Should you charge a credit card fee?

I was recently out shopping with my wife, and she mentioned that “a lot of stores are charging credit card fees now.” At first, it sounded like a casual comment, but the more I thought about my own experiences over the past few months, the more I realized she might be right. I had noticed extra fees popping up at checkout more often, especially at smaller shops and restaurants.

It turns out she was absolutely right. About 34% of small businesses are now charging credit card fees, according to recent data. That number has jumped sharply from an estimated 5% in 2021, showing how quickly this practice has spread. This trend isn’t limited to small businesses. Even large retailers are reportedly exploring changes to which credit cards they accept and whether certain cards might come with added fees.

Why?

Some businesses point to ongoing inflation and recent political and economic pressures as reasons they need to cut costs wherever possible. Another explanation is pricing psychology. By adding a separate credit card fee, businesses can keep their listed prices lower and avoid “sticker shock” when customers first see the price. In the past, credit card processing fees were usually built into the overall price of goods and services, meaning everyone paid for them whether they used a card or not.

Some consumer advocates argue that separating out the fee makes pricing more transparent. Cash-paying customers may benefit, but credit card users often feel caught off guard when the fee appears at checkout.

Who cares?

This matters because credit and debit cards dominate how people pay. About 81% of consumers prefer using a card, and studies show people tend to spend more when they do—sometimes as much as 300% more.

Since card users make up most shoppers, credit card fees affect a large share of customers. And many of those customers don’t like them. Eighty-seven percent of Americans say they feel “nickel-and-dimed” by transaction fees, and 57% believe these fees should be illegal.

Negative feelings go even further. Seventy percent of retail shoppers and 72% of restaurant customers say fees hurt their view of a business, and that number rises to 86% among people who hadn’t experienced fees before.

One alternative is cash discounts. Instead of charging extra for card use, businesses set prices assuming a card payment and then offer a discount when customers pay with cash. Research shows this approach increases the chance someone will pay with cash by 19%.

For many small businesses, cash discounts may strike the right balance. They help cover real card-processing costs while avoiding the negative reactions that often come with surprise fees at checkout. And as always, no matter how customers pay, businesses must still collect and report all required sales taxes.

AI usage note: Brett Wolff wrote this article, then used ChatGPT to adjust to an appropriate reading level. All references are linked for convenience.