The Rising Costs of Card Payment Processing: Causes, Consequences, and Solutions

Businesses today need to be prepared to manage the costs of all types of payment processing, including debit and credit cards. However, a combination of changes in consumer spending habits, an increase in fraud attempts, and rising transaction fees card transactions are creating unique challenges for businesses. 


Here’s a look at the causes, consequences and solutions for the rising costs of card payment processing today: 

Credit Cards Remain Dominant in the Payments Space 

A few years ago, credit cards had a stronghold on the payments market. Cards were responsible for 62.3% of US consumer payments in 2017, with only a fraction of payments coming from other options: 


Many in the finance and payments industries anticipated that credit card companies would lose their dominance in the payments space within a few years. The growth of PayPal was an early forerunner, then came Apple and Samsung Pay, and other big players like Google and Amazon developing their own payments platforms. Retailers like Walmart and Starbucks did the same. 


However now in 2021, very little has changed. Debit remains the preferred payment option among consumers. 


According to PSCU, a credit union service organization, contactless payments have more than doubled since the beginning of the pandemic. However, the majority of this growth is not in alternative payment methods. Most contactless transactions are still debit or credit payments, so Visa and MasterCard are earning on fees with each transaction. 


Debit is also a source of merchant frustration

Combined purchase volume is down about 7% YOY in Q2 2020 driven by declining credit cards; debit now leads.


Despite becoming the most popular form of payment as a consequence of the pandemic, debit card routing policies remain a mystery to merchants.

Fee Hikes From Visa and MasterCard Are Imminent 

With big credit card companies remaining the dominant option in the payments space, they also are free to set the standards for transaction fees. Both Visa and Mastercard recently announced plans for higher fees for many programs and online transactions.


In mid-March 2021, Visa announced plans to increase interchange fees to 1.5% for online credit card payments for purchases made by UK-based customers. That’s 5 times the previous rates. MasterCard made a similar move in January. Because Britain used to regulate fees within the EU trading block, Brexit made it possible for both companies to raise the levy they charge. 


These hikes are just the latest of many planned increases for different transaction types from both card companies. While both Visa and Mastercard plan to put off implementing these rate increases until 2022 because of the pandemic, it still creates an imminent financial challenge for merchants, especially when consumers still rely heavily on credit cards to make purchases. 

The Result: Complex Dilemmas For Merchants 

The pandemic pushed an increase in contactless card transactions for a variety of businesses, particularly in grocery, Amazon, and home improvement, according to the latest data from PSCU:.


While contactless debit and credit transactions peaked in 2020, this form of payment is still expected to remain popular among consumers even after the pandemic. This creates certain challenges for merchants. 

Unclear Costs 

It has never been easy for merchants to determine how much credit card processing fees are. In general, Visa fees range from 1.29%-2.54%, and Mastercard ranges from 1.29%-2.64%. However, how much merchants will actually pay is difficult to determine. That’s because it depends on three different parties:


  1. The financial institution that issues the credit card

  2. The credit card network 

  3. The payment processor 


Lastly, there are assessment fees, which merchants pay to the card networks. Luckily, these rates are a bit more straightforward than interchange rates, and are generally much lower.


Understanding what kind of transaction fees merchants would pay was a challenge before card-not-present payments more than doubled in 2020. An increase in card-based transactions, as well as moves by Visa and Mastercard to raise fees for certain transaction types, makes it doubly challenging for merchants to understand and plan for the costs. 

Increased Fraud 

Another rapidly increasing cost of card payment processing for merchants is driven by skyrocketing fraud. Credit card fraud has been growing for years, particularly because of online shopping.


Since the pandemic, credit card fraud attempts have soared even higher. As consumers make more online transactions for purchases they would normally make in person (grocery delivery being a prime example), fraudsters have become even more confident in finding opportunities to steal card information. According to Fidelity National Information Services, the dollar volume of fraud attempts grew by 35% in April 2020 alone. 


While banks are charged with reimbursing consumers when their card information is stolen, it is often the merchants who lose out by taking responsibility for the costs of fraudulent transactions. 


Higher Prices 

Ultimately, with the continued popularity of credit and debit transactions, increased fraud, and imminent transaction fee increases, merchants have to decide whether to bear the brunt of these costs or pass some onto consumers. The choice to raise consumer prices can have a big impact on business economics, as can the decision to absorb the costs. How much of a price increase is necessary is also difficult to determine based on the current fee structure of card networks. 


The Solution: A True Alternative Payment Method

Today there are numerous alternative payment methods merchants can accept. However, if there’s one thing the past 10 years of payments has illustrated, it’s that consumers are particularly attached to card transactions, even when utilizing contactless payments. With that in mind, the best solution is an alternative payment method that integrates directly with consumer bank accounts (like cards) but also mitigates the costs of normal card payment processing. 


Trustly is an alternative payment solution that utilizes online banking payments to meet these needs for consumers and merchants. 


  • Ease-of-use for consumers — Trustly works by integrating directly with bank accounts. Customers only need to log in using their existing bank credentials, no need to create an account or download an app.

  • Low, consistent transaction fees — Trustly’s transaction fees are lower than credit cards. They are also consistent so merchants know exactly how much they’ll pay. 

  • Built-in fraud protection — Trustly’s system encrypts consumer personal information, making it useless for fraudsters and protecting consumers and merchants. 

  • Guaranteed payments — Once Trustly approves a payment, it’s fully guaranteed, with no chargebacks. 


Merchants today need an alternative to traditional credit card transactions that doesn’t involve reinventing the wheel. Trustly’s online banking payments is the perfect solution to avoid the challenges presented by rising card payment processing costs. 

Please feel free to contact us at for more information on any of our solutions. We are here to help.

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