Credit card fees might seem small. A few cents here and there…
But they add up quickly and eat into a business’s bottom line.
That’s why knowing who pays credit card transaction fees, how they’re structured, and what you can do to minimize them is essential.
Whether you’re running a boutique, food truck, eCommerce brand, or law firm, chances are you’re accepting credit card payments. And while it’s great for convenience and sales you still need to know who pays credit card transaction fees and how to identify ones you can eliminate.
In this article we’ll break down:
- What credit card fees include
- Who usually pays for them (and why)
- How some businesses legally pass fees to customers
- Ways to reduce your overall credit card processing fees for merchants
Let’s break it all down and help you keep more of your money while delivering a great customer experience.
What Are Credit Card Transaction Fees?
Before you can manage or negotiate you have to understand what these fees actually are.
When a customer swipes, dips, or taps a credit card, the payment travels through multiple parties taking a cut. That cut is what makes up the credit card processing fees.
The 3 Core Components of Processing Fees:
1. Interchange Fees (70-90% of total fee)
These are paid to the cardholder’s bank (also called the issuing bank). It’s set by the credit card networks (Visa, Mastercard, etc.) and usually the largest portion of the total fee.
2. Assessment Fees (5-10% of total fee)
These are charged by the credit card network (Visa, Mastercard, Discover, etc.). They are typically a small fixed percentage (e.g., 0.13%–0.15%).
3. Payment Processor Fees / Markup (5-20% of total fee)
This is what payment processors like Square, Stripe, or Clover charge you to handle the transaction. It varies depending on your provider and pricing plan.
Typical Fee Example:
Let’s say a customer purchases a $100 wooden table.
The fee breakdown is as follows…
- Interchange fee: 1.65% ($1.65)
- Assessment fee: 0.15% ($0.15)
- Processor markup: 0.30% + 10¢ ($0.40)
The total fee cost: $2.20 or 2.2% of the transaction.
Multiply that by thousands of credit card transactions a month, and it becomes a significant line item on your books.
For example…
Selling 10,000 wooden tables a month would mean $22,000 a month in total credit card processing fees!
Who Typically Pays Credit Card Transaction Fees?
In nearly all traditional models the merchant is the one who pays fees.
This means that every time you accept a credit card payment, you’re the one covering the cost, not the customer.
Why?
Because the ability to accept cards is considered part of the “cost of doing business.” It’s expected. It’s convenient. And in many industries, it’s non-negotiable. Businesses that don’t accept cards often risk losing sales altogether.
The Impact on Margins
If your profit margins are tight, let’s say 5%–10% and you’re paying 2%–3% in credit card processing fees, you’re losing 20%–40% of your profit to fees alone.
That’s why it’s crucial to understand and manage these costs.
And yes, there is a way to eliminate these. But you have to do it the RIGHT way…
Can Businesses Pass Fees to Customers?
Yes, but with legal and strategic considerations.
What Is Surcharging?
Surcharging is when a business adds a small percentage (usually up to 3%) to cover the credit card transaction fees. Instead of absorbing the cost, the customer pays it directly at checkout.
For example, let’s say you own a local hair salon. A customer comes in for a haircut and style. At the end of the appointment the total is $100.
When it’s time to pay the customer decides to use their credit card.
You let them know: “There’s a small 3% card fee if you’re paying with credit. You can avoid it with cash or debit.”
They’re fine with it. So your POS system automatically adds a 3% surcharge.
- Original Total: $100
- 3% Surcharge: $3
- Customer Pays: $103 via credit card
Legal Considerations
Surcharging is legal in most U.S. states, but not all. Rules vary by:
- State laws: Some states restrict or prohibit surcharging (e.g., Connecticut, Massachusetts).
- Card networks: Visa and Mastercard have specific guidelines around notification and receipt disclosure.
- International rules: Other countries have their own laws which prohibit surcharging entirely.
Always consult a payment expert or attorney before implementing surcharges.
