Credit Card Interchange: The Cost of Accepting Cash
CBA Publishes Guest Blog from Consumer Bankers Association High School Senior Experience Intern Nathaniel Teres
This guest blog comes from Nathaniel Teres, a senior at Yorktown High School in Arlington, VA. Teres recently completed a two-week internship with the Consumer Bankers Association (CBA) as part of Yorktown’s Senior Experience program — a capstone initiative designed to help students explore real-world career interests before graduation. During his time with CBA, Nathaniel dove into the economics of payment systems, specifically examining the role of interchange fees in small business operations.
Reflecting on his experience, Nathaniel stated that, "During my Senior Experience Internship at CBA, I learned about the banking industry, gained a sense of what a professional job environment is like, and learned so much about what CBA is and what it means to each person working there [...] CBA has given me invaluable advice and tips that will help me succeed in college and beyond."
Nathaniel will present this blog as part of his Final Seminar at Yorktown High School.
Credit Card Interchange: The Cost of Accepting Cash
Have you ever wondered why your local gas station charges you less if you pay in cash? While it may seem like a simple discount, this price difference reveals a hidden cost to businesses: the fee for accepting credit cards. For small businesses, interchange fees, which are transaction fees charged between banks for processing credit and debit card payments, typically range from 1.10 percent to 3.15 percent of each transaction. In 2023, U.S. merchants paid approximately $224 billion in credit and debit card swipe fees.¹ These costs can quickly add up, especially in low-margin industries like food service and fuel. Accepting cash might seem more economical, but the full picture is more complicated, and credit cards may actually offer more benefits in the long run.
Cash is often perceived as the cheaper option, but handling it comes with its own costs. Businesses must store and secure cash, pay for armored transport, and account for risks like theft and counterfeit bills. According to a report by IHL Group,¹ cash handling can cost retailers between 4.7 percent and 15.3 percent of the transaction value,¹ considering expenses like labor for counting cash, bank deposits, and theft risks. These expenses can accumulate, making cash handling more costly than it may appear. Gas stations, for instance, have highlighted this cost difference by listing lower prices for cash purchases, essentially passing the credit card interchange fee onto consumers.
Still, it’s important to understand why so many small businesses accept and even prefer credit cards despite these costs. Credit cards aren’t just a payment method—they are also a financial tool. In a 2024 PYMNTS survey, 25 percent of small and midsize businesses (SMBs) reported that credit cards with rewards were their preferred method for handling unplanned costs—more than any other funding source.² This suggests that credit cards offer flexibility that other options, like bank loans or lines of credit, may not provide as quickly or conveniently.
Figure 1: Small business uses credit card rewards for unplanned costs. Source: PYMNTS. (2024). SMB Unplanned Costs Survey
Credit card reward programs also create a surprising advantage. A 2023 Chase report found that during the holiday season, 42 percent of small businesses used their credit card rewards to give bonuses or gifts to employees, while others used them to keep spending down (31 percent) and retain new clients (29 percent).³ These rewards create value that effectively offsets a portion of the interchange fee, making credit cards not just a cost, but an investment in business growth and morale.
Figure 2: Small business uses of credit card rewards during the 2023 holiday season. Source: Chase. (2023). SMB Holiday Rewards Survey
Consumer behavior also influences the cost-effectiveness of payment methods. Many customers prefer the convenience and security of credit cards, which offer fraud protection and rewards programs. For example, all credit card issuers provide fraud protection with a zero liability guarantee, ensuring that cardholders are not responsible for unauthorized charges reported promptly. Accepting credit cards can also increase sales; businesses that accept credit cards report a 20 percent increase in revenue, as customers tend to spend more when using cards.⁴
From the perspective of banks and card issuers, these benefits are no accident. Financial institutions actively promote credit card usage because it supports a network of consumer credit, loyalty programs, and data services. While this helps their bottom line, in return for interchange fees, small businesses get access to secure payments, fraud protection, financial flexibility, and in many cases, increased consumer spending.⁴
Ultimately, I believe small businesses should offer both cash and credit card options without incentivizing cash use by offering lower prices. This practice can confuse customers and is not necessarily justified, as businesses still incur hidden costs when handling and processing cash. Since some consumers may not have credit cards, while others may prefer not to use cash, allowing customers to choose their preferred payment method can boost both revenue and satisfaction. This flexibility enables small businesses to grow more effectively than if they required only one payment method. While cash usage may decline in the coming years and credit cards may become more ubiquitous, that shift hasn’t fully happened yet. For now, letting customers pay in the way that’s most comfortable for them is the best strategy for maximizing profitability.
Footnotes
- IHL Group. (2022). Cash Multipliers: How Reducing Cash Handling Can Boost Profitability.
- PYMNTS. (2024). Credit Card Usage Trends Among SMBs. Retrieved from https://www.pymnts.com
- Chase. (2023). SMB Holiday Rewards Survey.
- Dun & Bradstreet. (2021). Consumer Payment Preferences: Card vs. Cash Spending Habits.
