What Merchants Pay When You Swipe Your Card

Merchants pay a percentage of each transaction plus a flat fee to accept your card

When you swipe or tap a credit card at checkout, the merchant doesn't keep the full amount you paid. A portion goes to the card network (Visa, Mastercard, American Express, Discover), another portion goes to the bank that issued your card, and a third portion goes to the merchant's bank. The merchant absorbs all of these costs combined, which is why some businesses set minimum purchase amounts or offer discounts for cash.

The total cost to the merchant is called the interchange fee plus the assessment fee. Interchange is the largest piece—typically 1.5% to 3.5% of the transaction amount, depending on the card type and how the payment is processed. On top of that, the card networks charge a smaller assessment fee, usually 0.1% to 0.3%. A merchant's bank may also charge its own processing fee, which can be a flat amount per transaction or a percentage.

These fees exist because the card issuer (your bank) takes on the risk that you might not pay your bill, and the card network maintains the infrastructure that makes the transaction possible. The merchant accepts these costs as part of doing business with card customers, because most people prefer to pay with cards rather than cash.

Key Takeaways

• Merchants pay between 1.5% and 3.5% of each transaction to the card issuer, plus additional network and processing fees.
• Rewards cards and premium cards cost merchants more than basic cards because the card issuer pays out more in rewards to cardholders.
• The type of card, how it's processed (in-person, online, or over the phone), and the merchant's industry all affect the exact fee rate.
• Small businesses often negotiate lower rates with their payment processor, but large retailers have more bargaining power.
• Some merchants pass these costs to customers through higher prices, while others absorb them as a cost of accepting card payments.

Why rewards cards cost merchants more

A rewards card—one that gives you cash back, points, or miles—costs the merchant significantly more than a basic card. When you earn 2% cash back on a purchase, that 2% comes out of the merchant's pocket through a higher interchange fee. Premium cards like American Express Platinum or Chase Sapphire Reserve can cost merchants 3% or more per transaction because the card issuer is paying out generous rewards to cardholders.

This is why some small businesses discourage the use of premium rewards cards or set minimum purchase amounts. They're trying to offset the higher cost. Large retailers like Costco have negotiated special rates with card networks, but most independent shops and restaurants pay the standard rate regardless of which card you use.

How the card type affects what merchants pay

Not all credit cards cost the same to process. Visa and Mastercard have different rate categories based on the card's features and the cardholder's status. A basic Visa card might cost a merchant 1.5% to process, while a Visa Signature card (which includes travel insurance and other perks) might cost 2.2%. American Express typically charges merchants more than Visa or Mastercard—often 2.5% to 3.5%—because American Express both issues the card and operates the network, so it keeps more of the fee.

Debit cards generally cost merchants less than credit cards, usually around 0.5% to 1.5%, because there's less risk involved. The money comes directly from the customer's bank account rather than from a line of credit.

Processing method changes the fee structure

The way you pay affects the fee the merchant pays. In-person transactions (card present) typically cost less than online or phone transactions (card not present) because the merchant has verified the card physically and the fraud risk is lower. An in-person transaction might cost 1.5% to 2%, while the same transaction online might cost 2.5% to 3.5%.

This is why some online retailers ask for your billing address and CVV number—they're collecting information to reduce their fraud risk and potentially lower their processing fees. Mail order and phone order transactions fall into the highest-risk category and carry the highest fees.

Industry and business size affect negotiated rates

A large grocery chain negotiates rates very different from a small coffee shop, even though both accept the same card networks. Grocery stores process thousands of transactions daily and have leverage to demand lower rates. A small business with lower transaction volume pays closer to the standard rate set by the card networks.

Certain industries also pay more. High-risk merchants—such as travel agencies, online retailers, or subscription services—pay higher interchange rates because chargebacks (disputes where the customer claims they didn't authorize the charge) are more common. Low-risk merchants like gas stations or supermarkets pay lower rates.

What merchants do with these costs

Merchants handle card processing fees in different ways. Some build the cost into their prices across the board, so everyone pays a bit more whether they use a card or cash. Others absorb the cost as a business expense and accept lower profit margins. A growing number of merchants add a small surcharge to card transactions—typically 2% to 4%—to pass the cost directly to customers who use cards.

A few merchants offer cash discounts instead, reducing the price for customers who pay with cash or debit. This is legal in most states, though some states have restrictions on how much of a discount can be offered. You'll see this most often at gas stations, where a cash price and a card price are posted separately.

Why merchants can't negotiate with card networks directly

Merchants cannot negotiate interchange rates with Visa or Mastercard. The card networks set these rates and publish them publicly. What merchants can negotiate is the processing fee charged by their payment processor—the company that handles the technical side of accepting cards. A payment processor like Square, Stripe, or a traditional merchant services provider can offer different rates depending on the merchant's size, industry, and transaction volume.

This is why shopping around for a payment processor matters for business owners. Two merchants in the same industry might pay different total fees simply because they negotiated different rates with their processor. The interchange portion stays the same, but the processor's markup can vary.

Frequently Asked Questions

Do I pay more when I use a rewards card?

You don't pay more at checkout, but the merchant pays a higher fee to accept your rewards card. That cost may be reflected in the store's overall prices. The rewards you earn come from the merchant's processing costs, not from the store giving you money.

Why do some stores have a minimum purchase for credit cards?

Small merchants set minimums to avoid losing money on small transactions. If you buy a $2 coffee and the merchant pays 2% in fees, that's 4 cents. On a $50 purchase, it's $1. The minimum ensures the transaction is large enough that the fee doesn't eat into profit.

Can a merchant refuse to accept my credit card?

Yes. A merchant can choose which cards to accept. They cannot refuse a card based on your personal characteristics, but they can refuse American Express if they think the fees are too high, or refuse certain card types. Most merchants accept all major cards because customers expect it.

Do online stores pay more in fees than brick-and-mortar stores?

Yes. Online transactions are considered higher risk because the card is not physically present, so interchange rates are higher. This is one reason online retailers sometimes have higher prices than physical stores selling the same product.

What's the difference between interchange and a processing fee?

Interchange is the fee set by the card networks and paid to your card issuer. A processing fee is what the merchant's payment processor charges on top of interchange for handling the transaction. Together, they make up the total cost to the merchant.