Merchants pay a percentage of each transaction plus a flat fee to accept credit cards
When you swipe or tap a credit card at checkout, the merchant does not receive the full amount you paid. Interchange fees — the largest cost — go to your card issuer (the bank that issued your card). Assessment fees go to Visa, Mastercard, or American Express. The merchant's bank also takes a cut. Together, these costs typically range from 1.5% to 3.5% of the transaction amount, plus 10 to 30 cents per transaction, though the exact percentage varies by card type, merchant category, and payment processor.
These fees exist because the card issuer assumes the risk that you might not pay your bill, and because the card network maintains the infrastructure that makes the transaction possible. Merchants factor these costs into their prices — which is why cash and debit sometimes cost less, and why some small businesses set minimum purchase amounts for cards.
Key Takeaways
- Interchange fees, paid to your card issuer, make up the largest share of what merchants pay and vary based on whether you use a rewards card, a basic card, or a business card.
- Visa, Mastercard, and American Express each set their own interchange rates, and rates are higher for rewards cards and business cards than for standard consumer cards.
- Merchants also pay assessment fees to the card network, processing fees to their payment processor, and sometimes monthly gateway or terminal fees.
- Merchants cannot legally pass these fees directly to you as a surcharge in most states, though they can offer discounts for paying with cash or debit.
How interchange fees are structured
Interchange is a percentage of the transaction amount plus a flat per-transaction fee. Visa and Mastercard publish their interchange rates publicly, and they change twice per year. American Express sets its own rates and does not publish them in the same way.
A typical interchange fee might be 1.51% plus $0.10 for a standard Visa credit card, or 2.22% plus $0.10 for a Visa Signature rewards card. A business card might be 2.54% plus $0.10. This means a $100 purchase on a standard card costs the merchant $1.61 in interchange alone; the same purchase on a rewards card costs $2.32. The merchant's payment processor then adds its own markup on top of this.
Interchange rates are higher for online transactions than in-person transactions, because the fraud risk is higher. Rates are also higher for certain merchant categories — restaurants and gas stations pay more than grocery stores, for example. Some card types, like corporate cards and purchasing cards, have much higher interchange rates because they are used for larger transactions and carry more risk.
Assessment fees and network costs
Beyond interchange, Visa charges an assessment fee of roughly 0.11% of the transaction amount. Mastercard charges roughly 0.095%. American Express charges a percentage that varies by merchant category but is typically in the same range. These fees fund the card networks' operations, fraud prevention, and dispute resolution.
Merchants also pay a monthly network fee to Visa or Mastercard (usually $10 to $25) just for the right to accept that card brand. These are separate from transaction fees and are charged regardless of sales volume.
Payment processor markups and gateway fees
The merchant does not pay Visa or Mastercard directly. Instead, the merchant contracts with a payment processor (like Square, Stripe, or PayPal) or a traditional merchant services provider. The processor buys the interchange and assessment fees from the card networks, then marks them up and sells them to the merchant.
A processor might charge the merchant 2.9% plus $0.30 per transaction, which includes the interchange, assessment, and the processor's own profit margin. The processor's margin is typically 0.3% to 0.5% of the transaction, though it varies by processor and by the merchant's sales volume and industry.
Merchants also pay monthly fees for payment gateways (software that connects the point-of-sale system to the processor), terminal rental or purchase, and sometimes PCI compliance fees. These can range from $10 to $100 per month depending on the setup.
Why rewards cards cost merchants more
A rewards card costs the merchant more in interchange than a basic card because the card issuer is paying for your rewards out of the interchange fee. When you earn 2% cash back, the merchant is effectively paying for it through a higher interchange rate. Premium cards with annual fees and high rewards rates have the highest interchange costs — sometimes 2.5% or more.
This is why some merchants prefer customers to use basic cards or debit cards, and why some small businesses offer discounts for cash. The merchant saves money on every transaction, and can pass part of that savings to the customer.
What merchants cannot charge you for card fees
In most states, merchants cannot add a surcharge to your bill specifically because you used a credit card. Federal law and most state laws prohibit this. However, merchants can legally offer a discount for paying with cash or debit, which is economically the same thing — the merchant is just framing it differently.
Some states and cities have their own rules. California, for example, allows merchants to impose a surcharge up to 4% if they disclose it clearly at the point of sale. New York City prohibits surcharges entirely. Check your state's laws if you see a surcharge at checkout.
How card type affects what the merchant pays
| Card Type | Typical Interchange Rate | Why It Costs More or Less |
|---|---|---|
| Standard credit card | 1.51% + $0.10 | Lowest risk, no rewards to fund |
| Rewards credit card | 2.22% + $0.10 | Issuer funds rewards from interchange |
| Premium/signature card | 2.54% + $0.10 | Higher rewards, annual fee covers issuer costs |
| Business card | 2.54% to 3.0% + $0.10 | Larger transaction sizes, higher fraud risk |
| Debit card | 0.05% + $0.22 (capped by law) | Lower risk, no credit extended |
Frequently Asked Questions
Do merchants pay the same fee for online and in-person transactions?
No. Online transactions have higher interchange rates because they carry more fraud risk. A typical online rate might be 2.29% plus $0.30, compared to 1.51% plus $0.10 for in-person. This is why some online retailers ask for more information or use address verification.
Can a merchant refuse to accept a certain credit card?
Yes. A merchant can choose not to accept American Express, for example, because its fees are higher. However, if a merchant accepts Visa, they must accept all Visa cards — they cannot pick and choose by card type or rewards level. Some merchants do refuse high-cost cards in practice, though this is less common.
Why do small businesses sometimes have a minimum purchase for cards?
Small businesses set minimums because the flat fee per transaction ($0.10 to $0.30) becomes a larger percentage of a very small purchase. On a $2 transaction, a $0.30 fee is 15% of the sale. A $10 minimum ensures the percentage fee is manageable for the business.
Do I pay more if I use a rewards card?
You do not pay more at the register. The price is the same. However, the merchant pays more in processing fees, which they may factor into their overall pricing. You benefit from the rewards, and the merchant absorbs the higher cost as part of doing business.
What is the difference between interchange and a processing fee?
Interchange is the fee your card issuer charges the merchant's bank. A processing fee is what the merchant's payment processor charges the merchant, which includes interchange plus the processor's markup and profit. The merchant sees only the processing fee on their statement.