You might love paying with plastic, but many business owners wish you’d use cash, a debit card, or even a check instead. If you’ve ever faced resistance when using a credit or debit card, you might wonder why some stores and restaurants don’t take plastic.
Some of the most likely reasons are cost, certainty, and complexity.
Businesses pay fees when they accept card payments—typically as a percentage of each transaction.
For credit card transactions, fees are often around 2 percent to 3 percent of your total purchase, but some cards are more expensive than others.
That might not seem like much, but some businesses only make a small profit on goods and services. Any processing fees eat into tight margins. Business owners face a tough choice between smaller profits or passing the cost on to customers, and many businesses would prefer to avoid both of those options.
Debit card payments are generally less expensive than credit cards to process, but some business owners might not realize that—or they can’t tell the difference between cards. Some businesses throw the baby out with the bathwater and require everybody to pay by cash or check to keep things simple.
Minimums and Surcharges
Some stores try to limit the damage from swipe fees by imposing minimums on credit card purchases or charging customers extra for using credit cards. Merchants aren’t supposed to set minimums or charge fees for debit card purchases, but again, sometimes merchants set blanket rules for all cards (and debit card users suffer more than they should).
Credit Card Rewards
Why are credit cards so expensive? Credit cards offer several benefits that you don’t get with debit cards, including protection for both consumers and merchants. And cards that offer rewards like cash back or travel miles are especially costly for merchants. Those benefits only go to a subset of card users, but store owners pay for those benefits in the form of higher overall fees. When viewed another way, all of the other customers subsidize reward card users by paying higher prices.
You might argue that taxes are also a cost for business owners, and some businesses prefer cash. Without an electronic record of every transaction, it’s easier for a business to underreport total revenue and taxable income (which is not legal). As a result, it’s hard for the IRS to prove that you’re underreporting. This is probably the exception and not the rule, but it happens.
Certainty of Payment
Cash is king. When you pay with cash, businesses know that you completed your payment, and there’s not much risk of that payment evaporating (as long as they deposit the cash). The money could be counterfeit, but that’s relatively unlikely.
Cash is available immediately for business owners to use or deposit.
When you pay with plastic, it can take several days for the money to become available in a business’ merchant account. What’s more, the charges might get reversed in a few months: If the card was used fraudulently or a customer is unhappy with a product or service, card issuers are quick to issue a chargeback.
In some ways, checks are safer for merchants because it’s harder for customers to take their money back. Of course, anybody can write bad checks or stop payment on a check, but once the customer’s bank pays on the check (which might take several weeks), it’s hard to unilaterally pull the money back. Instead of clicking buttons or working through card issuers, they need to go through a more “impartial” dispute resolution process.
Businesses can sometimes get a heads up on bogus accounts or people who frequently bounce checks with a check verification service.
Given the issues above, some businesses decide to avoid cards altogether. They might actually benefit from accepting cards, but they aren’t motivated to overcome the challenges and find the perfect payment solution.
In many cases, these businesses don’t need to accept cards—they’ve got enough business already. That’s a luxury enjoyed by businesses that offer a unique product that customers love. For example, imagine a taco stand with a line out the front door: Customers are already spending enough, so there’s no need to fix what isn’t broken.
All that said, it’s getting easier and less expensive for businesses to accept card payments every day.
Why Stores Don’t Accept AmEx and Discover
Some stores accept plastic, but they’re selective. Most merchants accept Visa and MasterCard, but occasionally they decide not to take American Express and Discover. However, that is changing, and roughly 99% of stores now accept both American Express and Discover cards.
Consumers love their AmEx and Discover cards. But fees for accepting those cards can be higher than plain-old Visa and MasterCard. What’s more, it might be easier for customers to dispute and reverse charges with those issuers. Most people with an AmEx card usually also have a Visa or MasterCard, so they could pay with another card if they wanted. Still, some cardholders are so loyal they claim they’ll avoid doing business with merchants that don’t accept their favorite cards.