Merchants pay a percentage of each transaction plus a flat fee, split among the card network, the bank that issued your card, and the payment processor

When you swipe or tap a credit card at checkout, the merchant does not receive the full amount you paid. A merchant discount rate — typically between 1.5% and 3.5% of the transaction — goes to the card issuer, the card network (Visa, Mastercard, American Express, Discover), and the acquiring bank that processes the payment. A merchant selling a $100 item might receive $97 to $98.50 after fees.

The exact cost depends on the card type you use, the merchant's business category, and their payment processor's contract. A rewards card costs more than a basic card. A restaurant pays a different rate than a grocery store. A small business using Square or Stripe pays different fees than a large retailer with a dedicated processor.

Merchants negotiate these rates, but they cannot refuse a card network entirely — Visa and Mastercard rules require that if a business accepts one card from the network, it must accept all of them. This is why you see signs saying "we accept all major credit cards" rather than picking and choosing.

Key Takeaways

  • Merchant fees typically run 1.5% to 3.5% per transaction, with the largest portion going to your card's issuing bank.
  • Rewards cards and premium cards cost merchants more than basic cards, which is why some businesses discourage their use.
  • Card networks set the interchange rate (the issuer's cut), while acquiring banks and processors set their own markups on top.
  • Merchants cannot refuse Visa or Mastercard without refusing all cards from that network, so they absorb the cost rather than turn away payment methods.
  • Business type, transaction size, and processing method all affect the final fee a merchant pays.

How the fee splits between the card issuer, network, and processor

The largest piece goes to your card's issuing bank — the one that sent you the card. This is called interchange, and it typically accounts for 1% to 2% of the transaction. Visa and Mastercard set these rates, not individual banks. The issuer uses this money to cover the cost of fraud, customer service, rewards programs, and the risk that you might not pay your bill.

The card network (Visa, Mastercard, American Express, or Discover) takes a smaller cut — usually 0.1% to 0.3% — for operating the payment system and settling funds between banks. American Express operates differently: it is both the network and the issuer, so it keeps a larger share of the fee directly.

The acquiring bank or payment processor — the company the merchant contracts with to accept cards — takes the remainder. This is their profit margin and covers their costs for fraud prevention, customer support, and technology. A small business using Stripe or Square pays the processor a set percentage (often 2.9% plus $0.30 per transaction for online sales). A large retailer with a dedicated acquiring bank might negotiate a lower rate.

Why rewards cards cost merchants more

A card that offers 2% cash back or frequent-flyer miles costs the merchant more than a basic card with no rewards. The issuing bank sets a higher interchange rate for premium cards to fund those rewards. When you use a Chase Sapphire Reserve card, the merchant pays roughly 2.5% to 3% in fees. A basic card might cost them 1.5% to 2%.

This is why some merchants, particularly small businesses, display signs asking customers to use basic cards or offering a discount for cash. They are trying to offset the higher cost. However, they cannot legally refuse a specific card type — only the entire network. A merchant cannot say "no Sapphire Reserve" but can say "we offer a 2% discount for cash" or "we do not accept American Express."

How business type affects merchant fees

Card networks assign different interchange rates based on what the merchant sells. A grocery store pays a lower rate than a restaurant, which pays less than a gas station. This reflects the networks' assessment of fraud risk and the likelihood of chargebacks — disputes where a customer claims they did not authorize the charge or the merchant did not deliver.

Restaurants and gas stations have higher chargeback rates, so they pay more. Grocery stores have lower risk. Online retailers pay more than brick-and-mortar stores because the network cannot verify the cardholder is physically present. A merchant selling high-ticket items (jewelry, electronics) pays more than one selling low-ticket items (coffee, newspapers).

These categories are set by Visa and Mastercard and do not change based on individual merchant behavior. A small restaurant pays the same interchange rate as a large chain restaurant in the same category.

What merchants can and cannot do about fees

Merchants can negotiate their processing fees with their acquiring bank or payment processor, but they cannot negotiate interchange rates — those are set by the card networks. A large retailer with significant transaction volume has more leverage to negotiate processor fees. A small business has less.

Merchants can legally pass the cost to customers in some ways and not others. They can offer a discount for cash or check. They can add a surcharge for credit card use, but only up to the amount they actually pay in fees, and only in states that allow it — some states ban surcharges entirely. They cannot refuse a card network without refusing all cards from that network.

They also cannot set a minimum purchase amount for credit cards in most states, though some states allow it. These rules vary by state and are enforced by state attorneys general and the card networks themselves.

The difference between online and in-person fees

Online transactions cost merchants more because the card network cannot verify that the cardholder is physically present. This is called card-not-present (CNP) processing, and it carries higher fraud risk. An online merchant typically pays 2.9% to 3.5%, while an in-person merchant with a chip reader pays 1.5% to 2.5%.

A merchant who manually enters a card number (over the phone or by hand) pays the highest rate — sometimes 3.5% or more — because there is no verification at all. This is why online retailers and phone-order businesses have the highest processing costs.

Merchants can reduce their online fees slightly by using 3D Secure verification (a password or one-time code the cardholder enters), but the savings are modest — usually 0.1% to 0.3% — and many customers find the extra step annoying.

How American Express fees differ from Visa and Mastercard

American Express operates as both the card network and the issuer, so it does not split fees the way Visa and Mastercard do. Amex merchants typically pay 2.5% to 3.5% per transaction, which is higher than Visa or Mastercard. This is why some smaller merchants do not accept American Express — the fee is simply too high for their margins.

Amex also has stricter rules about chargebacks and disputes, and it requires merchants to meet higher standards for customer service. Larger merchants can negotiate lower Amex rates, but small businesses often cannot.

Discover Card operates more like Visa and Mastercard, with an issuer and a network, but it has a smaller merchant base because fewer customers use it. Merchants who accept Discover typically pay rates similar to Mastercard.

Frequently Asked Questions

Can a merchant refuse my credit card?

A merchant cannot refuse a specific card (like your Sapphire Reserve) but can refuse an entire network (Visa, Mastercard, American Express, Discover). They cannot refuse based on the card type or your personal status. However, they can offer discounts for other payment methods like cash or debit cards.

Do merchants really lose money when I use a rewards card?

Yes, they pay higher fees. A 2% cash-back card costs them roughly 0.5% to 1% more than a basic card. For a small business with thin margins, this adds up. That is why some merchants prefer cash or debit cards, though they cannot legally refuse the rewards card.

Why do some online stores charge a credit card fee?

They are passing along part of their processing cost. Online merchants pay 2.9% to 3.5% in fees, compared to 1.5% to 2.5% for in-person transactions. Some absorb the cost; others add a surcharge. The surcharge cannot exceed what they actually pay in fees, and some states ban it entirely.

Does the merchant fee change based on how much I spend?

No. The percentage stays the same whether you spend $10 or $1,000. However, some merchants negotiate lower rates for high-volume transactions, and some payment processors offer tiered pricing where the rate drops if monthly volume exceeds a threshold.

Who sets the merchant fees — the bank or the card network?

The card network (Visa, Mastercard) sets the interchange rate that goes to your card's issuing bank. The acquiring bank or processor sets their own markup on top. Merchants can negotiate the processor's cut but not the interchange rate.