it is legal to charge a credit surcharge in most states. The states where it’s illegal in 2025 include Connecticut, Maine, Massachusetts, and California (effective July 1, 2024).
Other states have a cap on how much of a surcharge a merchant can place on a transaction. For example, Colorado has a 2 percent cap, or merchants can charge the actual cost they pay for credit processing.
Other states, like Kansas, require merchants to include the credit card fees in the listed price.
Merchants aren’t allowed to make a profit on surcharges. They must follow state law and the credit card issuer’s rules.
Credit Card Fees Affect Commerce
Credit card fees have a potential impact on customers. That’s because some small businesses respond to the economic strain on the fees. Whether the retailer raises prices to meet fees or tacks on a surcharge, you could end up paying more when you swipe that card.The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. NTD does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. NTD holds no liability for the accuracy or timeliness of the information provided.
From The Epoch Times