What small business owners want you to know about card fees

You might love your credit card — but your favorite local business probably doesn’t.

I’m all for paying with your credit card everywhere you can, unless there’s a fee. It’s safer, it earns you rewards, and it’s easier to get your money back if something goes wrong. However, while these privileges might be free for the cardholder, it doesn’t mean no one is paying for them.

One of the ways credit card companies make money is through merchant fees. As the name implies, the merchant pays these fees on each card transaction. And if you’re like me, you might feel bad handing over your credit card at your favorite local business. It doesn’t feel very supportive. 

I spoke recently with two small business owners, Josh Quinn from Columbus, Ohio, and Rosalie Gale from Seattle, and asked how they felt about credit card payments. It’s true: credit card fees cost them money on each transaction. But not taking credit cards could cost them more business in the long run.

So what’s the right thing to do for you as a customer? Let’s take a look at how merchant fees work and impact small businesses, as well as how you can support your favorite mom-and-pop shops — whatever payment method you choose.

How merchant fees work

Merchant fees are fees that businesses are required to pay to accept cards as payment. They vary depending on the type of card used and can include several layers of charges.

For example, interchange fees are paid directly to the card issuer. They cover the costs of accepting, processing and authorizing card transactions.

Another layer is payment processor fees charged by the payment processor company that handles the transaction processing for the business.

Other fees are charged periodically rather than per transaction. For instance, assessment fees are paid to the credit card network (Visa, Mastercard, American Express or Discover) on a monthly basis.

Adding it all up, merchants pay between 1.5 percent to 3.5 percent on average from their sales revenue for accepting card payments. 

How merchant fees can affect small businesses

Two or 3 percent might not sound like much. However, imagine losing 2 percent of your salary due to how you choose to receive it. For example, if you earn $70,000 per year, you’d pay $1,400 annually in such fees. 

I’d be switching my payment method so quickly.

It’s not as easy for merchants, however. 

Quinn has been one of the co-owners of two retail concepts, Tigertree and Cub Shrub in Columbus, Ohio, for the past 17 years. Tigertree sells men’s and women’s apparel and gifts. Cub Shrub, in Quinn’s words, is “sort of the same thing, but for kids.”

First, you might have to pay an expensive premium. Further, It can also be cumbersome to use a third-party processor — meaning, it can slow things down when the customer is checking out.

“If you try and negotiate your rates and add something on top of a system that’s not built for it, you’re adding friction in other ways,” Quinn explains. “So you can feel good about yourself and say, ‘I’m saving half a percent of my credit card rates.’ But if your return rate is worse, and you’re costing yourself $100,000 a year in revenue because your customers didn’t feel as good about the transaction or process, then… you’re actually hurting yourself.”

Further, rejecting credit card payments altogether may turn customers away. Cash is the most commonly used form of payment in-store, according to a YouGov survey from February 2024, with 67 percent of U.S. adults using it. Still, debit cards (42 percent using chip and 35 percent swipe) and credit cards (35 percent using chip and 26 percent swipe) remain popular.

“At best, all of those signs about not accepting certain credit cards or preferring you don’t use them at all make customers feel bad about their buying patterns,” Quinn says. “At worst, they might prevent a sale.”

Cash transactions, however, come with their own challenges. 

Rosalie and Douglas Gale own two retail stores in Seattle called Ugly Baby and Monster. The stores sell the work of independent artists, including the owners’ creations. The Gales’ specialty is “shower art” — waterproof art you can hang in your shower with a suction cup.

“[When] people pay cash, we as the merchant get more of the sale, so that’s an advantage,” Rosalie explains. “But we also then have to stock change and go to the bank, and all of that kind of stuff that’s involved with taking cash.”

Credit cards, on the other hand, offer convenience. This is also true for digital payment methods, such as Apple Pay. 

“It’s a much faster transaction,” she says.

However, at the end of the day, the Gales “will take any payment method.”

“Sometimes, people ask, ‘Oh, do you prefer cash?’” Rosalie says. “If they have cash, I always prefer cash… but we’re happy with anything.”

How to support your favorite local business

If you’re trying to help out a local business, remember: it’s up to them to set up their payment method rules. They can choose to only accept cash or, in some states, charge you a fee if you use a credit card. Either way, business owners like Quinn and the Gales say they’ll be happy to have you as a customer however you choose to pay (as long as it’s an accepted payment method).

Remember that credit card payments provide you more security as a consumer. Your card issuer offers fraud protection, meaning you’re not liable for any fraudulent charges resulting from your credit card information ending up in the wrong hands. Plus, you’re more likely to get your money back if something goes wrong with your purchase. For instance, some cards offer purchase protection which can help repair or replace items you buy for months after the purchase. Return protection is another handy benefit a few cards offer. It allows you to get a refund even if the merchant doesn’t accept returns. 

And then there is cash back and travel rewards to consider – a huge part of what makes credit cards so appealing for so many people. 

With that, here are a few ways you can support a small business:

• Spend money at your local business. As Rosalie Gale mentioned, while she prefers cash, she’s happy with anything. However you choose to pay, this money will support your favorite merchant.
• Follow them on social media. In this day and age, a solid social media presence can do wonders for a business. Like your favorite store’s or cafe’s Instagram posts, repost their TikTok videos or leave comments. Help your favorite business conquer the algorithm. 
• Leave positive reviews. Only 3 percent of U.S. consumers say they never read online reviews, according to a marketing software company BrightLocal. Most people (42 percent), on the other hand, read them regularly. This means your positive review can help your favorite business gain trust — and it will probably only take a few minutes of your time.
• Recommend to friends and family. Word of mouth holds immense power, so tell your favorite people about your favorite places. I’ve found some of my favorite spots that way. I also like taking my friends to the shops and restaurants I love in my city. It’s a good time and my little investment in the local economy.

The bottom line

Your favorite local business makes more on a transaction if you pay in cash. Still, they’ll most likely be happy to have you as a customer whatever payment method you choose. There are multiple ways to support a small business. Many of them don’t even require spending money. Find what works for you, regardless of whether it involves using a credit card.