What Are Credit Card Swipe Fees?

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Credit card swipe fees are fees merchants pay to accept credit card payments. These businesses pay the fees to payment processors and card issuers, and may cover their costs by charging customers fees or higher prices. Here's what you need to know about how credit card swipe fees work and how they could impact you.

What Is a Credit Card Swipe Fee?

A credit card swipe fee is a charge a business pays each time a customer makes a purchase using a credit card. It includes fees paid to each company that plays a role in processing a credit card payment. That includes the credit card network, the credit card issuer and the merchant's payment processor. These fees cover the cost of securely sending payment information over the card network, authorizing and funding credit card transactions, and reducing fraud.

Swipe fees are typically charged in one of three ways: a flat fee, a percentage of the transaction amount or both. For instance, if a business is charged a swipe fee of 3.5% per transaction, a $100 purchase would incur a $3.50 fee.

Can You Avoid Credit Card Swipe Fees?

Many businesses pass swipe fees on to customers in the form of a surcharge. If a business charges you a fee for using a credit card, you typically have two options: Pay the fee or pay another way.

To avoid the surcharge, you could use a debit or prepaid card since businesses aren't allowed to charge a surcharge on these. Paying with cash is also an option to avoid the fee.

If a business charges a credit card surcharge, they're required to let you know in advance with signage both at the entry and the cash register. Knowing whether you'll be charged a surcharge gives you a chance to shop elsewhere.

Also consider carrying an alternate payment method with you, especially when you're visiting the types of businesses that tend to charge a surcharge, such as restaurants, service businesses and gas stations.

Why Credit Card Swipe Fees Are Controversial

Retailers have battled with the credit card industry over swipe fees for years. While accepting credit cards increases sales and lowers labor costs for businesses, swipe fees also reduce business revenue. The fee charged on each transaction varies based on several factors, including the card used, business type and transaction location. It's difficult for businesses to budget for swipe fees partly because the fee varies, but also because they cannot accurately predict the type of card consumers will use.

Businesses can't avoid swipe fees if they want to accept credit card payments. Many are frustrated by their limited negotiating power. The interchange fee portion of the swipe fee is set by card networks like Visa and Mastercard and can't be reduced. Other components of the swipe fee can occasionally be lowered depending on the payment processor.

For consumers, swipe fees often lead to higher prices, particularly when businesses offset their costs by raising prices. Surcharges force consumers to pay more for purchases or choose a less convenient payment method.

How Credit Card Swipe Fees Impact Your Finances

Businesses are allowed to charge consumers for swipe fees, but only in certain states. As more businesses pass swipe fees on to consumers, the cost of everyday transactions becomes more expensive. Unfortunately, you may not always know in advance which businesses charge a surcharge, which makes it hard to budget for them.

Shoppers who use cash or debit cards can save money by avoiding surcharges. On the other hand, trips to the ATM to grab cash could increase the amount of ATM fees you pay.

With a credit card surcharge, you know exactly how much more you're paying. However, the cost of credit card swipe fees isn't as obvious when businesses raise the price of their goods or services to recoup fees. Those higher costs can add up. Credit card swipe fees cost the average family $1,024 in 2022, according to the Merchants Payments Coalition.

The Bottom Line

While you can avoid paying credit card swipe fees when they're passed through as a surcharge, you can't avoid the impact of higher prices. To optimize your spending, consider using a rewards credit card for your purchases. You won't be able to completely avoid credit card swipe fees, but you can offset the cost with cash back, miles and other credit card perks. If you manage the card responsibly and pay off your balance each month, it could be worth the inconvenience swipe fees can cause.