They can be confusing and frustrating — and a sore point for restaurant operators watching their margins — but “swipe” fees are the necessary cost of accepting debit and credit card payments in your establishment.

Swipe fees (also known as the merchant discount rate) are the various costs you pay whenever a card is used for payment. Interchange fees comprise 70 to 90 percent of the total cost of accepting plastic, but other fees come into play as well, including a card network assessment, the processor’s markup and a fee you pay your bank to maintain your merchant account.

According to The Nilson Report, U.S. merchants are paying nearly $90 billion annually in fees on card transactions that amount to about $6 trillion! That’s a lot of money, but think about the alternative: accepting only cash or personal checks. That’s not a convenient way for diners on the go to pay for a drink or meal — and it’s not a convenient or secure way for you to do business either.

“When you add up all of the spending and divide by the fees merchants pay, the average is $1.49 for every $100 in card sales,” says David Robertson, publisher of The Nilson Report. Of course, that’s the average. As it turns out, interchange fees are complicated because they vary by type of cardholder, type of merchant, type of card used (debit vs. credit) and type of processing method (card present vs. not present).

Interchange rates

There are hundreds of interchange rates, depending on the many “interchange qualification” factors. Each card brand establishes its own fee structure. Visa and Mastercard change their fees twice a year (in April and October). All of the card brands’ fees are published on their websites, so you can always check your fees. In addition, your processor should give you a detailed breakdown each month of your processing costs.

The majority of the fees you pay on card transactions are made up of the interchange and assessments. All processors, no matter what they may tell you, charge the same fees for interchange and assessments. No independent sales organization (ISO) can give you a lower rate or a better deal on these base costs.

Interchange fees have two components: a percentage of the sale (including tips and taxes) and some fixed amount. The percentage amount is paid to the cardholder’s bank. The fixed transaction fee goes to the card network.

For example, take a ticket of $50. A typical interchange might be 2.10% of the sale, plus $0.10. In this example, $1.05 would go to the issuing bank (the cardholder’s bank), and $0.10 would go to the card network.

Restaurants with low average sales (say a coffee shop with an average ticket of $10 or less) can find themselves paying disproportionately higher interchange fees since the fixed pennies on each sale have a bigger impact than they would on higher sales amounts. In addition, they must pay a card network assessment and processor’s markup on each transaction.

Some of the card networks have tried to address this by creating a small ticket interchange category. Visa’s CPS Small Ticket fee for card-present transactions that are $15 or less is 1.65% + $0.04, lower than its standard restaurant rate.

Durbin Amendment

In 2010, Congress passed the National Restaurant Association-supported “Durbin amendment,” named after U.S. Senator Dick Durbin (D-Ill.), who introduced the measure. This law capped the interchange fee to a “reasonable and proportional level” of the financial institution’s costs to complete a debit card transaction. Although there are some exceptions for small banks and credit unions in the law, the maximum fees that can be charged range from $0.21 to $0.24 per debit transaction. These costs represent a significant reduction from the average of $0.45 per transaction prior to the passage of the Durbin amendment.

The Association and other merchants’ groups fought hard to secure the passage of the Durbin amendment. For many small businesses, interchange represents a significant cost — and gets passed on to customers in higher prices.

Understand your costs

Whether you process thousands or millions of dollars in transactions every month, understanding your statement and the fees you’re charged is key to controlling your costs. Consider choosing a payment partner that offers transparent pricing and an easy-to-read statement.

Some payment processors offer interchange-plus pricing, a pricing model that allows for optimization of costs since it applies a fixed markup directly to interchange fees. “Plus” refers to the card processor’s markup applied to each credit card transaction. Markup generally is expressed as basis points, accompanied by an authorization fee.

As Laura Knapp Chadwick, the National Restaurant Association’s director of membership engagement for technology and data security, points out, “Study your detailed statement each month from your processor that lists all of your fees. These expenses go to a variety of parties, not just the credit card companies.” Make sure your processor isn’t padding your costs. You can always validate the interchange fees by looking at your agreement with the national card brands you accept.

This post is sponsored by Heartland, a Global Payments company that delivers fast, secure omnichannel payment processing and business solutions to more than 400,000 business locations nationwide. Product offerings include payments, payroll, point of sale, customer engagement and lending. Heartland is an endorsed partner of the Association.