Merchants pay 1.5 to 3.5 percent of each transaction, plus a small flat fee
When you swipe a credit card at a store or enter your card number online, the merchant does not receive the full amount you paid. A credit card processor takes a cut before the money reaches the business. That cut is called the merchant discount rate, and it is the main cost a business pays to accept your card.
The exact percentage varies by card type, the merchant's industry, and the processor they use. A coffee shop might pay 2.2 percent plus 30 cents per transaction. A gas station might pay 1.8 percent plus 15 cents. An online retailer might pay 2.9 percent plus 30 cents. These numbers shift based on negotiating power, sales volume, and risk — a new business with low sales volume pays more than an established chain.
The merchant never sees this fee as a separate line item. It comes out of the payment before the business's bank account is credited. If you buy a $100 item and the merchant's rate is 2.5 percent plus 30 cents, the merchant receives $97.20.
Key Takeaways
- Merchants pay between 1.5 and 3.5 percent of the sale amount plus a per-transaction fee, which varies by card type and the merchant's sales volume.
- Credit card networks (Visa, Mastercard, American Express, Discover) set the base interchange rate, and payment processors add their own markup on top.
- Rewards cards and premium cards cost merchants more than basic cards because the card issuer pays out more in rewards.
- Merchants cannot legally pass the fee directly to you as a separate charge, though they may build it into prices or offer discounts for cash.
- Small businesses and new merchants typically pay higher rates than large chains because they have less negotiating power.
How the fee breaks down: interchange, assessment, and processor markup
The merchant discount rate is actually three separate charges stacked together. Understanding each one shows why the total varies so much.
Interchange is the largest piece, usually 1 to 2.5 percent. This is set by the card network — Visa, Mastercard, American Express, or Discover — and goes to the bank that issued your card. Visa and Mastercard publish their interchange rates publicly, though they change several times a year. American Express and Discover set their own rates and do not publish them as openly. Interchange exists because the card issuer bears the risk if you dispute a charge or default on your balance.
Assessment fees are smaller, usually 0.05 to 0.15 percent. These go to the card network itself (Visa, Mastercard, etc.) for maintaining the system. Again, Visa and Mastercard publish these; American Express and Discover do not.
Processor markup is what the payment processor — the company the merchant contracts with to handle card transactions — adds on top. This can be 0.3 to 1 percent plus the per-transaction fee. A processor might charge 0.5 percent plus 25 cents, or 0.75 percent plus 10 cents. This is where merchants have the most room to negotiate, especially if they process high volume.
A merchant sees only the total rate, not the breakdown. A small business owner might not know that 2.5 percent of their revenue is going to the card issuer, 0.1 percent to Visa, and 0.4 percent to their processor.
Why rewards cards cost merchants more
When you use a card that earns 2 percent cash back or 3 percent on dining, the merchant pays for that reward. The card issuer builds the cost into the interchange rate it charges the merchant.
A basic credit card might have an interchange rate of 1.5 percent. A premium rewards card might be 2.2 percent. The difference — 0.7 percent — is roughly what the card issuer expects to pay out in rewards. If you spend $100 with a rewards card instead of a basic card, the merchant pays an extra 70 cents.
This is why some merchants offer discounts for cash or debit cards. They are trying to offset the higher cost of credit card processing. It also explains why some small businesses have minimum purchase amounts for credit cards — they are trying to may support the transaction is large enough that the fee does not eat into their profit margin.
Interchange rates differ by card type and merchant category
Visa and Mastercard publish interchange rates in tables organized by merchant category and card type. A grocery store pays a different rate than a restaurant, which pays a different rate than a gas station or an online retailer.
Within each category, the rates also depend on the card. A Visa Signature card (a premium card with travel benefits) has a higher interchange rate than a Visa Classic card. A Mastercard World Elite (their top tier) costs more than a Mastercard Standard.
The reasoning is that premium cardholders tend to have higher balances and lower default rates, so the card issuer takes on less risk. The issuer passes some of that lower risk to the merchant in the form of a lower rate — but the merchant still pays more than for a basic card because the issuer is paying out more in benefits.
Online merchants typically pay higher rates than in-person merchants, even for the same card type. This is because card-not-present transactions (where the merchant does not see the physical card) have higher fraud and dispute rates. A restaurant might pay 1.8 percent for a Visa Classic swiped in person; an online retailer might pay 2.3 percent for the same card.
What merchants can and cannot do about credit card fees
Merchants cannot legally add a separate surcharge to your bill because you chose to pay with a credit card. Visa and Mastercard rules prohibit this. American Express and Discover have similar restrictions, though they are slightly less strict.
What merchants can do is offer a discount for paying with cash or debit. They can also set a minimum purchase amount for credit cards (though this is less common now). Some merchants build the cost of credit card processing into their base prices, so everyone pays the same whether they use cash or card.
A few states and cities have experimented with allowing surcharges, but the card networks have fought these laws in court. As of now, surcharges are illegal in most of the United States for Visa and Mastercard transactions.
How merchant size and negotiating power affect rates
A large chain like Walmart or Target processes billions of dollars in card transactions every year. They can negotiate directly with Visa and Mastercard and demand lower rates. A small coffee shop processes maybe $50,000 a month and has almost no negotiating power.
A new merchant with no processing history might pay 3 percent or more. An established merchant with a long track record and high volume might pay 1.8 percent. The difference is risk: a new business is more likely to fail or dispute transactions, so the processor charges more to cover that risk.
This is one reason small businesses often use payment processors like Square, Stripe, or PayPal instead of negotiating directly with Visa and Mastercard. These processors offer standardized rates (often 2.6 to 2.9 percent plus 30 cents for online) that are higher than what a large merchant pays, but lower than what a small merchant could negotiate on its own. The processor handles the complexity and the risk, and the merchant gets a predictable, straightforward fee structure.
Frequently Asked Questions
Can a merchant refuse to accept a certain credit card?
Yes. A merchant can choose to accept only Visa and Mastercard and refuse American Express, for example. They can also refuse all credit cards and accept only cash or debit. However, they cannot refuse a card based on the cardholder's personal characteristics — that would be discrimination. The refusal must be based on the card type or network.
Do debit cards cost merchants less than credit cards?
Usually, yes. Debit card interchange rates are typically lower than credit card rates because the issuer is not extending credit and bears less risk. However, the difference is smaller than many people assume — often 0.3 to 0.5 percent rather than a full percentage point. Some debit cards (premium debit cards with rewards) cost nearly as much as credit cards.
Why do some online stores charge more for credit cards than in-store?
Online merchants pay higher interchange rates because card-not-present transactions have higher fraud and dispute rates. The card issuer charges more to cover that risk. Some online retailers pass this cost to the customer by charging a processing fee, though this is less common now that most processors have standardized their rates.
Do I pay the merchant fee when I use a credit card?
You do not pay it directly, but you may pay it indirectly. Merchants build the cost of credit card processing into their prices. If everyone paid cash, prices might be slightly lower. However, the merchant discount rate is a cost of doing business, like rent or payroll, so most merchants straightforward factor it into their pricing for all customers.
Can a merchant charge me extra for using a credit card?
No, not for Visa or Mastercard. The card networks prohibit surcharges. A merchant can offer a discount for cash or debit, but cannot charge extra for credit. American Express and Discover have slightly different rules, but surcharges are still rare and illegal in most states for their cards as well.