Credit card swipe charges, also known as interchange fees, are a critical yet often misunderstood component of digital transactions. The charges are levied on merchants for processing card payments and as a result shape businesses and consumers alike.
Understanding credit card swipe fees
“Credit card swipe charges, or interchange fees, are the costs merchants bear for processing card payments. Typically, a small percentage of the transaction value, these fees can eat into profit margins, particularly for small businesses. To cope, some merchants may raise prices or add surcharges, indirectly passing the cost to consumers. While this can make goods and services more expensive, many consumers enjoy rewards and cashback programmes funded by these fees,” said Prashant Kumar, chief executive officer at Kredit.pe.
Also Read
How do swipe fees work?
When you swipe or tap your credit card at a Point of Sale (POS), the terminal sends the card details to the payment processor.
The payment processor forwards this information to the relevant card network (e.g., Visa, MasterCard), which acts as an intermediary.
The card network passes the transaction information to the card-issuing bank, which verifies the cardholder's identity, checks available credit, and decides whether to approve or decline the transaction.
Approval or denial: If the transaction is approved, the payment gateway notifies the POS terminal, allowing the transaction to be completed. The merchant receives the payment amount minus the swipe fee.
Fee distribution: The swipe fee is typically divided between several parties involved:
Card-issuing bank: The bank that issued the credit card receives a portion of the fee.
Merchant bank: The bank that processes the merchant’s payments also takes a cut.
Card network: The card networks, like Visa or MasterCard, take a small share of the fee for providing the payment infrastructure.
Factors in card swipe fees
Swipe fees can vary depending on the type of card used. Premium cards, like Visa Signature or Mastercard World Elite, generally have higher fees than standard cards.
The nature of the business shapes fees, too. Travel or e-commerce generally tend to face higher charges.
Transaction volume: Merchants with larger transaction volumes often have the leverage to negotiate lower swipe fees with their payment processors.