Credit card swipe fees are the charges a business pays every time a customer pays with a card, and they typically run 1.5% to 3.5% of the transaction. That single line item on a processing statement is really three fees bundled together: interchange paid to the bank that issued the card, an assessment paid to the card network, and a markup kept by the merchant’s processor. Federal law caps only one slice of this: debit interchange charged by large banks. Credit card rates are set by the networks themselves and are not capped.
Who Gets Paid on Every Swipe
Three parties take a cut of each card transaction, and they don’t take it in equal shares.
Interchange is the biggest piece. It goes to the bank that issued the customer’s card and compensates that bank for fronting the money, absorbing fraud risk, and running the cardholder account. Interchange rates are set by the card networks and published in rate tables with hundreds of tiers. For credit cards, they run roughly 1.15% to 3.15% of the sale, depending on the card, the industry, and how the transaction is processed.
The assessment fee goes to the network itself, whether Visa, Mastercard, Discover, or American Express. Assessments are a fraction of a percent. They pay for the infrastructure that lets thousands of banks talk to each other and settle transactions.
The processor markup is what the payment processor keeps for providing the terminal, gateway, or point-of-sale system. This is the only piece a merchant can meaningfully negotiate. Some processors pass interchange and assessments through at cost and add a stated markup; others quote a single blended rate. A merchant on a 2.75% blended rate can’t tell how much is interchange and how much is the processor’s margin, which makes it harder to judge whether the price is competitive.
What Makes One Transaction Cost More Than Another
A $100 sale on a plain credit card might cost the merchant about $1.80 in fees. The same $100 on a premium rewards card can cost $2.80 or more. A few factors decide where any given swipe lands.
Card Type and Rewards Tier
Premium rewards cards, the ones with travel points, lounge access, and generous cash back, carry higher interchange because the issuing bank has to recoup the cost of those perks. A no-frills credit card costs the merchant noticeably less on the same sale. The merchant can’t tell the customer which card to hand over, so this variation is largely outside the store’s control.
How the Card Is Presented
A card dipped into a chip reader or tapped on a contactless terminal qualifies for lower interchange. The card’s physical presence makes fraud harder. Online orders, phone payments, and any other card-not-present scenario carry higher rates. That’s one reason e-commerce businesses face consistently higher processing costs than brick-and-mortar stores.
Merchant Category Code
Every business is assigned a four-digit Merchant Category Code (MCC) that tells the networks what kind of business it is. Supermarkets, gas stations, and utilities often get preferential interchange because their transactions are high-volume and low-risk. Industries the networks treat as higher-risk or lower-volume, like jewelry, travel, and direct marketing, land in steeper tiers. The MCC is one of several inputs that decide which specific interchange bucket a transaction falls into.1Mastercard. Mastercard Interchange Rates and Fees
PIN Debit Versus Signature Debit
A debit transaction can route through a PIN network or a signature network. PIN-authenticated transactions generally carry lower interchange because the cardholder is verified in real time. Signature debit runs over the Visa or Mastercard rails like a credit transaction and tends to cost more. On very small purchases, PIN debit can actually be more expensive, because some PIN networks charge a flat per-transaction fee that overtakes the percentage cost on low totals.
Where Federal Law Caps the Fee
Congress capped debit card interchange in the Durbin Amendment, part of the Dodd-Frank Act, codified at 15 U.S.C. § 1693o-2. The statute tells the Federal Reserve to make sure debit interchange charged by large banks is reasonable and proportional to the actual cost of processing.2Office of the Law Revision Counsel. 15 USC 1693o-2 – Reasonable Fees and Rules for Payment Card Transactions
The Fed implemented that mandate through Regulation II. The cap is 21 cents plus 0.05% of the transaction, with an extra penny available to issuers that meet fraud-prevention standards.3Board of Governors of the Federal Reserve System. Regulation II: Debit Card Interchange Fees and Routing On a $50 debit purchase, the most a covered bank can collect is about 24.5 cents.
