Merchants pay between 1.5% and 3.5% of each transaction to credit card companies, banks, and payment processors combined
When you swipe or tap a credit card at checkout, the merchant does not receive the full amount you paid. A portion goes to the card issuer (your bank), the card network (Visa, Mastercard, American Express, Discover), and the payment processor who handles the transaction. These costs are called interchange fees, assessment fees, and processing fees. The total varies by card type, merchant category, and transaction size.
For a $100 purchase, a merchant might pay $2 to $3.50 in combined fees. A restaurant pays a different rate than a gas station. A rewards card costs more to process than a basic card. Understanding this structure matters if you own a business, negotiate with payment processors, or straightforward want to know why some merchants prefer cash or set minimum purchase amounts.
Key Takeaways
- Interchange fees — paid to the card issuer — typically range from 1.5% to 2.5% and are the largest single cost merchants face.
- Card networks like Visa and Mastercard charge assessment fees of 0.1% to 0.3% on top of interchange.
- Payment processors add their own markup, which varies widely depending on the merchant's size and negotiating power.
- Rewards cards and premium cards cost merchants more to accept than basic cards because the issuer pays the cardholder's rewards.
- Merchants in high-risk categories like restaurants and gas stations pay higher rates than grocery stores or pharmacies.
How interchange fees work and who sets them
The largest piece of what a merchant pays is the interchange fee, which goes directly to your card issuer — the bank that issued your credit card. Visa and Mastercard set the interchange rates, and they vary by card type and merchant category. A basic Visa card might have an interchange rate of 1.51%, while a Visa Signature rewards card might be 2.10% or higher. American Express and Discover set their own rates and typically charge more because they handle both the card issuer and network roles themselves.
These rates are not negotiable between the merchant and your bank. A small coffee shop cannot call Visa and ask for a lower rate. The rates are published and explore to all merchants in that category. However, merchants can sometimes negotiate the rate their payment processor charges on top of the interchange fee itself.
Interchange rates change periodically. Visa and Mastercard announce updates several times per year, and rates can shift based on factors like fraud risk, transaction type (online versus in-person), and whether the card is present at the time of purchase. A mail order or phone order transaction typically costs the merchant more than a card-present transaction because fraud risk is higher.
Assessment fees and network charges
After interchange, the card networks themselves charge assessment fees. Visa charges roughly 0.11% to 0.15% of the transaction value, depending on the merchant's category and volume. Mastercard charges similar amounts. These fees fund the network's operations, fraud prevention, and infrastructure.
The networks also charge separate fees for things like monthly account fees, batch fees, or gateway fees if the merchant uses an online payment system. These are smaller per-transaction costs but add up across thousands of sales. A merchant processing $50,000 per month might pay $50 to $100 in network assessment fees alone, plus additional monthly service charges.
Payment processor markups and how they vary
The payment processor — the company that actually moves the money from the card network to the merchant's bank account — sits between the merchant and the card networks. Processors like Square, Stripe, PayPal, or a traditional merchant services provider buy the right to process transactions at the interchange and assessment rates set by Visa and Mastercard, then mark up those costs and sell them to merchants.
A large retailer with $10 million in annual card volume might negotiate a processor rate of 1.8% plus a flat fee per transaction. A small business with $100,000 in annual volume might pay 2.9% plus 30 cents per transaction. The processor's markup depends on the merchant's size, industry, processing volume, and how much competition they face in their area. Online-only merchants often pay more than brick-and-mortar stores because the fraud risk is higher.
Some processors charge a flat monthly fee instead of a percentage, or a combination of both. A merchant might pay $25 per month plus 2.2% per transaction, for example. The total cost to the merchant is always the sum of the interchange fee, the assessment fee, and the processor's markup.
