Credit card economics: A look at the fees that you rarely see

Editor’s note: This post has been updated with new information.

For points and miles enthusiasts, rewards credit cards are used for just about every purchase. And when it comes to fees, the only ones we, the consumers, often think about are foreign transaction fees, annual fees and resort fees.

So we make sure to have the best credit cards for eliminating foreign transaction fees, we crunch the numbers to determine if that hefty annual fee is really worth it and we read the fine print to avoid ridiculous resort fees on hotel stays. But there’s one type of unavoidable fee that a lot of consumers don’t give much thought to — the swipe, or merchant, fees.

However, stores that accept credit cards probably think about these fees a lot. And these swipe fees have been in the spotlight lately with proposed legislation in Congress threatening the world of credit card rewards we enjoy today.

Here’s why you, the everyday credit card user, should be aware of and care about swipe fees.

In This Post

Overview of merchant fees

According to the National Retail Federation, the average amount of these fees hovers around 2% of the transaction cost; however, that amount can jump to 4% for premium rewards credit cards. Those percentages may seem small, but they add up.


The NRF says that swipe fees have grown from about $20 billion per year in 2001 to $137.8 billion in 2021 — though it’s worth pointing out that transaction volume has also increased over that time. In fact, as a percentage, Nilson data from 2019, 2020 and 2021 shows that this has been relatively consistent over the last few years.

The exact cost of the fees varies based on a number of factors, including whether you’re using the card in person (fees for online, mobile and over-the-phone transactions are more expensive for merchants), the type of business, the merchant’s annual amount of sales and other elements.

“Swipe fees are many retailers’ highest cost after labor, driving up consumer prices by hundreds of dollars a year for the average household and hurting retail sales because consumers buy less when prices go up,” the NRF’s statement on swipe fees reads.

These fees aren’t necessarily easy to understand.

The main bucket of fees is called interchange fees, which are paid out to the banks that issue the cards. Visa’s breakdown of interchange fees includes different categories of card products and a range of merchant classifications. Mastercard has similarly complex formulas. American Express, which operates in a different manner without any additional issuing banks involved, used to have notoriously high merchant fees, but the company made a big fee reduction back in 2018 in order to appeal to more merchants.

In addition to interchange fees, there is a lengthy list of additional fees that fuel the credit card industry. They vary among the different payment networks, but they include assessment fees that apply to overall transaction volume, fees for processing a card issued in a different country, fees for data usage — the list goes on.

The fight over fees

Consumers like you and me love using our rewards credit cards, earning points and figuring out how to maximize their value with transfer partners, but these fees can be a source of frustration for many merchants. After all, it’s hard to make a financial forecast if some cards (many of which are probably some of our favorite credit cards) carry fees that are notably higher than others.

One way that some business owners have pushed back against these fees is by passing them on to the consumer through surcharges for using credit cards.

These fees are not uncommon for consumers to experience, mostly at smaller merchants, but that doesn’t make them any more palatable. Some merchants may feel their only options are either to add credit card surcharges (some may frame it as cash discounts) or increase prices for all, even cash-paying customers. There used to be a fair amount of states where laws restricted surcharges, but court cases have challenged those laws. We’re currently down to just two states where laws prevent businesses from adding surcharges to transactions: Connecticut and Massachusetts.

One corporation took it beyond credit card surcharges and instituted an outright ban on certain cards. In 2018, Kroger-owned Foods Co supermarkets stopped accepting Visa-branded credit cards, saying it was due to excessive transaction fees. Kroger expanded the ban to the larger Smith’s chain in April 2019.

But by October 2019, Kroger reversed its ban and once again began accepting Visa credit cards. Given the fact that Kroger eventually reversed the ban, other merchants may have taken note and decided that it wasn’t a viable strategy.

Related: Should I pay with a rewards credit card even if it incurs fees?

Of course, there are many benefits to accepting credit cards, even with the fees imposed on those transactions. It’s a driver for online shopping, and some studies have shown that swiping cards can play a important role in increasing purchase amounts.

This discussion has taken on new significance as a result of the proposed Credit Card Competition Act of 2022, which aims to inject more competition into the industry and thus lower merchant swipe fees — though many doubt that it would ultimately benefit consumers.

Bottom line

All merchants incur fees whenever you swipe your credit card to pay for a purchase, though the exact amount can vary based on a number of factors. And as merchants attempt to find ways to reduce these expenses, some of their decisions may negatively affect customers who pay by credit card.

This can make maximizing credit card rewards more challenging, as we have to determine if the rewards we’re receiving outweigh any additional fees merchants may charge for the privilege of paying by plastic.