I’ve included a table of places where surcharging is restricted or illegal below. Always check with an expert first.
Alternative: Cash Discount Programs
Instead of adding a fee to credit purchases, some businesses offer a discount to customers who pay with cash or debit.
- Menu price: Includes built-in card fees
- Cash price: Lower (discounted)
It’s legal in more places and often seen as more consumer-friendly.
For example:
Let’s say a customer brings their car in for brake service at Joe’s Auto Shop. When the job is done, Joe rings up the bill:
The base price is $500. It’s displayed as “$515 if paying with card, $500 if paying with cash.”
Joe’s team clearly posts a sign by the register: “All prices reflect a cash discount. If paying by card, a small 3% adjustment is added to cover processing costs.”
If the customer pays with Credit Card:
Total charged is $515. Joe’s processor takes ~$15 (roughly 3% in processing fees), and Joe keeps $500.
If the customer pays with Cash:
Total paid is $500. No fees are taken and Joe keeps $500
Benefits of Cash Discount
Joe doesn’t lose revenue to card fees. His customers have a choice and understand why the price changes, and the shop stays compliant by showing both prices clearly.
This is how over 1000+ people at Cash Swipe are saving businesses 80-100% on their fees…while making passive income even with zero prior experience.
How Customers Perceive Fees
Passing fees can backfire if not handled delicately. Some customers see it as “nickel and diming,” while others understand the cost burden.
To implement cash discount or surcharging effectively, you must:
- Use clear signage
- Train staff to explain the policy
- Offer lower-cost payment alternatives
Fees for Consumers
While merchants typically pay fees, there are scenarios where consumers foot the bill:
1. Foreign Transaction Fees
These are charged by the issuing bank for international purchases (usually 1%–3%). Customers pay this directly, not the business.
2. Convenience or Service Fees
Some industries (e.g., government offices, schools, utility companies) add a convenience fee for accepting credit cards. This is especially true when paying online.
3. Minimum Purchase Requirements
These are legal in most areas if applied fairly. Example: “$5 minimum to use a credit card.”
4. Debit vs. Credit
Debit card transactions often cost less for merchants and sometimes less for consumers (especially in PIN-based transactions).
Customers might not notice the difference, but behind the scenes, the fee structure shifts and that’s where interchange fee differences matter most, which I will cover in the next section.
How Businesses Can Reduce or Manage Transaction Fees
You can’t eliminate fees altogether but you can reduce and control them.
1. Negotiate with Payment Processors
Many merchants don’t realize they can negotiate lower payment processor fees. Especially if you have high volume or a clean processing history.
Key things to ask for:
- Lower markup rates
- Interchange-plus pricing (more transparent)
- Volume discounts
Your negotiating power as a business and the requirements you need is as follows:
2. Choose the Right Pricing Model
Flat-Rate Pricing
You pay one fixed rate per transaction, no matter what kind of card is used.
This is best for Small businesses, startups and anyone who wants simplicity and predictability. For example, you use Square, which charges 2.6% + 10¢ for in-person transactions.
- Customer pays: $100
- Fee taken: 2.6% + 10¢ = $2.70
- You keep: $97.30
Let’s say a food truck vendor uses a Square reader. Whether a customer pays with Visa, Mastercard, or Amex the fee is always the same. It’s easy to plan, but the flat rate might be higher than necessary for some low-cost card types.
Interchange-Plus Pricing
This is paying the actual interchange fee (set by Visa/Mastercard) plus a small markup from your processor.
It’s best for established businesses, companies with high volume and businesses that want transparency and potential savings.
For example:
- Interchange for a card: 1.8% + 10¢
- Processor markup: 0.3% + 5¢
- Total Fee: 2.1% + 15¢
For a $100 transaction:
- Fee: $2.25
- You keep: $97.75
Let’s say a dental office processes $50,000/month. They switch from flat-rate to interchange-plus and save hundreds per month, especially because many of their patients use debit and corporate cards with lower interchange fees.
