Understanding Credit Card Swipe Fees and Their Impact on Your Finances

At O1ne Mortgage, we prioritize consumer education on credit and finance. This blog aims to provide an objective view to help you make the best financial decisions. For any mortgage service needs, feel free to call us at 213-732-3074. Let’s dive into the world of credit card swipe fees and understand how they can affect your finances.

What Is a Credit Card Swipe Fee?

A credit card swipe fee is a charge that businesses incur each time a customer makes a purchase using a credit card. These fees are paid to various entities involved in processing the payment, including the credit card network, the card issuer, and the merchant’s payment processor. The fees cover the costs of securely transmitting payment information, authorizing transactions, and reducing fraud.

Swipe fees can be charged in three ways: a flat fee, a percentage of the transaction amount, or a combination of both. For example, if a business is charged a swipe fee of 3.5% per transaction, a $100 purchase would result in a $3.50 fee.

Can You Avoid Credit Card Swipe Fees?

Many businesses pass these swipe fees on to customers in the form of a surcharge. If you encounter a surcharge, you typically have two options: pay the fee or use an alternative payment method.

To avoid the surcharge, consider using a debit or prepaid card, as businesses are not allowed to charge a surcharge on these payment methods. Paying with cash is another way to avoid the fee.

If a business charges a credit card surcharge, they are required to inform you in advance with signage at the entry and the cash register. This gives you the opportunity to decide whether to shop elsewhere.

It’s also a good idea to carry an alternate payment method, especially when visiting businesses that commonly charge surcharges, such as restaurants, service businesses, and gas stations.

Why Credit Card Swipe Fees Are Controversial

Retailers have long battled with the credit card industry over swipe fees. While accepting credit cards can increase sales and reduce labor costs, swipe fees also cut into business revenue. The fee charged on each transaction varies based on several factors, including the type of card used, the business type, and the transaction location. This variability makes it difficult for businesses to budget for swipe fees.

Businesses cannot avoid swipe fees if they want to accept credit card payments, and 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 cannot be reduced. However, other components of the swipe fee can sometimes be lowered depending on the payment processor.

For consumers, swipe fees often lead to higher prices, as businesses may offset their costs by raising prices. Surcharges force consumers to pay more for purchases or choose a less convenient payment method.

How Credit Card Swipe Fees Impact Your Finances

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, making it hard to budget for them.

Shoppers who use cash or debit cards can save money by avoiding surcharges. However, frequent trips to the ATM to withdraw 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. These higher costs can add up. According to the Merchants Payments Coalition, credit card swipe fees cost the average family $1,024 in 2022.

The Bottom Line

While you can avoid paying credit card swipe fees when they’re passed through as a surcharge, you can’t avoid the impact of higher prices. To optimize your spending, consider using a rewards credit card for your purchases. Although you won’t be able to completely avoid credit card swipe fees, you can offset the cost with cash back, miles, and other credit card perks. If you manage the card responsibly and pay off your balance each month, it could be worth the inconvenience swipe fees can cause.

At O1ne Mortgage, we are committed to helping you make informed financial decisions. For any mortgage service needs, call us at 213-732-3074. Our team of experts is here to assist you in navigating the complexities of credit and finance.