Online crafts marketplace Etsy Inc. said it is increasing the transaction fees it charges, cheering Wall Street investors but angering some of the merchants that sell on the site.

Starting July 16, the transaction fee charged by Etsy when a seller makes a sale will rise to 5% from 3.5%, the company said Thursday. It also will begin charging sellers a 5% fee on shipping costs. For example, a seller has an item that is $30 with a $3 shipping cost for buyers. Under Etsy’s new fee structure, sellers would pay $1.65 on the transaction--$1.50...