Tiered Pricing
This means transactions are grouped into three buckets:
- Qualified (lowest rate)
- Mid-qualified (medium rate)
- Non-qualified (highest rate)
The processor decides which bucket each transaction falls into and this often lacks transparency. It’s usually never the best choice for a business.
For example, Let’s say a processor charges:
- Qualified: 1.7%
- Mid-qualified: 2.5%
- Non-qualified: 3.2%
If a customer uses a rewards card, it might fall into the non-qualified tier even if the business was expecting a lower rate.
Let’s say a local café signs up for credit card processing. They’re quoted “1.7% per swipe,” but their statement shows an average of 2.9% because most transactions fall into the non-qualified tier.
Pro tip: Interchange-plus is usually the most cost-effective for businesses processing $10K+/month.
For an in-depth table on the pros and cons, see below:
3. Use Low-Fee POS Systems or Processors
Consider providers like:
- Square – Flat-rate, easy for startups
- Helcim – Interchange-plus, great for B2B and high volume
- Stax – Subscription-based pricing (pay one monthly fee instead of per-transaction)
4. Encourage Lower-Cost Payment Methods
Not all payment types cost the same. Consider:
- Promoting debit cards (lower processing fees)
- Offering ACH or bank transfer options for invoices
- Implementing cash discount programs
Industry Examples
Let’s look at how credit card fees play out in different industries.
1. Retail
Stores usually absorb. fees to stay competitive. They may implement minimum purchase amounts and often uses POS systems with flat-rate processing
2. Restaurants
Restaurants often rely on tip-adjusted transactions. This means adding some surcharges to offset credit card processing fees, or implementing a cash discount program to eliminate the fees altogether. POS systems like Toast or Clover can help track fees.
3. Service-Based Businesses
Consultants, attorneys, and freelancers often bill clients online. They may pass along convenience fees or use low-cost ACH. Platforms like QuickBooks or Stripe support fee management.
4. Ecommerce
Online stores are entirely dependent on credit card transactions. They typically pay 2.4%–3.2% per sale, and can often negotiate better rates with payment processors like Stripe, PayPal, or Authorize.net
5. B2B / Industrial
These businesses can qualify for Level 2 and Level 3 processing, which reduces interchange fees by providing more data on each transaction.
Level 2 data: tax amount, invoice number, customer code
Level 3 data: line item detail (SKUs, quantity, unit cost, shipping, etc)
These companies often uses ACH, invoicing, or net terms to reduce card use
Conclusion
So… at the end of the day, who pays credit card transaction fees?
In most cases the merchant.
Businesses pay a combination of interchange fees, assessment fees, and payment processor fees every time they process a credit card. These transaction fees can eat into margins, especially for small businesses without the right strategy in place.
But here’s the good news:
With the right knowledge and tools, you can take control of your costs, even eliminate these fees entirely.
You can:
✅ Choose the right payment processors
✅ Negotiate your credit card processing fees
✅ Explore cash discounting or surcharging (legally)
✅ Encourage lower-cost credit card payments like debit or ACH
Want to Eliminate Fees Completely?
The best legal way to eliminate 80-100% on fees is implementing a cash discount program.
Over 1000+ agents at Cash Swipe have helped install this program to tens of thousands of businesses across the United States.
And the best part?
It’s a win-win for the business, customer and the agent.
The merchant saves 80-100% on fees.
The agent makes 1% of the monthly processing volume as passive income.
And the customer has multiple options to pay and even avoid the fee if they want.
After I founded Cash Swipe in 2023…
We created a proven SYSTEM that helps 9-5ers and entrepreneurs alike eliminate credit card processing fees for merchants while still offering a seamless customer experience.
So far, over 1000+ people from all walks of life created sustainable income streams by learning and offering the cash discount program to business owners.
And at Cash Swipe, our system trains you up, feeds merchant locations to you, and provides A to training on everything you need to succeed.
If you want more information on how this system works…
Book an informational call with my business partners here.
Once you book your call, you can also check out our free resources while you wait:
