The Truth About Credit Card Swipe Fees

Merchants don’t like them and pass them on to you

What Are Swipe Fees?

Nothing is free. Those rewards points you get on your debit card and credit card, the convenience of not having to carry loads of cash, purchase protections, and the many other perks that come with using a card are far from free. Sure, you may pay for some of them through an annual fee or interest payments, but a large portion of them are financed by the merchant.

How, you ask? In the form of interchange fees—also known as “swipe fees” by politicians per a 2010 bill passed by congress to regulate such fees. And though merchants pay them, they ultimately pass them on to you in the form of higher prices.

Key Takeaways

  • Credit card swipe fees, also known as interchange fees, are a per-use fee charged by banks to merchants using credit or debit cards.
  • These fees average around 2-2.5% of the cost of the transaction.
  • Credit card companies claim these fees are used to allay the credit risk from cardholders late payments or defaults.
  • Swipe fees are now regulated at the federal level under the Durbin Amendment is a part of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Understanding Swipe Fees

The swipe fee is supposed to cover the cost of processing the credit card payment. However, for decades, the Merchant’s Payment Coalition has put almost blind trust in its payment processors, with agreements that contained no verifiable data, allowing plenty of opportunities for merchants to get bilked.

These Swipe fees, also known as interchange fees, are what merchants are charged each time a customer uses a debit or credit card. Fees average around 2% for in-person swipes or chip use, while online rates can be up to 2.5%.

The Journey of the Swipe

You go to the store you pull out your credit or debit card and swipe it or put the chip in the machine—at that time the merchant is charged an interchange or swipe fee. The average fee for transactions in which a physical card is used is 1.95% to 2.0% for Visa, MasterCard, and Discover cards.

For transactions that don’t involve a physical card, such as online purchases, the rates rise to between about 2.3% to 2.5%. Rates for American Express are not publicly stated but are generally thought to be higher.

This fee may seem a little high, but the banks and payment processing companies, such as Visa and MasterCard, argue that when you swipe or chip your card, the merchant is paid right away, but it will most likely be a minimum of 30 days—and possibly longer—before the credit card companies receive your payment. You may argue that the interest you incur as a result of holding a balance pays for that expense. However, according to the companies, interest alone doesn’t cover the costs.

Swipe Fee Statistics

Credit, debit, and prepaid cards issued in the United States generated $9.443 trillion in purchase volume in 2021, up 23.2% from 2020.

Merchants then paid credit card companies $105.23 billion in credit and debit swipe fees in 2021, up 25% from 2020. The weighted average processing fee for 2021 was 1.46%, about the same as in 2020.

While merchants cannot surcharge for goods or services based on payment method, they can offer cash discounts.

Debit Card Swipe Fee Laws

It was U.S. Sen. Richard J. Durbin, D-Ill., who offered an amendment, known as the Durbin Amendment, to the Dodd-Frank Wall Street Reform and Consumer Protection Act allows the Federal Reserve to set interchange rate fees while letting merchants set a minimum amount that a consumer must spend in order to use a card. It passed in May 2010.

Retailers could also offer customers discounts if they paid by cash or other methods that don’t come with swipe fees. At the time, Durbin said, “By requiring debit card fees to be reasonable...small businesses and their customers will be able to keep more of their own money.”

However, banks were concerned that the cap on swipe fees proposed by the Federal Reserve was only 12 cents. In late June 2011, after heavy lobbying by special interest groups representing the big banks, the maximum swipe fee was raised to 21 cents, plus 0.05% of the transaction value. This was still a pretty dramatic cut from the average of 44 cents per debit card transaction prior to the bill's passage.

$105.23 Billion

Processing fees paid by merchants in 2021 goods and services paid via card.

The Effects of the Durbin Regulation

Merchants argued that the 21-cent cap on debit card swipe fees written into the Durbin Amendment would do little to help their bottom line while ensuring that consumers wouldn’t see any price relief. Indeed, a U.S. Government Accountability Office study found that when Australia lowered its credit card fees in 2003, it had no noticeable effect on the price of goods and services.

Still, what has happened in the ensuing years since the Dodd-Frank legislation passed is that merchants are paying less than they once were, but card companies now charge the maximum swipe fee on even the smallest transactions. Therefore, merchants that process those smaller transactions have seen costs go up.

While the amendment affected debit card usage, comparable fees on credit card purchases were not affected. This has led to increased rewards from some banks for credit card usage since they offer a better opportunity for the institution to make money.

Durbin also considered legislation that would create similar swipe fee limits for credit cards as for debit cards, however, it has not passed. Actually, there have been efforts in Congress to repeal the Durbin amendment entirely, a campaign backed mainly by smaller retailers and some community banks and credit unions.

Do Consumers Pay Swipe Fees on Card Transactions?

No. Merchants (or sometimes issuing banks) are responsible for paying credit card swipe fees. Some argue that merchants raise their prices in response to swipe fees, which lead to the customer indirectly paying for them.

What Is the Average Swipe Fee?

In 2021, swipe fees on credit and debit card purchases averaged 1.46% of the transaction. Many credit cards, however, can charge 2% and as high as 4% for certain premium rewards cards.

What Is the Durbin Amendment?

The Durbin Amendment limits the transaction fees an issuing bank can charge a merchant when a customer uses a debit card, known as interchange fees. The amendment was passed as part of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The amendment limits the transaction fee amount to 21 cents plus 0.05% of the transaction value.

Article Sources
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  1. Congressional Research Service. "Regulation of Debit Interchange Fees," Page 1.

  2. CardFellow. "Average Credit Card Processing Fees."

  3. Nilson Report. "Merchant Processing Fees in the United States—2021."

  4. CardFellow. "Credit card processing companies are popping up left and right offering “cash discount” programs to eliminate your credit card processing fees. Are they legal and are they permitted in merchant agreements?"

  5. 111th Congress, 1st Session. "H.R.4173 - Dodd-Frank Wall Street Reform and Consumer Protection Act Section 1075."

  6. Dick Durbin United States Senator for Illinois. "Durbin Statement On His Debit Card Swipe Fee Amendment."

  7. Board of Governors of the Federal Reserve System. "Federal Reserve Issues a Final Rule Establishing Standards for Debit Card Interchange Fees and Prohibiting Network Exclusivity Arrangements and Routing Restrictions."

  8. Government Accountability Office. "Credit Cards: Rising Interchange Fees Have Increased Costs for Merchants, but Options for Reducing Fees Pose Challenges," Pages 43 and 45.

  9. U.S. Senator Dick Durbin of Illinois. "Durbin Highlights His Efforts To Bring Fairness, Transparency, And Competition To Credit & Debit Card Swipe Fees."

  10. National Retail Federation. "Swipe Fees."

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