Why different card types cost merchants different amounts
A rewards card costs a merchant more to accept than a basic card because the card issuer is paying for your rewards. When you earn 2% cash back on a purchase, that 2% comes out of the issuer's pocket, and the issuer recovers some of that cost by charging a higher interchange fee to the merchant. A premium card with an annual fee and high rewards might have an interchange rate of 2.5% or more, while a basic card might be 1.51%.
American Express and Discover cards typically cost merchants 2.5% to 3.5% because these networks handle both the issuing and the network functions themselves and often offer higher rewards to cardholders. Visa and Mastercard, by contrast, are networks only — they do not issue cards directly — so their interchange rates are lower on average.
A merchant cannot refuse a specific card type if they accept that network at all. If a merchant accepts Visa, they must accept all Visa cards, including premium and rewards versions. This is called the honor all cards rule.
Merchant category and transaction type affect the rate
Visa and Mastercard assign every merchant a category code based on what they sell. A grocery store, a restaurant, a gas station, and an online retailer each pay different interchange rates. Restaurants and gas stations typically pay higher rates — often 2.0% to 2.5% — because they have higher fraud and chargeback rates. Grocery stores and pharmacies pay lower rates, sometimes as low as 1.5%, because they are lower-risk categories.
The type of transaction also matters. A card-present transaction (you swipe or tap the card in person) costs less than a card-not-present transaction (online, phone, or mail order). A recurring subscription payment might have a different rate than a one-time purchase. A transaction where the cardholder enters their PIN costs less than one where they sign or use contactless payment.
What merchants do to manage these costs
Because credit card fees are a significant expense, merchants use several strategies to manage them. Some set a minimum purchase amount — often $5 or $10 — to avoid processing small transactions that cost them proportionally more. Others offer a discount for cash or debit card payments. A few merchants absorb the cost and price their goods higher across the board to cover the fees.
Large merchants negotiate directly with payment processors or even set up their own merchant acquiring accounts with banks, which can lower their rates significantly. Small merchants have less leverage but can still shop around between processors. The difference between a 2.5% rate and a 2.9% rate is small per transaction but adds up to hundreds or thousands of dollars per year.
Some merchants use multiple payment methods to reduce their exposure to card fees. A coffee shop might encourage customers to use their app or pay with a debit card instead of a credit card. A subscription service might offer a small discount for paying by bank transfer instead of card.
Frequently Asked Questions
Why do some merchants refuse American Express?
American Express charges higher interchange rates than Visa or Mastercard — often 2.5% to 3.5% — so merchants with thin profit margins sometimes decline it. However, many merchants accept it because American Express cardholders tend to spend more per transaction. Merchants cannot refuse a card network entirely if they advertise that they accept credit cards, but some smaller businesses choose not to.
Do debit cards cost merchants less than credit cards?
Yes, debit card interchange rates are typically lower than credit card rates, often 0.5% to 1.5%. However, merchants cannot charge different prices for debit versus credit — that would violate card network rules. Some merchants offer a small cash discount instead, which effectively encourages debit or cash payments.
Can a merchant pass the credit card fee directly to the customer?
Visa and Mastercard rules prohibit merchants from charging different prices based on the payment method, but merchants can add a surcharge if they disclose it clearly at the point of sale. Some states and cities have laws restricting surcharges, so the rules vary by location. American Express and Discover allow surcharges in most places.
How much does a merchant save by processing a $10,000 transaction versus ten $1,000 transactions?
The percentage rate is the same, but the flat per-transaction fees add up. If the processor charges 2.5% plus 30 cents per transaction, one $10,000 sale costs $250.30, while ten $1,000 sales cost $253. The merchant saves about $2.70 on the larger transaction because they pay the flat fee only once instead of ten times.
Do online merchants pay more than in-person merchants?
Yes, typically 0.3% to 0.5% more because card-not-present transactions have higher fraud and chargeback rates. A merchant selling online might pay 2.9% plus fees, while a brick-and-mortar store in the same category might pay 2.4% plus fees. This is why some online retailers ask for extra verification like a CVV or billing address.