When Every Swipe Costs You: The Hidden Toll of Credit Card Fees

Every time a customer swipes a credit card at a local business, a portion of that sale vanishes—not into the pocket of the shop owner, but into the hands of credit card companies and issuing banks. These hidden “swipe fees” (also called interchange or processing fees) may seem negligible on a single transaction, but they compound rapidly — eating into already thin margins and forcing small businesses to make difficult choices about pricing, staffing, and growth.

The scale of the problem

• Unlike large national chains that can negotiate preferential rates, independent merchants often pay some of the highest processing fees in the country.

• According to the National Retail Federation, swipe fees in the U.S. now exceed $160 billion annually — a cost that inevitably gets baked into consumer prices.

• These fees typically range between 2% and 4% per transaction, depending on card type, merchant category, and network.

• As an illustrative example: if a small restaurant generates $1 million in annual sales and 90% of those are credit card transactions, it might pay somewhere between $18,000 and $36,000 each year in swipe fees — before covering food costs, labor, rent, utilities, and other expenses.

Because Visa and Mastercard control roughly 80% of the U.S. credit card market, they effectively set the interchange rates that merchants must accept. Small businesses have limited recourse: they can either swallow the cost or risk alienating customers in a cashless world.

Indeed, many business owners report that swipe fees are now one of their top operating costs — often ranking second or third only behind rent and payroll.

Real Stories: How Swipe Fees Bite

One stark example comes from Walter’s Hot Dogs in New York, whose owner Gene-Christian Baca says his business now pays $50,000 annually just to process credit card payments. He estimates this amounts to 3% of total sales being “washed away” to card processors. (This was detailed in a recent NBC News report.)

Others have responded by trying to shift the burden:

• Patz Deli in New Hampshire instituted a 4% surcharge on credit card payments to recoup transaction costs.

• Some establishments offer a discount for cash payments, effectively penalizing card users (though this approach can frustrate or confuse customers).

These band-aid fixes reflect a deeper structural issue.

The Rising Tide: Swipe Fees Are Increasing

Swipe fees are not static — they tend to rise over time. A recent report from the Merchants Payments Coalition cited data from the Nilson Report showing:

• In 2024, combined swipe fees for credit and debit cards reached $187.2 billion, up from $172 billion in 2023. 

• Visa and Mastercard alone accounted for over $111 billion of the total. 

• The average fee rate for Visa/Mastercard credit card transactions increased to 2.35% in 2024, up from 2.26% in 2023. 

In other words: just as businesses are trying to recover from inflation, their cost of accepting cards is growing too.

Legal and regulatory developments

The political and regulatory landscape is shifting — but the outcome is uncertain.

• A U.S. judge recently upheld the Federal Reserve’s regulation capping debit card swipe fees at 21 cents per transaction, reaffirming the rule’s legitimacy after competing rulings. 

• However, in a parallel ruling in a different jurisdiction, a judge vacated that same regulation (though the decision is under stay for appeal). 

• The Federal Reserve has since appealed the vacated decision, meaning the debate over how debit card fees are regulated is still playing out. 

These rulings directly affect how much flexibility merchants have in managing the costs associated with debit transactions, which historically have had more protections than credit.

Congress Steps In — But Not Enough (Yet)

Recognizing the growing burden on merchants, lawmakers have floated reforms. The most prominent is the Credit Card Competition Act (CCCA) — a bipartisan proposal aimed at injecting competition into the credit card processing ecosystem.

What the CCCA would do

• Require large banks (those issuing more than $100 billion in assets) to offer merchants a choice of networks beyond Visa and Mastercard. 

• The theory is that with additional routing options, merchants could choose lower-cost networks, and downward pressure on fees would follow.

• According to proponents, passage could help reduce annual costs for merchants by billions, and subsequently lower prices for consumers. 

Political challenges and risks

But getting from bill to law is tricky:

• The CCCA was not included in the recent GENIUS Act (regarding stablecoin regulation), though it was proposed as an amendment. 

• Some defenders of the status quo warn that reducing swipe fees may undercut reward programs, which are partially funded by merchant fees. 

• Opponents argue that large retailers, which already negotiate low fees, would reap most of the benefit, leaving small merchants with little gain. 

• Some credit unions and banks argue that interchange fees fund essential services such as fraud protection and infrastructure — making a wholesale reduction risky. 

Despite headwinds, small business groups continue to lobby for progress. The National Restaurant Association lamented that the Senate declined to debate CCCA within the GENIUS Act, calling it “disappointing” but vowing to press on.  transparency and fairer competition. agreed to a $30 billion antitrust settlement with U.S. merchants, pledging to cut and cap fees for several years. 
While that settlement provides short-term relief, many see it as a band-aid, not a cure, especially given the structural dominance of the major card networks.

What Small Businesses Can Do Now

While pending regulation or litigation may eventually ease the burden, merchants can’t wait. Here are actionable strategies for better managing swipe-fee pressures:

1. Adopt dual pricing / cash discounts

Present separate pricing for card and cash purchases. Technologies like SignaPay’s PayLo Dual Pricing can automatically calculate the difference at checkout — making it seamless for merchants and transparent for customers.
This approach doesn’t eliminate fees, but it helps recoup the cost or shift consumer behavior subtly.

2. Introduce a card surcharge or convenience fee (where legal)

Some merchants — such as Patz Deli — charge a 3–4% surcharge on credit card transactions. However, this must be handled carefully:

• Some states or card network rules may prohibit or restrict surcharges.

• Transparency is key: customers are more accepting if they understand the rationale.

• Overuse can deter sales, so test the threshold carefully.

3. Encourage lower-cost payment methods

• Incentivize debit card payments, which typically incur lower fees.

• Offer discounts for cash or digital wallet payments (if feasible).

• Avoid segments of business with very high-risk transactions (phone orders, keyed-in payments), which often attract higher fees.

4. Negotiate with your processor

Even small businesses may have leverage:

• Ask for a more favorable plan (interchange-plus rather than flat rate).

• Request that hidden fees (like statement fees, network access fees, PCI noncompliance fees) be removed or reduced.

• Monitor your statements monthly — sometimes processors quietly increase pass-through fees.

5. Stay politically engaged and informed

• Push your local and national representatives to support reforms like the Credit Card Competition Act.

• Join merchant advocacy groups (e.g. National Federation of Independent Business, Merchants Payments Coalition) to amplify your voice.

• Stay alert to legislation and court rulings that may change processing cost dynamics.

Why This Matters for SignaPay and Our Clients

At SignaPay, we see firsthand how payment processing costs can strain unprofitable margins, especially for small and medium merchants. That’s why:

• We champion transparency: our pricing is clear, with no surprise “gotchas.”

• We support features like dual pricing capabilities so merchants can recoup cost without alienating customers.

• We actively monitor regulatory developments and advise clients on how to adapt.

• Our mission is to flatten the steep, asymmetric playing field that credit card networks have created — by giving smaller merchants smarter tools, more control, and more resilience.

Swipe fees don’t have to be a cost sinkhole. With the right strategy, tools, and advocacy, businesses can push back — and retain more of what they deserve.