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

Feb. 05, 2020
3 min read
Visa's biggest swipe fee changes in a decade may impact small business owners
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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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Credit card economics: A look at the fees you rarely see

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.

Did you know? Amex now accepted in as many places as Visa, Mastercard

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.

Related: Why are credit card sign-up bonuses so high in the US?

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.

Related: Visa, Mastercard settle 13-year swipe fee lawsuit

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.

Featured image by Getty Images/EyeEm

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TPG Editor‘s Rating
Card Rating is based on the opinion of TPG‘s editors and is not influenced by the card issuer.
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    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.

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    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.

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  • 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.
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  • 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.
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