Traditionally, behind-the-scenes interchange fees during credit card transactions were a burden placed on the business rather than the consumer. You make a purchase and the store gives a small percentage of the total transaction cost to the bank the card is tied to, a small portion of that transaction fee is then partitioned off to the specific credit card company, like Visa or Mastercard.
While the fee is based on a percentage of the total transaction value, that percentage can vary. On average most fees run about 2%; American Express is notorious for having higher fees that can reach up to 3.5%.
Variance in the fees charged is based primarily on the type of merchant visited, the kind of payment processing technology they use, and whether or not the purchase is being conducted in person or online.
Businesses are incentivized to be welcoming to credit card users and have therefore been willing to bear the burden of card processing fees, even though they occasionally will build the price of the product to offset the cost. Merchants Payments Coalition estimates that these “swipe fees” cost the average American family over $1,000 in higher prices in 2022, a marked 10% increase since the year before.
Due especially to the inflationary pressures that businesses have been experiencing for the last couple of years, they are now looking for any way possible to bring costs down; offloading credit card fees onto the consumer has been a prime goal.
One method is just charging an additional amount if they pay via credit card. Surcharges, services fees, or convenience fees are all different ways of labeling such charges. This has often been seen in the world of non-profit fundraising, where the donation will request donors to pay the processing fee rather than saddling the extra cost on the charity. Today, businesses are increasingly incentivizing customers to pay via a method that doesn’t incur fees or accept being saddled with the extra price. However, it is important to note that credit card surcharges aren’t legal in every state (discounts for cash are). Connecticut, Maine, and Massachusetts don’t permit customer processing fees.
Businesses also often offer in-person discounts if you pay directly in cash, and companies like T-Mobile changed its $5 per line autopay discounts to only apply to customers who pay by debit card or linked bank account.
The most discouraging aspect of these mounting credit card prices is that the public is increasingly willing to bear the burden.
