May 21, 2025 · 10 mins read
Santosh Kumar
Credit card swipe charges are essential to understand for better financial decisions. These fees, usually around 2%, can impact customers indirectly. Borrowers should be cautious with personal loans due to their repayment responsibilities, as loans carry hefty interest rates and strict terms.
Credit card swipe charges, also termed as interchange fees. These are charges imposed on a user every time they use their credit cards for transactional purposes. These charges cover operational expenses such as fraud prevention, processing, along taking care of payment infrastructure. They are controlled and determined by card networks such as Visa and Mastercard. Further, credit card swipe charges are not related to the credit score of an individual under normal circumstances.
Generally, swiping charges are around 2% of the transaction value for all physical purchases. Further, they are in the range of 2.3-2.5% for online transactions.
There are several different elements that combine to constitute the entire payment process. They are explained briefly below:
Payment gateway: This gateway transfers encrypted data from the merchant to the acquiring bank. It ensures that the process remains seamless.
Payment processor: Verifies transaction details and ensures funds are available. It also ensures that any kind of error or fraud is prevented at every step.
Credit card network: This network is built to foster communication between banks. It also sets swipe charges of every transaction.
Issuing Bank: It is the bank where the entire process is initiated. It is the responsibility of the issuing bank to pay the acquiring bank on the behalf of the card holder.
Acquiring bank: Once the payment is done, the acquiring bank credits the merchant after deducting swipe charges.
Now it is a norm that primarily the merchants bear these charges. Still, they do sometimes pass on the costs on to the customers by increasing prices. This indirectly impacts the wallet of customers. Hence, it is essential to understand how swipe charges work.
It is crucial to acknowledge the fact that knowledge is the real power. That is why understanding this process is important. Once the customer understands the same, it hence makes the entire exercise seamless and easy to comprehend. It also helps the users to:
1: Make informed decisions: Know when to use your card or opt for cash.
2: Proper budget planning: Know and account for swipe charges in your financial strategy.
3: Helps in maximizing rewards: Balances charges against card benefits to maximize value.
4: Prevents surprises and hidden charges: Anticipate fees to prevent unexpected billing shocks.
Therefore, staying aware of the swipe charges helps in better financial decisions. It cumulatively helps in maximizing the credit cards benefits and minimizing the hidden costs behind the process.
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Many businesses pass swipe fees on to customers in the form of a surcharge. If a business charges you a fee for using a credit card, you typically have two options: Pay the fee or pay another way. To avoid the surcharge, you could use a debit or prepaid card since businesses aren't allowed to charge a surcharge on these. Paying with cash is also an option to avoid the fee.
If a business charges a credit card surcharge, they're required to let you know in advance with signage both at the entry and the cash register. Knowing whether you'll be charged a surcharge gives you a chance to shop elsewhere.
Also consider carrying an alternate payment method with you, especially when you're visiting the types of businesses that tend to charge a surcharge, such as restaurants, service businesses and gas stations.
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Retailers have battled with the credit card industry over swipe fees for years. While accepting credit cards increases sales and lowers labor costs for businesses, swipe fees also reduce business revenue. The fee charged on each transaction varies based on several factors, including the card used, business type and transaction location. It's difficult for businesses to budget for swipe fees partly because the fee varies, but also because they cannot accurately predict the type of card consumers will use.
Businesses can't avoid swipe fees if they want to accept credit card payments. Many are frustrated by their limited negotiating power. The interchange fee portion of the swipe fee is set by card networks like Visa and Mastercard and can't be reduced. Other components of the swipe fee can occasionally be lowered depending on the payment processor.
For consumers, swipe fees often lead to higher prices, particularly when businesses offset their costs by raising prices. Surcharges force consumers to pay more for purchases or choose a less convenient payment method.
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Businesses are allowed to charge consumers for swipe fees, but only in certain states. As more businesses pass swipe fees on to consumers, the cost of everyday transactions becomes more expensive. Unfortunately, you may not always know in advance which businesses charge a surcharge, which makes it hard to budget for them.
Shoppers who use cash or debit cards can save money by avoiding surcharges. On the other hand, trips to the ATM to grab cash could increase the amount of ATM fees you pay.
With a credit card surcharge, you know exactly how much more you're paying. However, the cost of credit card swipe fees isn't as obvious when businesses raise the price of their goods or services to recoup fees. Those higher costs can add up. Credit card swipe fees cost the average family 1 lakh in 2022, according to the Merchants Payments Coalition.
Swipe fees are now typically retailers’ highest operating cost after labour. The fees prevent retailers from growing and investing in their businesses by hiring more staff, offering increased wages and benefits, and keeping prices low to compete. Visa and Mastercard’s duopoly also denies retailers, especially small ones, any negotiating power. That leaves them no choice but to pay the excessive fees because refusing to accept credit cards is not an option. Retailers and their customers are essentially stuck paying the fees with no recourse or relief.
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Since swipe credit card transactions take place when both parties are present, they come with several advantages for both the consumer and the merchant.
Three main advantages of swiping credit cards include:
Enhanced security: Swipe transactions offer more security and come with less risk since the customer is typically present when the payment is processed.
Less human error: Swiping cards eliminates the need for manual entry and therefore reduces the possibility of incorrect information being entered.
Lower processing costs: Since swipe transactions come with more security, less human error, and reduced risk of fraud, they typically accrue lower processing costs.
Despite these benefits, there are downsides associated with swiping a credit card.
While swipe credit card transactions are known to be the more secure payment method, they’re not immune to fraud.
Swipe transactions can still be associated with credit card theft and fraudulent charges, thanks to hackers using malicious card machines, RFID scanners, and mobile devices to fish for this information.
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These are the steps that play out when the credit card is swiped at the POS terminal:
1: When the cardholder swipes his/her card at the POS terminal, the latter has a card reader that reads the credit card information, and the payment gateway collects this information.
2: This information is then communicated by the payment gateway to the payment processor.
3: The payment processor transmits this information to the credit card network.
4: This information is then received by the issuing bank, which verifies the cardholder's details and decides whether the transaction can be authorised or not. It checks for sufficient card balance and details of any fraud.
5: The credit card network then sends this information to the payment processor, which transmits it to the card reader.
For e-commerce sites, payment gateways are quite essential as they play a crucial role in credit card processing. By securely transmitting crucial information between issuing banks and acquiring banks, they protect sensitive data from fraudulent parties.
Security plays an integral role in the functioning of gateways as crucial data such as credit card numbers and PINs pass through them to various other parties. To ensure the right practices, gateways follow the rules and security standards set by the card networks.
There are a host of payment gateway providers in India, including PayuMoney, CC Avenue, PayU, RazorPay, Cashfree, Paypal, EBS, Coinbase, Citrus Payments, Airpay, GoCoin, BitPay, 2Checkout, PayDollar, Lay-Buy, G2APay, MasterCard Payment Gateway Services, and others.
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The payment gateways charge various fees to the online merchant. Some are fixed, some are one-time, and others are recurring. Let us see the various fees levied by the payment gateway providers.
Discount fee: A discount fee or discount rate is a fee charged by the payment gateway to process a transaction. It is typically a percentage of the payment processed and varies from one transaction to the other. The discount rates vary from 1.5% to 3.5%, depending on the type of credit card and mode of payment.
The discount fee is typically shared between multiple parties involved in the credit card transaction, including the issuing bank, the acquiring bank, and the gateway services provider.
One-time set-up fee: This is a one-time fee to pay when signing up for a payment gateway provider. It will be levied for integrating the payment gateway software within the online portal.
Maintenance fee: This is a pre-decided fee that the online merchant must pay either monthly or yearly to the service provider. The fee may vary depending on the services opted for by the merchant. Some additional services offered by payment gateways include risk management, fraud management, and other services that attract an additional fee.
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The standard rule for swiping a card is to swipe the magnetic stripe through the reader, facing the card reader.
The typical fee for credit card processing ranges from 1.5% to 3.5% of the total transaction.
Merchants typically pay credit card processing fees, though these fees are an operating cost and thus can affect how merchants price their goods and services.
Credit card processing fees are distributed to the card's issuing bank (interchange fee), the credit card network (assessment fee), and the processor that facilitates the payment process for your business (payment processor fee).
Credit card processing fees encompass three types of fees (interchange, assessment, and payment processing) that are distributed to three separate financial institutions (the card issuing bank, the credit card network, and the payment processor) involved in facilitating the card payment process. These fees can add up to a decent percentage of the total sales transaction.
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