Local Businesses and Credit Card Fees: A Complicated Relationship

Is it really okay to grab a new shirt from a friendly little shop down the street? Well, you might want to brace yourself for an extra 2.5% financing fee just because you’re using a credit card. Eating out at a local diner? You might face similar charges—even if you’re paying in cash. Stop by a nearby convenience store for chips and soda, and guess what? You can only use a credit card if your total is at least $10.

This whole situation has always irked me. And honestly, I can’t be the only one feeling this way. Who even carries cash these days? It’s frustrating to think that customers are penalized for opting for a more modern, convenient payment method instead of something that’s starting to feel a bit outdated.

Merchants have been wrestling with credit card companies about these fees for ages, and recently, it seems they’ve finally come to a resolution. Last week, Visa and Mastercard concluded their long-standing disputes. This could mean lower fees down the road for consumers using certain cards, especially those with fewer perks. But did these businesses really come out on top? I guess time will tell—maybe we should tread carefully regarding what we wish for.

The irony is that this so-called victory might complicate things even more for both businesses and consumers. It looks like the fees will be tiered based on the type of card, leading some business owners to potentially reject certain cards altogether due to high fees. With research indicating that the average consumer has about four credit cards, the confusion could ramp up. Now, customers might be left wondering: Can I use this card for my snack? Do shops need to post a list of accepted cards now? Will I get turned away if I have the wrong one?

By creating unnecessary hurdles for customers, businesses could put their sales at risk. If dealing with you becomes more of a hassle than it’s worth, some may even think about closing shop in the future. Adding up the costs from the various card types, fees, and payment system providers is just one more headache.

It’s strange, really, because small business owners often complain about the high fees imposed by credit card companies, yet they heavily rely on these very services. According to the National Economic Research Bureau, the usage of credit cards by small businesses soared from an average of $10,000 per month in 2020 to about $24,000 by April 2022. A good number—around 55%—of small businesses reported using a business credit card in the past year.

This settlement might bring unexpected consequences for those same businesses. Credit card companies utilize those merchant fees to create partnerships with numerous shops, enabling customers to enjoy various rewards and benefits. Some cards even offer a return of 1% to 5% at various stores and services, such as gas stations and restaurants. Partnerships with brands like Google Workspace and Lyft also provide ongoing discounts for small businesses.

It’s honestly surprising they don’t see how this affects them negatively. Retracting those perks could hit small businesses hard. Limiting rewards translates into limiting income. Studies show that consumers tend to spend more money when using credit cards, and these rewards also help smaller shops gain exposure to new customers.

Let’s be real—do we really believe that Mastercard and Visa can’t cover these new costs somewhere else? Of course they can. They might just bump up annual fees for businesses that rely on these perks. They could also end up increasing interest rates for various transactions and introducing more fees for issues like fraud investigations. And guess who ends up paying for all this? That’s right—businesses.

For those running retail stores or cafes, wouldn’t it just make more sense to factor in merchant fees as a small percentage of overall revenue and spread it across all products? Would customers even care if their burger costs $12.50 or $12.75? Probably not. But they definitely wouldn’t appreciate being hit with an additional fee just because they’re not paying cash. That’s a sure way to frustrate them.

In the end, small businesses might need to rethink their take on these credit card transactions. They’re not winning here; they could be facing rising costs rather than enjoying some savings.