The cap only applies to banks and credit unions with more than $10 billion in assets. Debit cards issued by community banks and smaller credit unions can carry higher interchange than debit cards from national banks.4Federal Register. Debit Card Interchange Fees and Routing Credit card interchange is not capped by federal law at all.
Regulation II is currently in flux. In August 2025, a federal district court in North Dakota vacated the regulation, holding that the Federal Reserve had exceeded its statutory authority by including certain cost categories in the cap calculation. The court stayed its own order pending appeal, so the 21-cent cap stays in effect while the case moves forward. Separately, the Fed has proposed lowering the cap to 14.4 cents based on updated cost data, but that proposal isn’t final.
What Merchants Can Pass On to Customers
Businesses have three tools for offsetting swipe fees at the register: surcharge card payments, discount cash payments, or set a card minimum. Each has its own rules, and mistakes can trigger network fines or state law violations.
Credit Card Surcharges
A surcharge is an extra fee added when a customer pays with a credit card. Both Visa and Mastercard allow it, with different caps. Visa limits the surcharge to the lesser of the merchant’s actual processing cost or 3%.5Visa. U.S. Merchant Surcharge Q and A Mastercard’s cap is the lesser of cost or 4%.6Mastercard. Mastercard Credit Card Surcharge Rules and Fees for Merchants For any merchant taking both, the Visa 3% ceiling is the practical limit.
Before adding a surcharge, a merchant has to notify the network and its processor at least 30 days ahead of time, and post clear signage at the entrance and at the point of sale so the customer sees the fee before committing.6Mastercard. Mastercard Credit Card Surcharge Rules and Fees for Merchants These come from the network rulebooks, not federal statute. Surcharging debit transactions is prohibited, whether the debit runs as PIN or signature.
Roughly a dozen states restrict or prohibit credit card surcharges outright. Some of those statutes have been challenged on First Amendment grounds, and the picture varies by state. Confirm your state allows it before you notify the networks.
Cash Discounts
A cash discount runs the other direction: the listed price is the card price, and cash customers pay less. Federal law protects the practice. Under 15 U.S.C. § 1666f, card issuers can’t prohibit merchants from offering cash discounts, and the discount isn’t treated as a hidden finance charge as long as it’s available to all buyers and clearly disclosed.7Office of the Law Revision Counsel. 15 USC 1666f – Inducements to Cardholders by Sellers of Cash Discounts From the customer’s side, a cash discount and a credit surcharge can feel identical, but the legal treatment differs. A discount uses the higher price as the regular price and rewards cash payers; a surcharge starts at a base price and adds a fee for card users.
Minimum Purchase Requirements
The Dodd-Frank Act lets merchants set a minimum purchase for credit card use, as long as the minimum is no more than $10 and applies equally across every credit card network.8Federal Trade Commission. New Rules on Electronic Payments Lower Costs for Retailers A $5 minimum is fine; a $15 minimum isn’t. This applies to credit cards only. Merchants can’t impose a minimum on debit card purchases under federal law, though government entities and higher education institutions have some added flexibility under separate provisions.
Deducting Swipe Fees and the 1099-K Trap
Processing fees are ordinary business expenses and reduce taxable income. Sole proprietors deduct them on Schedule C; other businesses deduct them on their business return. There’s no special form.
One detail catches owners off guard. Payment processors report the gross amount of card sales on IRS Form 1099-K, not the net after fees. A business that runs $200,000 through card processing and pays $5,000 in fees will see $200,000 on the 1099-K.9Internal Revenue Service. Form 1099-K FAQs: Common Situations The $5,000 has to be deducted separately on the return. If you don’t reconcile the two, it looks like underreported expenses or overreported income, and that draws IRS attention.
For 2026 transactions, processors must issue a 1099-K to any merchant whose card payment volume exceeds $20,000 and 200 transactions in the calendar year. There is no minimum threshold specific to payment card transactions when they settle through a payment card network rather than a third-party settlement organization.10Internal Revenue Service. Treasury, IRS Issue Proposed Regulations Reflecting Changes From the One, Big, Beautiful Bill to the Threshold for Backup Withholding on Certain Payments Made Through Third Parties