Increasing Processing Fees

This year, Visa and Mastercard will be increasing the fees merchants have to pay for credit card processing. This news comes as no surprise, but it may be a tough pill for merchants who have been grappling with challenges on multiple fronts as they try to stay afloat over the past few years.

While the card networks are insisting that many merchants will see their fees go down, not up, merchant advocacy groups are raising their voices in opposition to higher fees. What fee increases are Visa and Mastercard planning to roll out this year, and how will merchants be affected by rising card processing rates?

New call-to-actionInterchange fees and other costs have always made credit card payments a pricier option than other payment methods, but the convenience and flexibility of credit cards makes them a favorite with consumers.

The tradeoff is that while credit card payments cut into profit margins, they’re sure to provide a lift to sales at the same time.

However, the more interchange fees go up, the harder it is for merchants to maintain their price levels. Merchants have to increase their prices to keep up with the rising costs of payment processing, and that runs the risk of alienating their customers.

Recently, some merchants have been getting more assertive about pushing back against bank and card network fee structures. Whether or not they succeed in getting a better deal for retailers in the long run, these fee increases are coming soon and merchants had better start budgeting and preparing for them.

What Fees Are Visa and Mastercard Increasing?

The most significant rate adjustment—and the one that will be felt the most by merchants—will be to interchange fees. The new rates are expected to take effect this month, after having been delayed for two years due to the pandemic.

The actual rate changes will vary depending on the size of the merchant, the processing environment (card-present or card-not-present), and the type of industry the merchant is in.

Most e-commerce merchants, retail stores, and supermarkets will see their rates go up. Visa is reportedly lowering rates for small businesses (defined as merchants with less than $250,000 in annual credit card volume) in certain sectors, and Mastercard says that their rates will be lower on pandemic-affected sectors like restaurants, hospitality, and child care, as well as all transactions under $5.

What Are Interchange Fees?

While there can be several different fees that accompany every credit card transaction, interchange fees make up the bulk of the cost. Interchange fees are set and charged by the card network, but they end up getting passed on as compensation to the issuing bank.

The reason issuers get the biggest share of card processing fees is because of the risks they take on by extending credit to consumers. Interchange fees offset their losses and expenses and help make card issuance profitable for them. By offering higher interchange rates, card networks incentivize banks to issue their cards, increasing their market share.

And when it comes to processing fees, not all cards are alike, even from the same issuer. Rewards cards frequently charge higher rates to cover the costs of all the goodies they’re offering to cardholders, but merchants who agree to accept a particular card network can’t opt out of accepting higher-rate cards—they just have to eat the added costs.

Why Are Visa and Mastercard Doing This?

The card networks have explained that these fee increases are necessary to deal with their own rising costs for fraud prevention and technological innovation, both of which have been under increased demand due to the pandemic and other factors.

Manage Chargeback In-House Or OutshoreCMSPI, a consulting group for the payments industry, has projected that the card networks will be collecting an additional $475 million per year due to these increases. For their part, the card networks are putting a positive spin on it.

Visa is offering reduced fees in exchange for adopting some of their data sharing and tokenizing services, and they have claimed that nine out of ten businesses in the US will actually see their fees drop by about 10%.

How Will This Fee Increase Impact Merchants?

When credit card processing fees go up, merchants have a choice to make. They can accept a cut into their revenue, or they can raise their prices. At a certain point, however, price increases become inevitable, and customers tend to hold it against the merchant instead of focusing their blame on the banks and card networks behind the scenes.

Merchants in the US paid more than $110 billion in processing fees in 2020, and this has been a contentious issue for some time, with some merchants fighting back by filing lawsuits and others experimenting with ceasing their acceptance of certain card brands. This year, a group known as the Merchants Payments Coalition sent a letter to the US House Financial Services Committee asking them to open an investigation into credit card processing fees, claiming that the banks and card networks have been working together to stifle more affordable competitors.


When unavoidable costs go up, merchants have a difficult choice to make. Whether you’re struggling with the costs of labor, fuel, or credit card processing fees, at some point you have to decide when the health of your business requires you to increase prices and pass more of your costs on to them. It can be a difficult balance to strike.

It’s understandable that some merchants want to take the fight directly to the card networks and try to win a legal or regulatory battle against high fees, but there are things merchants can do right now to lower their payment processing costs.

One way to avoid credit card fees is to solicit feedback from your customers about their preferred alternative payment methods, and start accepting them. Keep in mind that fees may be inevitable, but most chargebacks aren’t. Merchants who haven’t yet implemented a chargeback management strategy may be able to recover significant amounts of revenue when they start analyzing their chargeback data and applying data-driven solutions to bring their chargeback ratio down.

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