The State of Credit Card Fees 2023

Jun 13, 2023 by Kelsey Banerjee

Merchants are paying more than ever in credit card fees. By the end of 2022, businesses spent $160.70 billion in processing fees. This amounts to 20.2% more than what they paid in 2021.

And it's easy to see why. In addition to consumers using credit cards more often, interchange fees and surcharge rules have changed.

In 2020, Visa announced its most significant interchange rate update in 10 years. But due to the pandemic, these sweeping changes, including credit card fee restructuring, were postponed due to COVID. When the time came to implement the new interchange fee in 2021, it was delayed again - and again, the pandemic was the culprit. This credit card giant isn't alone. Mastercard also delayed its regular interchange fee update until 2021.

In 2022, the credit card companies did follow through and increase their fees. And in 2023, we're seeing more significant changes.

For merchants feeling the cash crunch, these updates are crucial for payment planning. Depending on the business model, an owner or AR department may choose to update their payment acceptance policy. A steep fee increase reduces revenue since the interchange fee makes up a portion of the credit card processing fee. This is especially true since 70%-90% of this fee makes up the bulk of the processing fee for merchants.


The 2023 surcharge update

In 2022, Mastercard and Visa increased their rates. Now, in 2023, merchants are facing another cash stressor: A new cap on the surcharge rate.

As of April 15, 2023, the cap on credit card surcharges went from 4% to 3%. This change is only applicable in states and territories where surcharges are legal - in other words, merchants doing business in Connecticut, Massachusetts, and Puerto Rico may see little change. In other words, merchants can only charge customers a convenience fee of up to 3%.

With the new credit card surcharge limit, it's possible that merchants may not recoup the credit card processing costs.

There are also penalties for failing to adhere to the new rules. Non-compliance can result in fines of up to $25,000 from the credit card issuer. And if a merchant still fails to realign with the new requirement, the fees can skyrocket up to $100,000, and the merchant account may be terminated. Non-compliance is not an option.

When combined with the interchange fee increases for credit card payments and debit card transactions from 2022, many businesses may see a further drop in cash flow due to the high cost of payment processing, at least for credit card payments.

Visa's change to the interchange fee primarily affected card-not-present transactions. As a result, eCommerce businesses or any organization taking online credit card payments were affected.

For example, for every $100 transaction, the rate increased by about 10 cents. If the interchange rate were $1.90 for an earlier card processing a $100 transaction, after 2022, it would be $1.99. With the new rule, merchants may be unable to recover the processing fee within the 3% surcharge limit, depending on the payment card processor.

While it looks small, these payment processing fees add up fast.

And it hits online and eCommerce merchants harder than brick-and-mortar stores. This is because in-store fees tend to drop while card-no-present (CNP) transactions increase. Why does this happen? This is because the interchange fee is meant to offset the risk the issuing bank takes by processing the payment. The rapid increase in payments fraud further drives up the chance for the credit card issuer. Thus, the interchange rate also goes up.

But what about the surcharge fee?

The reasons are more nebulous, but it's likely a move to reduce the financial strain on consumers and promote spending. Whether or not the new rule will work as intended is yet to be seen.


What this means for your business

For merchants, the new credit card processing fee has several implications. Some of the concerns you and other merchants may be facing are:

  • Is it possible to raise prices further despite customers being squeezed due to inflation?
  • Whether it's preferable to offer additional payment methods outside of credit card payments?
  • Can we incentivize customers to use another payment method?

While ten cents and a surcharge limit may seem insignificant, this increase may be more considerable for more significant purchases. Credit card processing fees, especially for B2B businesses, in which essential services and equipment often cost thousands of dollars. And this expense is one of the biggest cons to accepting credit card payments today.

It's also important to note that these interchange fee updates usually happen twice a year, in April and October. If you rely primarily on card payments, card processing fees will continue cutting your bottom line.


7 ways to save money on credit card processing fees

Turning away from credit card payments entirely isn't viable for most businesses. But there are ways to reduce their interchange rate and increase the effectiveness of the 3% surcharge limit for every credit and debit card transaction. Here are our top 7 strategies every business can use:

  1. Keep a convenience fee. One of the most common ways to deal with credit card fees is to pass them on to the customer as a convenience fee. Even with the new surcharge rule, using the fee to your advantage is possible. It can discourage customers from using credit card payments in favor of another option. Or you can recover at least a portion of the payment processing fees. Not only does this strategy reduce your credit card processing fee cost, but it can encourage customers to use more affordable payment methods.
  2. Negotiate with your payment processor. Some payment processors and banks may offer you reduced wholesale prices on transactions.
  3. Incentivize other payment methods. Another way to get around paying hefty credit card fees is to provide a "Zero-Fee" option for ACH or bank-to-bank transfers. This strategy also be referred to as a cash discount program. When combined with a convenience fee, this strategy is particularly effective.
  4. Leverage an address verification service (AVS). Since the interchange rate is meant to counteract potential fraud, investing in a verification service that validates every debit card or credit card payment can lower your overall processing fees. As a result, you may also be able to recoup more from the surcharge.
  5. Settle payments faster. Settling a credit card payment within 24 hours can decrease your interchange rate, too.
  6. Use a flat-rate payment service. A payment processor will bill a business in many ways, but flat-rate plans are more straightforward, easy to budget, and may reduce costs. This is because the rate stays the same no matter how many transactions you process.
  7. Ask users to provide security information. Similar to using an AVS, the more secure you can make the transaction, the lower your interchange rate. Simply asking customers to enter a security code or provide their billing ZIP code is enough to reduce the processing cost.

Zero-Fee Payment Processing

Finding a payment processor that does a little bit of everything is hard. Convenience fee? Zero-Fee? Accepts ACH, bank-to-bank transfer, e-check, and everything in between? What about a convenient payment portal and ultra-secure vault?

We don't mean to brag, but manageable, fast, and secure payments are our thing, especially for B2B transactions.

Every business should have a way to offset costly processing fees while providing a seamless and safe experience for their customers. To learn more about how Paystand can help you reduce interchange fees and transform your payments process, schedule a demo with us today.