As much as consumers love their reward credit cards, many merchants hate them. And maybe we should, too.
Why? Because whenever you swipe a credit card, merchants get dinged for a 1-3% interchange fee. And guess what? Those interchange fees go, in part, toward your credit cards rewards.
In other words, credit card rewards contribute to the costs associated with card processing. And because merchants can’t typically add a credit card surcharge, many charge higher prices than would otherwise be necessary.
Yes, merchants can mitigate these expenses by refusing credit cards entirely, or by choosing which cards they’ll accept. Indeed, the fact that American Express isn’t as widely accepted as other card types is primarily due to their higher costs.
And yes, merchants can still offer a cash discount — and some do — but the lion’s share simply pass the costs along to consumers in general.
Interestingly, according to Trish Wexler of the Electronic Payments Coalition, who was quoted in a recent CardRatings.com article, one of the most common places to see a cash discount is at a gas station. The reason for this is that paying in cash requires you to go inside, where you’re more likely to make impulse purchases.
As for me, I have mixed feelings on the subject. We never carry a balance, and we certainly do like earning “free” rewards. But at the same time, these rewards are embedded in the cost of the items that we buy.
Since credit cards (and the associated charges) aren’t going away anytime soon, however, it seems like your best bet is to find the most generous card that you can and use it to recover at least a piece of what’s being lost to those pesky interchange fees.