Understanding Swipe Fees

If your business accepts payments from credit or debit cards, then you are paying for swipe fees. Swipe fees apply regardless of whether the purchase in made in-store or with online shopping.

To make it simple, swipe fees are the payments that go to card-issuing banks and credit card companies for their part in enabling your transaction. It is the fee that applies to Visa, Mastercard, American Express, Discover, and all the other banks.

In this blog article, we explore what swipe fees are and we explain how they affect merchants and consumers on a daily basis.

Swipe fees are commonly known ass the processing fees that go to the consumer’s card-issuing bank or credit card company. The amount allocated towards swipe fees generally ranges somewhere between 1-3% of the total sale price, but varies based on the bank/card. Generally the banks and card issuers have long maintained that these swipe fees cover handling, fraud, and bad debt costs.

When storeowners or merchants set up their electronic funds transfer (EFT) systems, swipe fees are listed in the pricing. Swipe fees are one component to merchant pricing. These fees are often set a bit high in order to cover all of the fees that come out of them. Within swipe fees are interchange fees, as well as network fees and acquirer fees.

So let’s say a merchant has to pay 2 percent swipe fees for credit card transactions. If a customer makes a purchase of $200 using a credit card, $4 will be taken from the transaction. These fees can add up pretty quickly for merchants. As a result, it is imperative for business owners to understand exactly what swipe fees they are being charged and why.

As cash transactions continue to quickly phase out, and electronic payments continue to flourish, swipe fees are increasing for merchants and retailers. Every single credit card transaction carries swipe fees so merchants have no other option but to pay attention to these costs.

Most businesses report that after wages and employee health insurance, swipe fees are the next highest cost to these businesses.

For a few decades now, there has been a lot of criticism directed at banks and card issuers over swipe fees. Merchants and lobbyists alike have continuously urged banks to provide more detail on swipe fees. Approximately a decade ago, the first steps were taken to address the unwarranted cost of swipe fees. In July of 2010, the Consumer Protection Act was passed by Congress, and included within it was the “Durbin Amendment”. The Durbin Amendment was specifically introduced to address swipe fee reform. This was Congress’s first attempt at overseeing and taking a closer look at swipe fees.

Written within the amendment, the Federal Reserve is afforded the authority to review and reform transaction fees for debit cards. Furthermore, the Federal Reserve has the ability to ensure that swipe fees remain reasonable. This was a huge step in the right direction in terms of governmental oversight. The banks are now being held accountable for the swipe fees they offer.

While all parties understand the need for fees, there is little clarity around how high they need to be. Merchants have long trusted that the fees put forth by processors are necessary. But that just simply isn’t the case.

Granted it’s unlikely that swipe fees will ever be obliterated, the attention on them is certain to continue. Without the adequate reform and push back, these fee increases will mean increases in product prices by the merchants. The costs of these fees will eventually reach a point where the merchants no longer have any option but to pass on the cost of swipe fees to the customer. If it gets to this point then the transaction is left in the hands of consumers to decide if they’re willing to pay.

You can’t eliminate swipe fees completely, but you can lower them. If you’re looking to cut your credit card processing fees, Get in touch with Midwest Merchant Services. We’ll review your statement and recommend ways to help you save.

As one of the top-rated credit card processors in the market, we’re able to save merchants $450+ a month in payment processing.