We all love our credit card rewards for earning cashback and free travel, but not everyone is a fan. Many business owners actually pay the fees that help you earn those rewards, and sometimes they pass the added cost onto customers.


Recently, an acquaintance who owns a small business told me she dreads seeing customers pay with a rewards card because it means the credit card companies take a bigger cut of her sale. In recent years, that cut has grown, mostly because rewards cards have become so popular.


Forbes has addressed this a couple of times. In one article, they write:

The fees merchants pay for accepting credit card payment fuel rewards programs. These charges, referred to as interchange fees, are higher in the United States than in most countries around the world...Card issuers began to aggressively fund credit card reward programs in an effort to drive more of their customers towards this payment method, chiefly because their profits from debit card transactions sharply decreased a few years ago.

In a more recent article, Forbes explained that credit card issuers take their cut from these fees, then pump the rest into their rewards programs. This fee is usually about 2%, and in an effort to make up for it, some merchants will increase their prices via a surcharge, making the whole “rewards” aspect of using a credit card kind of pointless.

To put it another way, “business owners subsidize credit card reward programs in the United States.” Sometimes, they pass on this cost to the customer.


For example, some rewards cards give you up to 2% cashback on your purchases, which is great, but if you have a 2.5% surcharge, you’re actually paying more than you would if you paid cash. Forbes reports:

Currently, 10 states ban credit card surcharges – California, Colorado, Connecticut, Florida, Kansas, Maine, Massachusetts, New York, Oklahoma and Texas. The laws are in constant flux, however, and can be changed in the future. In states like New York and Florida lobbyists are fighting to overturn such bans.


Of course, it’s not just small businesses that are affected. Retail giants like Walmart have been fighting the credit card companies over these fees, too, and in recent years, many companies have been lobbying to curb these fees, Forbes explains.

They argue the charges are unfair and present a burden to small business owners operating with thin margins.Visa V +0.51% Inc. and Mastercard Inc. are also battling retailers in the courts over allegations of price-fixing schemes. They are facing off against giants like Wal-Mart Stores WMT -0.25% Inc., and Amazon. Last month, Visa and Mastercard offered a $5.7 billion settlement to end the proceedings. The federal appeals court rejected their proposal.


This isn’t as big of an issue in other countries where there are limits to these fees. For now, they expect rewards to continue growing and getting better for customers, so their stance seems to be to take advantage of them while you can. Either way, it’s worth knowing exactly how your rewards are funded and what you can expect for their future.

Are Your Credit Card Points Going Away? | Forbes

By U.S. Navy photo by Mass Communication Specialist 2nd Class LaTunya Howard [Public domain], via Wikimedia Commons