The fee behind a card swipe
When a customer pays by card, the merchant typically pays a fee for accepting and processing the transaction. That charge is often called the merchant discount fee, and it is not usually collected in full by the card network.
Several businesses share the payment. The merchant’s bank or processor routes the sale; the customer’s bank issued the card; and the network provides the rules and communications that let those institutions exchange payment information. The fee is divided among them. A large portion commonly goes to the customer’s card-issuing bank as interchange—a payment for handling the transaction and taking on risks such as fraud or nonpayment. The network earns revenue through its own network and processing fees.
Why a small cut can add up
A network does not need to keep the entire merchant fee to build a profitable business. Its infrastructure can handle transactions for many banks and merchants, and each purchase can generate a fee for connecting the participants and maintaining the system. Across a vast volume of sales, small per-transaction charges can become substantial revenue.
The network’s value also depends on broad acceptance: customers want cards that work in many places, while merchants want to accept cards customers already carry. That two-sided reach helps make the payment system useful—and gives established networks a role in a great many transactions.
Who ultimately bears the cost?
Merchants may account for card-acceptance costs in their overall prices, though how they do so varies. Consumers can therefore bear some of the cost even when they never see a separate card fee at checkout. Meanwhile, rewards cards may return some value to cardholders, with the underlying costs distributed across the payment system.
The key distinction is that the network’s profit comes from its slice of a much larger transaction-fee system, not necessarily from pocketing the full charge a merchant pays.
