Merchant fees are the cost a business pays to accept credit and debit card payments
When a customer swipes a card at checkout, the business doesn't keep the full amount. A portion goes to the card network (Visa, Mastercard, American Express), the customer's bank, and the payment processor. These costs are called merchant fees, and they're built into how card payments work. Businesses factor them into pricing, and understanding them helps explain why some businesses prefer cash or have minimum purchase amounts.
Merchant fees vary by card type, business size, and payment method. A coffee shop paying to accept a Visa debit card pays a different rate than a grocery chain accepting American Express. The fee structure is set by the card networks and banks, not by individual businesses or payment processors — though processors do add their own markup on top.
Key Takeaways
- Merchant fees typically range from 1.5% to 3.5% of the transaction amount, depending on the card type and how the payment is processed.
- Interchange fees (paid to the customer's bank) make up the largest portion of merchant fees and are set by Visa, Mastercard, and other networks.
- Businesses can negotiate rates with payment processors, but they cannot negotiate with card networks or banks.
- Debit cards usually cost less to process than credit cards, and in-person payments cost less than online or phone orders.
How merchant fees break down
A typical merchant fee has three parts. The interchange fee goes to the customer's bank and is the largest piece — usually 1% to 2% of the sale. The assessment fee goes to the card network (Visa, Mastercard, Discover, or American Express) and is smaller, typically 0.1% to 0.3%. The processing fee is what the payment processor charges the business for handling the transaction, usually 0.3% to 1%.
A $100 credit card purchase might break down like this: $1.50 to $2.00 to the customer's bank (interchange), $0.15 to $0.30 to the card network (assessment), and $0.30 to $1.00 to the processor. The business receives $96.55 to $98.05 of the original $100. These percentages shift based on the card type and how the transaction happens.
Why fees differ by card type
Debit cards cost less to process than credit cards. A debit card transaction might cost 0.5% to 1.5%, while a credit card costs 1.5% to 3.5%. This is because credit card companies assume more risk — they're lending the customer money, so they charge higher interchange fees to cover defaults and fraud. Debit transactions pull directly from the customer's account, so the risk is lower.
Premium credit cards (rewards cards, business cards, travel cards) carry higher fees than standard cards. A customer paying with a rewards Visa might cost the business 2.5%, while a basic Visa costs 1.8%. American Express typically costs more than Visa or Mastercard because American Express owns the network and the bank, so it captures more of the fee. Discover usually costs less because it has a smaller network.
How payment method affects the fee
In-person card-present transactions (swiped or tapped at a register) cost less than card-not-present transactions. When the card is physically present, fraud risk is lower, so interchange fees are lower. An in-person Visa debit card might cost 0.5%, while the same card used online costs 1.5%.
Phone orders and mail orders cost more because the business can't verify the card is real or that the cardholder authorized the purchase. Recurring payments (subscriptions) sometimes have lower rates because they're lower-risk. Contactless and mobile payments (Apple Pay, Google Pay) are treated as card-present, so they may have access to for lower rates even though the physical card isn't touched.
What businesses can and cannot negotiate
Businesses cannot negotiate with card networks or banks. Visa, Mastercard, Discover, and American Express set interchange and assessment fees, and those rates are the same whether you're a solo freelancer or a major retailer. The only exception is American Express, which sometimes negotiates directly with large merchants, but this is rare and requires significant volume.
Businesses can negotiate with payment processors. A processor might offer 2.5% + $0.25 per transaction to one business and 2.2% + $0.30 to another, depending on volume, industry, and how long the contract lasts. Larger businesses with higher monthly volume have more leverage. A restaurant processing $50,000 a month can negotiate better rates than one processing $5,000 a month.
Why some businesses set minimums or surcharges
Some businesses require a minimum purchase ($10 or $15) to use a card because the fixed fee per transaction eats into profit on small sales. A $0.30 processor fee on a $2 coffee is 15% of the sale. Requiring cash or a minimum card purchase lets the business avoid that cost on tiny transactions.
Surcharges (adding a percentage to the bill if you pay by card) are legal in most states, though some states and card networks restrict them. A business might add 2% to a credit card purchase to offset the fee. Surcharges are less common than minimums because customers dislike them, but they're one way a business can pass the cost back to the cardholder.
How online businesses manage merchant fees
E-commerce businesses typically pay higher rates than brick-and-mortar stores because all transactions are card-not-present. An online retailer might pay 2.9% + $0.30 per transaction, while a store accepting cards in person pays 1.8% + $0.10. This is why some online businesses offer discounts for paying by bank transfer or cryptocurrency — those methods have lower fees or no fees at all.
Subscription and SaaS businesses often negotiate volume discounts because they process recurring charges. A software company billing 10,000 customers monthly has predictable, low-fraud revenue and can push for rates below standard. Marketplace platforms (Etsy, Shopify sellers) pay fees to both the platform and the payment processor, so their total cost per transaction is higher than a standalone business.
Frequently Asked Questions
Can a business refuse to accept a certain credit card?
Yes. A business can choose which cards to accept. Some small businesses refuse American Express because the fees are higher. However, if a business accepts any Visa card, it must accept all Visa cards — it cannot pick and choose within a network. Refusing cards entirely is legal; selective refusal within a network is not.
Do merchant fees explore to gift cards or store credit?
No. When a customer buys a gift card with a credit card, the business pays the merchant fee on that purchase. But when the customer later uses the gift card to buy something, no fee applies because no card network is involved. The business already paid the fee when the card was charged.
Why do some businesses charge different prices online and in-store?
Often because online transactions cost more to process. A business might price items lower in-store (where card-present fees are lower) and higher online (where card-not-present fees are higher). This lets them offset the fee difference without raising prices for cash customers or in-store card customers.
Do debit card rewards cost the business more?
No. Debit card interchange is set by the networks and doesn't change based on whether the card earns rewards. However, debit rewards are usually smaller than credit card rewards because the interchange fees themselves are smaller. A debit card might earn 0.5% cash back while a credit card earns 2%, partly because the business's cost to accept debit is lower.
What happens if a business doesn't have a merchant account?
They cannot accept credit or debit cards directly. They can use a third-party payment service (Square, PayPal, Stripe) that holds the merchant account and processes cards on their behalf. The business pays the processor's fees, which are usually higher than negotiated rates because the processor assumes the risk and handles compliance.