Merchant charges are fees that credit card companies take from the business when you swipe or tap your card
When you pay with a credit card, the merchant (the store, restaurant, or service provider) does not keep the full amount you hand over. The credit card company, the bank that issued your card, and the payment processor each take a cut. These cuts are called merchant charges or merchant fees. The merchant pays them, not you — but they affect which cards businesses accept, how much they charge you for goods and services, and whether small businesses can afford to take cards at all.
Understanding merchant charges helps you see why some places push you toward cash or debit, why online checkout sometimes adds a fee, and what happens behind the scenes every time you use a card. It also explains why your credit card rewards exist: the merchant fees are large enough that card companies can afford to pay you back a percentage.
Key Takeaways
- Merchants pay a percentage of each transaction (typically 1.5% to 3.5%) plus a flat per-transaction fee to accept credit cards.
- Visa, Mastercard, and American Express each set their own rates, which is why some businesses accept only certain cards.
- Small businesses and nonprofits often absorb these costs rather than pass them to customers, which is why they may prefer cash or debit.
- Some merchants legally pass the fee to you as a surcharge, but only if they follow card network rules and disclose it clearly at checkout.
- Credit card rewards programs exist because merchant fees are high enough that card companies can afford to rebate a portion to cardholders.
How much merchants actually pay per transaction
A typical credit card transaction costs the merchant between 1.5% and 3.5% of the sale, plus a flat fee of 10 to 30 cents. On a $100 purchase, that could be $1.50 to $3.50 plus the per-transaction fee — so roughly $1.60 to $3.80 out of your $100 goes to the card networks and banks.
The exact rate depends on the card type (rewards cards cost more than basic cards), the merchant's sales volume, the industry, and whether the transaction happens in person or online. A coffee shop processing a $5 card payment might lose 25 to 40 cents. A furniture store processing a $2,000 sale might lose $40 to $70. Large retailers negotiate lower rates because they process millions of dollars monthly; small businesses pay the standard rate.
These are called interchange fees (the cut that goes to the card issuer and payment processor) and assessment fees (the cut that goes to Visa or Mastercard for running the network). Visa and Mastercard do not process your payment themselves — they set the rules and rates, and banks and processors do the work.
Why different cards cost merchants different amounts
A rewards credit card costs a merchant more than a basic card because the card company is paying you cash back or points. That money has to come from somewhere, and it comes from higher merchant fees. A premium card with travel benefits or concierge service costs even more. A debit card costs less because there is no rewards program to fund.
American Express historically charged merchants the highest rates (sometimes 3% or more) because it positioned itself as a premium network. Visa and Mastercard charge lower rates but are accepted nearly everywhere. Discover charges lower rates still but is accepted at fewer merchants. This is why you sometimes see signs saying "We accept Visa and Mastercard but not American Express" — the merchant decided the higher fee was not worth accepting that card.
Business credit cards and corporate cards also carry higher merchant fees than personal cards, which is why some small merchants ask you to use a personal card instead if you are paying for a small business purchase.
When merchants pass the fee to you
In most places, merchants absorb the cost and do not charge you extra. But they are legally allowed to pass the fee to you as a surcharge — a separate line item at checkout — if they follow the card network rules. The rules vary by card type and state, so what is legal for one merchant may not be for another.
If a merchant adds a surcharge, they must disclose it before you complete the purchase, not after. They must also show it as a separate line item, not roll it into the price. A gas station might say "Credit card surcharge: $0.35" before you swipe. An online retailer might show "Card processing fee: 2.5%" at checkout. You then decide whether to pay with that card, use a different payment method, or walk away.
Some states and card networks restrict surcharges on certain card types. For example, some states do not allow surcharges on debit cards, and some card networks cap the surcharge at a certain percentage. If you see a surcharge that seems wrong, check your state's consumer protection office or the card network's rules.
Why credit card rewards exist because of merchant fees
Card companies can afford to pay you 1% to 5% cash back or points because merchants are paying them 1.5% to 3.5% per transaction. The card company takes the merchant fee, pays you a reward, and keeps the difference as profit. The higher the merchant fee, the more generous the rewards can be.
This is why premium cards with high annual fees and high rewards rates exist: the merchant fees on those cards are high enough to cover both the reward and the annual fee and still leave profit for the card company. A card offering 5% cash back on groceries is betting that the merchants processing those transactions are paying at least 5% in fees, plus the card company's cut.
If merchant fees were lower, rewards would be lower or nonexistent. If merchant fees were higher, rewards could be higher. The entire rewards ecosystem is built on the fees merchants pay.
How merchant fees affect small businesses and nonprofits
For a small business running on thin margins, merchant fees are a real cost. A coffee shop with $500,000 in annual card sales might pay $7,500 to $17,500 in merchant fees — money that could go to payroll, rent, or inventory. A nonprofit processing donations by card loses a percentage of each donation to fees, which is why many nonprofits ask donors to cover the fee or give via bank transfer instead.
This is why some small businesses and nonprofits push customers toward cash, debit, or ACH bank transfers. They are not being difficult — they are trying to keep costs down so they can stay open or spend more money on their mission. Some small businesses set a minimum purchase amount for card payments ($10 or $15) to make the transaction worth the fee.
Larger businesses can negotiate lower rates because they process high volumes. A chain restaurant might pay 1.8% while an independent restaurant pays 2.5%. This is one reason why small businesses sometimes cannot compete on price with big retailers.
What happens if a merchant refuses your card
A merchant can refuse any card they choose, with limited exceptions. If they refuse because of the merchant fee, that is their business decision. If they refuse because of your race, religion, or other protected status, that is illegal discrimination. The distinction matters.
If a merchant refuses your card and you believe it is discrimination, you can report it to your state's attorney general or the Consumer Financial Protection Bureau. If it is a legitimate business decision (they do not accept American Express, or they only take cash), there is no violation — you straightforward use a different payment method or shop elsewhere.
Card networks do have rules about when merchants can refuse cards. For example, Visa and Mastercard require merchants to accept all cards in their network if they accept any card in that network — they cannot accept Visa but refuse Mastercard. But they can refuse an entire network if they choose.
Frequently Asked Questions
Can a business charge me extra for using a credit card?
Yes, if they follow the rules. They must show the surcharge before you pay, display it as a separate line item, and comply with state and card network rules about which cards can be surcharged and how much. Gas stations and online retailers commonly do this. If the surcharge seems excessive or is not disclosed upfront, contact your state's consumer protection office.
Why do some online stores charge a credit card fee but not a debit card fee?
Debit card merchant fees are typically lower than credit card fees because there is no rewards program to fund. The online store is passing the actual cost difference to you. This is legal if disclosed before checkout, though many stores absorb the fee instead.
Do I pay merchant fees when I use my credit card?
No. The merchant pays the fee, not you — unless they choose to pass it to you as a surcharge, which they must disclose at checkout. Your credit card company and the merchant's bank split the fee. You pay only the purchase price and any interest if you carry a balance.
Why do some small businesses only accept cash?
Merchant fees cut into their profit. A small business with low margins might lose 2% to 3% of every card sale to fees. For a business processing $100,000 a year in cards, that is $2,000 to $3,000 in annual costs. Cash has no processing fee, so some businesses prefer it or offer a discount for paying in cash.
Do credit card rewards come from merchant fees?
Yes. Card companies use the merchant fees they collect to fund rewards programs. The higher the merchant fee on a card type, the more generous the rewards can be. This is why premium cards with high rewards rates exist — merchants pay higher fees for those cards, which funds the rewards.