Credit card swipe charges: How they affect merchants and consumers

It is essential for every credit card user to understand various fees to ensure cost-effective use. Credit card swipe charges, also known as interchange fees, are one such fee, which is charged every time a transaction is made through a credit card.

The card network determines this fee. It covers several costs, such as operational expenses, fraud prevention, and maintenance of the payment infrastructure to ensure hassle-free and secure financial transactions between merchants, banks, and customers.

How do swipe fees work?

- Whenever a credit card is swiped at a Point of Sale (POS) machine, a fee is charged.

- When you swipe a credit card, the merchant POS terminal verifies the card information.

- This information goes through the payment gateway and processor and is sent to the credit card network.

- The card-issuing bank checks this information and gives its approval to complete the transaction.

Who pays swipe fee?

Credit card swipe charges are a cost for merchants mostly. However, in certain cases, the card issuing bank may charge some additional fees. These charges are regulated by the Reserve Bank of India (RBI) to maintain transparency and fairness.

What do card swipe charges mean for card users?

Card swipe charges are borne by merchants. However, it may impact credit card users as well. Merchants may increase the costs of products to cover such charges.

Why should you know about swipe charges?

As a credit card user, knowing about swipe charges is essential.

1. Decision-making: Information on card swipe charges will help you to make smarter decisions while using credit cards. It is beneficial for users to choose a credit card or cash to make payments.
2. Estimation of total costs: An understanding of credit card swipe charges, helps to know the overall cost of a transaction. It highlights the additional costs apart from the price at which a product was bought using a credit card. This will help with financial management and budgeting.

3. Better rates: Understanding swipe charges can help business owners negotiate better rates with banks or choose the most cost-effective payment processing services, further reducing operational costs.

4. Estimate reward benefits: A frequent card user can compare the card swipe charges on every benefit or reward provided by the card. A credit card can be used frequently if the rewards are more than the cost of swipe charges. If the cost of swipe charges exceeds the amount of rewards offered, it will be beneficial to explore other payment options.

5. Uniformity in bills: It is essential to track swipe charges regularly to avoid unusual costs on the bill statements issued every month. This will help plan expenses and avoid unexpected charges.

In conclusion, awareness about swipe charges helps in making smarter financial decisions. It helps to estimate the correct benefits of credit card usage while minimising unnecessary costs.

(Note: Using a credit card carries its own set of risks.)