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

March 22, 2021
5 min read
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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, the merchants who accept credit cards probably think about these fees a lot.

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

Small fees, big business, confusing costs

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.

(Photo by Thomas Barwick/ Getty Images)

The NRF estimates that merchants fork over approximately $100 billion each year for them. 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 wages and employee health insurance and drive up prices paid by consumers,” the NRF's statement on swipe fees reads. “By NRF estimates, swipe fees cost the average U.S. household hundreds of dollars a year in higher prices and hurt retail sales because consumers buy less when prices go up.”

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.

In early 2020, Visa announced major changes to swipe fees that were set to take place later in the year. However, due to the COVID-19 pandemic, Visa decided to delay the changes, and they’re now set to go forward in April 2021.

The rate specifics are unknown, but, according to Bloomberg, fees will increase for merchants who process card-not-present transactions, such as online retailers. And fees will decrease for retailers in certain service-oriented industries, such as real estate and education, where Visa wants to compete against traditional payment methods like cash and checks.

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 it’s easy to sympathize with merchants who are frustrated with these fees. 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 a fee that is two times higher than others.

One way that some business owners have pushed back against these fees is by passing the frustration 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 these four states where laws prevent businesses from adding surcharges to transactions:

  • Colorado
  • Connecticut
  • Kansas
  • 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.

Bottom line

As merchants attempt to find ways to reduce their swipe fee expenses, some of their decisions may negatively affect customers who pay by credit card. This could make maximizing credit card rewards more challenging as we’ll have to determine if the rewards we’re receiving outweigh any additional fees merchants may charge for the privilege of paying by plastic.

Featured image by Getty Images/Westend61
Editorial disclaimer: Opinions expressed here are the author’s alone, not those of any bank, credit card issuer, airline or hotel chain, and have not been reviewed, approved or otherwise endorsed by any of these entities.

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Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
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6X6x points at hotels participating in the Marriott Bonvoy® program.
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  • Intro Offer
    Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.

    Earn 100,000 points
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  • Annual Fee

    $125
  • Recommended Credit
    Credit ranges are a variation of FICO© Score 8, one of many types of credit scores lenders may use when considering your credit card application.

    670-850
    Excellent/Good

Why We Chose It

The Marriott Bonvoy Business Amex is a stacked card with a rewards rate that will help you earn bonus points on everyday and business-related purchases. You'll earn 15 elite night credits each calendar year, and receive automatic Gold elite status. Finally, the free night award certificate with a redemption level of 35,000 points or less can get you hundreds of dollars in potential value each year.

Pros

  • 6x points on eligible purchases at hotels participating in the Marriott Bonvoy program
  • 4x points at restaurants worldwide, U.S. gas stations, wireless telephone services purchased directly from U.S. service providers and U.S. shipping
  • 2x points on all other eligible purchases
  • Earn a free-night award each card renewal month (up to 35,000 points)
  • Receive 15 elite night credits to jump-start status
  • Transfer Marriott points to 40+ airlines

Cons

  • Airline points transfer ratios are poor
  • Must spend $60,000 in a year for second free-night award
  • Limited Time Offer: Earn 100,000 Bonus Marriott Bonvoy Points after spending $4,000 in purchases on your new Card in your first 3 months of Card Membership. Offer expires 11/2/22.
  • 6x points at hotels participating in the Marriott Bonvoy® program.
  • 4x points for purchases made at restaurants worldwide, at U.S. gas stations, on wireless telephone services purchased directly from U.S. service providers and on U.S. purchases for shipping.
  • 2x points on all other eligible purchases.
  • Receive a 7% discount off standard rates for reservations of standard guest rooms at hotels that participate in the Marriott Bonvoy program when you book directly. Terms and Conditions Apply.
  • Receive 1 Free Night Award every year after your Card renewal month. Plus, earn an additional Free Night Award after you spend $60K in purchases on your Card in a calendar year. Awards can be used for one night (redemption level at or under 35,000 Marriott Bonvoy® points) at hotels participating in Marriott Bonvoy®. Certain hotels have resort fees.
  • Enjoy Complimentary Marriott Bonvoy Gold Elite Status with your Card.
  • Terms apply.
  • See Rates & Fees