Visa's biggest swipe fee changes in a decade may impact small business owners

The world's largest credit card network announced sweeping rate changes for merchants who accept Visa payments.

The new swipe fees, also known as interchange rates, will depend on business category, as well as the customer's method of payment. The updated rates go into effect in either April or October of this year, during Visa's semiannual fee update period.

Rate specifics for each industry are unknown as of yet, and Visa declined TPG's request for further comment.

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But, according to Bloomberg, fees will go up for merchants who process card-not-present transactions, such as online retailers or payment over the phone. And fees will decline 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.

While interchange rates already vary from industry to industry, Visa typically charges about 2% for in-person transactions, during which a customer hands a physical card to a merchant for payment, while card-not-present transaction fees usually average between 2.3% and 2.5%. Premium cards that come with customer perks trigger a higher swipe fee.

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Bloomberg shared two examples of impending rate changes: Merchants will now pay $1.99 on a $100 card-not-present transaction that's charged to a traditional Visa card, up from the current fee of $1.90 — a 0.09% increase. That same transaction, charged to a premium credit card, will cost $2.60, up from $2.50, or a 0.1% increase. A merchant within the category that includes large supermarkets will see a rate drop of 33% for a $50 transaction charged to a premium Visa card, and the total fee will drop from the current $1.15 to just $0.77.

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While rate updates are standard, these impending changes are more significant than usual and will affect both business owners and consumers. Although Visa's interchange rate updates are just a fraction of a percentage point, those few cents per transaction add up very quickly for merchants who experience a fee hike.

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Interchange fees can be a double-edged sword, costing businesses worldwide billions of dollars each year. These fees are the reason why customers often end up paying higher prices for goods and services, regardless of whether they pay with cash or credit. At the same time, the 2 to 4% profit on swipe fees also pay for consumer perks and rewards on credit cards.

All that to say: This week's news may mean higher prices for all, especially for online retailers. But the change could also pave the way for higher earning rates and additional credit card perks credit card holders have been requesting.

Additional reporting by TPG credit cards reporter Madison Blancaflor.