What are Credit Card Swipe Charges?
21 May, 2025
Synopsis
Credit Card swipe fees cover transaction processing and fraud prevention costs.
Merchants bear swipe machine charges for each transaction.
Credit Card swipe machine charges may indirectly increase costs for customers.
When you use your Credit Card to make a purchase, your transaction is approved within seconds of you swiping the card at the point-of-sale (POS) terminal. Every time you use your card, a small fee is triggered that cardholders may not be aware of; this fee is known as a Credit Card swipe fee. As a Credit Cardholder, you ought to be aware of these Credit Card swipe fees.
What Are Credit Card Swipe Fees?
Credit Card swipe fees, also known as transaction fees, are charges applied each time a Credit Card is used at a point-of-sale terminal. These fees are determined by the card network and help cover a range of costs, including processing the transaction, preventing fraud, and maintaining the payment system's infrastructure. They ensure that transactions between merchants, banks and customers are secure and efficient.
The Credit Card Payment Process
The Credit Card payment process involves several key components that work together to ensure transactions are smooth and secure. This can make it easier to understand where Credit Card swipe fees come into play:
Payment Gateway: This is the tool that transmits transaction information from the merchant to the acquiring bank. It encrypts and securely sends the necessary data for processing the payment.
Acquiring Bank: This is the bank that manages the merchant's account and authorises the payment. It manages the swipe fees and credits the transaction amount to the merchant’s account.
Payment Processor: Typically, a third-party service, the payment processor handles the transaction across various networks. It verifies the transaction details, communicates approval to the merchant and ensures the availability of funds.
Credit Card Network: Networks like Visa, Mastercard and RuPay are essential to the Credit Card system. They set the rules for transaction processing and establish swipe fees, facilitating communication between the issuing and acquiring banks.
Issuer Bank: When you apply for a Credit Card the issuing bank is the one that provides you with the card. For instance, if you get a Credit Card from HDFC Bank, HDFC Bank is the issuer bank. The issuer bank pays the acquiring bank on your behalf and later collects the payment from you, the cardholder.
When you swipe your Credit Card at a Point of Sale (POS) machine, the following process unfolds:
The merchant's point of sale terminal reads the information.
This processed information is then sent through a payment gateway and processor before it reaches a Credit Card network.
The transaction is verified by the issuing bank, which then communicates approval or denial back through the network.
Who Bears and Sets Credit Card Swipe Fees?
Typically, merchants are responsible for paying the Credit Card swipe fees. These fees are determined by card networks such as Visa, Mastercard and RuPay. While the rates can vary, they generally hover around 2-3% of the transaction value.
How Credit Card Swipe Fees Impact Customers
Although merchants pay these fees upfront, the costs can trickle down to customers. Some merchants may raise the prices of their products or services to offset these fees, which can lead to a slight increase in the overall cost for consumers.
Potentially Higher Prices for Goods and Services: Merchants may pass on the cost of swipe fees to consumers by raising prices. This practice may be particularly common in industries with slim profit margins.
Minimum Purchase Requirements: Merchants may set a minimum value for Credit Card transactions. That's because the merchant is trying to avoid losing money on small purchases. Since swipe fees are typically a percentage of the transaction plus a flat fee, small transactions may end up costing the merchant more in fees than the profit they make on the sale.
Surcharges for Credit Card Payments: In some cases, merchants may add a surcharge for Credit Card payments to cover the cost of swipe fees. Make sure you check the charges you will be paying before you swipe your card.
Apply for HDFC Bank Credit Cards
While Credit Card swipe fees might seem like a minor detail in your day-to-day transactions, they can have a significant impact on both your finances and the businesses you frequent. Your Credit Card can be a powerful tool that offers convenience, rewards and security, but being aware of the costs associated with its use can help you make smarter financial decisions and keep more money in your pocket. Explore a wide range of Credit Cards from HDFC Bank and access a suite of features and experiences.
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*Disclaimer: Terms and conditions apply. The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. Credit Card approvals at the sole discretion of HDFC Bank Limited. Credit Card approvals is subject to documentation and verification as per Bank's requirement. Interest rates are subject to change. Please check with your RM or closest bank branch for current interest rates.
