In general, when you pay with a credit card, the business pays higher fees than it does if you pay any other way.
Taking your cash typically costs the business the least, and payments by debit card or Venmo linked to your bank account are somewhere in between. (This trend isn’t always true, which I’ll explain in a minute.)
You might never notice — unless the business charges you extra to use plastic. But a business can feel the higher fees from credit cards, especially if it doesn’t make a large profit to begin with.
“You get your points, you get rewards but especially small businesses are getting crushed with credit card fees,” Hallenbeck said.
I don’t want to shame you into caring about a small business’s financial health. You’re a customer, not their accountant.
But fairly or unfairly, your choices can matter to businesses you care about. It can be eye-opening to dig into the impact of how you pay.
The (mostly) hidden costs of your purchase
When you pay online or in store, the business might owe a collection of fees to multiple companies — including Visa or Mastercard, the bank that issued your card and other financial companies you’ve never heard of.
Brian Riley, co-head of payments at Javelin Strategy & Research, gave an example of a candle store with $600,000 in annual sales.
If you pay for a $100 purchase with a credit card, the store could owe roughly $2 to $3 in fees to companies that handle your payment.
If you pay with Apple Pay or Google Pay that’s linked to your credit card, the store’s fees are the same.
If you pay with a debit card, your $100 purchase might cost the candle shop about 50 to 60 cents in payment fees, Riley said. (Unlike merchants’ credit card fees, debit fees are regulated by the government, although not all businesses were helped by that regulation, one study found.)
Partly, banks use the higher merchant fees on credit cards to dole out rewards points to you.
Combined, credit, debit and cash are by far the dominant payment methods in the United States.
That candle store example doesn’t neatly fit the complexity of bank rules, technologies and laws involved in paying for stuff.
Online stores tend to pay higher fees for your card payments than physical stores. Gas stations pay a different rate than fast-food restaurants or supermarkets. A big business probably pays far lower fees than a small one.
If you use a high-end rewards card, it tends to cost a merchant more than a basic card. But if the business uses Square or it’s an Etsy shop, the fees probably are the same if you pay with a credit or debit card.
Payment fees can add up for smaller businesses
Pete Mulvihill, co-owner of Green Apple Books in San Francisco, said that after expenses to buy books, employee salaries and rent, the fees for card payments tend to be Green Apple’s next biggest operational cost.
So he obsesses over those expenses. Mulvihill regularly renegotiates Green Apple’s payment contracts to try to hold down fees. Green Apple used to have signs at the registers saying the store preferred debit cards over credit.
And more than a decade ago, Mulvihill told me that if people want to support smaller bookstores, it helps to pay cash. That comment stuck with me ever since.
Financial industry executives say that it costs a business to accept cash too, including taking a higher risk of robberies. Customers tend to spend more when they pay with a credit card, which helps the business.
It’s your choice whether the convenience, protections and rewards benefits of a credit card make it the right payment method for you.
You could decide that at a giant business like Home Depot, Amazon or Sam’s Club, it doesn’t matter how you pay. They have power to negotiate the lowest possible payment fees.
(Amazon founder Jeff Bezos owns The Washington Post. Interim CEO Patty Stonesifer sits on Amazon’s board.)
But when it makes sense, you could choose cash or a debit card at a neighborhood hair salon or another small business. Money-transfer apps like Venmo or Zelle linked to your bank account also tend to have lower fees for a merchant than credit cards.
Know that credit cards can offer the best protections if something goes wrong. (Read more about this from Michelle Singletary.) And only use apps like Zelle and Venmo with merchants you trust.
Mulvihill said he prefers cash but credit and debit cards account for roughly 90 percent of the purchases by dollar value at Green Apple.
He doesn’t love it, but Mulvihill said he doesn’t want to turn away customers by being picky about payment methods.
It’s a “powerless feeling where we so badly want your business that you can pay us any way you want, but that’s the reality,” he said. “In some ways, it’s asking too much of our customers to ask them to care how they pay us.”