The Impact of Merchant Fees on Small Businesses and Customer Payment Methods

If you, like many others, love the convenience and benefits of your credit card, it’s worth noting that the small business you frequent might not share your enthusiasm. Yes, paying with a credit card comes with a slew of benefits like security, rewards, and easier refunds. However, someone has to shoulder the cost of these benefits, and it’s usually your favorite local business.

Understanding Merchant Fees

One main way credit card companies profit is through merchant fees, which are incurred by businesses for every card transaction. As a customer, you might hesitate to use your card at local businesses, knowing that it burdens them with these extra costs. We spoke with small business owners Josh Quinn and Rosalie Gale to understand their perspective on credit card payments. Their chief concern is that while credit card fees chip away at their profits, refusing to accept credit cards might lead to a larger hit on their business.

How Merchant Fees Work

Merchant fees are mandatory charges for businesses that accept card payments. These fees can vary based on the card type and often include different layers of charges. For instance, interchange fees are directly paid to the card issuer and cover card transaction acceptance, processing, and authorization. Payment processor fees are charged by the company handling transaction processing for the business. Other fees, like assessment fees, are paid monthly to the credit card network. Ultimately, businesses end up paying an average of 1.5 to 3.5 percent from their sales revenue for accepting card payments.

The Impact of Merchant Fees on Small Businesses

Although 2 to 3 percent might not seem like a large amount, it can equate to a significant portion of a small business’s revenue. For instance, if a business makes $70,000 a year, they would lose $1,400 annually to these fees. While merchants can attempt to negotiate these fees, it’s often challenging, especially with popular point-of-sale systems.

Considering Other Payment Methods

Merchants could choose to avoid credit card payments entirely, but this could alienate a considerable number of customers. In fact, cash, debit, and credit card payments remain popular, according to a YouGov survey. Merchants like Quinn and the Gales also note that while they prefer cash payments, the convenience of credit cards and digital methods like Apple Pay often outweigh the transaction fees.

Supporting Your Favorite Local Business

If you’re keen to support your local business, remember that businesses set their own payment method rules. You can choose to pay with cash to help them avoid fees, or continue using your credit card for the security and benefits it offers. Credit card payments offer fraud protection and additional perks like purchase protection and return protection. Plus, they can earn you cash back and travel rewards.

Other Ways to Support Small Businesses

Beyond your payment method, there are several other ways you can support a small business:

• Spend money at the business.
• Follow them and engage with their posts on social media.
• Leave positive reviews. A survey by BrightLocal found that 42 percent of U.S. customers regularly read online reviews.
• Recommend them to friends and family.

Regardless of how you choose to pay, your favorite local businesses will appreciate your support in these ways.

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