Credit cards have become such an integral part of our lives that we rarely think about how they work. We hand the card over to a merchant, or swipe it, or put it in the slot, or type the number in, and then something magical happens and we end up with a purchase. We don’t necessarily care about how this transaction happens any more than we bother ourselves with why our TV screen lights up when we push a button on the remote.

But there are a number of very good reasons to care why and how credit cards work. One of these reasons is potential credit card markup fees, which is the fee that supports the credit card payment processing industry.

What’s in a Processing Fee?

There are a number of fees associated with credit card transactions that can add up to 3% or more to the price of purchase: interchange fees set by issuing banks and credit card associations, payment getaway fees, terminal fees, IRS reporting fees and many others. Some fees may be avoidable, but interchange fees and assessments, which represent the bulk of these fees, aren’t. And they aren’t negotiable either.

Where Does the Credit Card Markup Fee Come In?

Unlike interchange fees, markup fees are charged by a payment processor, which is how the processor makes money. As Merchant Maverick, an online publication for merchants explains, “With the right processor, these fees will be modest. With the wrong processor — you’re in trouble … Markup fees are different from processor to processor and are what [the merchant] should be comparing when preparing to open a new merchant account.”

Not every markup component is negotiable. “It’s split among all of the organizations that facilitate the processing of your business’s transactions,” says CardFellow, a marketplace for credit card processors, “such as the acquiring bank, processor, ISO(s), gateway or software provider and others. The markup must cover cost as well as profit for all of these entities.”

Credit card markup fees may not seem like much, especially next to interchange fees, but they can add up. According to CardFellow, “For most businesses, [overall] credit card processing fees are second only to rental and real estate expense.”

Why Should Consumers Care?

Merchants are generally not happy about credit card fees. While they recognize that accepting credit cards boosts sales and somewhat legitimizes their business, they have been fighting long and hard to defeat credit card associations’ rules that prohibit the assessing of credit card surcharges. And they keep fighting state laws in the states where such surcharges are banned.

Many merchants want the ability to add surcharges when a customer is using a credit card. However, even where merchants are allowed to pass the credit card processing fees on to consumers, the practice is not widespread in the U.S. For now at least, it seems merchants are reluctant to alienate customers who are accustomed to using credit cards without being charged for the privilege.

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