How do credit cards work? Learn about their main features and benefits.
How do credit cards work and how can you use them wisely? Explaining their features and benefits.
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Small Business Saturday is just around the corner, and some businesses are telling shoppers that cash is the best gift.
The Texas Restaurant Association (TRA), which represents the state’s largest private employers, said paying in cash allows businesses to offset credit card processing fees that eat into razor-thin margins. Credit card fees now average 2.35% of sales, totaling at least $187 billion nationwide, and a $100 ticket can eat up more than half of a restaurant’s profits.
Rather than pass costs on to customers through credit card surcharges, as many businesses across the country do, TRA said it wants to keep costs down for members and their customers. So this year, ditch the plastic and pay with cash.
“Additional fees are an option, but most restaurants are trying to avoid adding new fees at a time when families are already feeling significant financial pressure,” TRA said in an email to USA TODAY.
Why is this so important now?
Companies have been absorbing credit card fees for decades, but have struggled due to years of rising inflation, labor shortages and rising tariffs and cannot continue to absorb rising credit card fees, the TRA said. For many companies, this holiday season may be a last stand before a traditionally weak first quarter and an uncertain 2026, the magazine said.
“This is not just a Texas issue,” he said. “When more customers pay with cash or debit cards, everyone saves money and small businesses can stabilize prices and stay competitive during the tough holiday season.”
Last year, Americans paid between $187.2 billion and $236.4 billion in credit card processing fees, or about $1,200 per year per family, according to the nonprofit Merchants Payments Coalition. Credit card processing fees are charged on both the price of the product or service and any taxes or gratuities added to your bill.
Last year, Illinois became the first state to pass a major processing fee bill that excluded taxes and tips from credit card processing fees, but legal issues have stalled implementation. Critics say Illinois lawmakers have overstepped their authority and that the law will create “credit card chaos.”
Is cash the answer?
Payment companies claim the opposite is true, credit cards save money and cash is expensive.
“Without electronic payments, hidden cash costs will drive up spending for small businesses,” said Richard Hunt, executive chairman of the Electronic Payments Coalition, a lobbying group representing banks, credit unions and payment card networks.
When Americans shop with credit cards, they save time and earn valuable perks like cash back, while helping local stores operate more efficiently and keep prices down, Hunt said.
Data from research and advisory firm IHL Group shows that businesses are spending more on processing cash transactions. Handling cash can cost retailers 4.7% to 15.3% of the transaction amount, compared to $1.43 to $4.40 per $100 transaction, depending on the credit/debit or payment processor.
An EPC spokesperson said: “The fact is that credit cards are the safest and most efficient payment method for consumers and a guaranteed way for businesses to collect payment.”
What is the real answer?
Merchants say the long-term solution is competition among payment processors.
Visa and Mastercard, which process more than 80% of credit card transactions, “set the rules and prices for nearly all credit card transactions, and those costs are ultimately built into the price of everything consumers buy, even if they never use a credit card,” the TRA said. “If true competition is impossible, we need stronger regulatory safeguards, similar to those that oversee utility markets to ensure fair pricing in the absence of competition. We need real market forces or meaningful consumer protections, because businesses and families are forced to pay the price right now.”
But credit card processors say nothing stays the same in the payments industry.
Mastercard previously noted that payment options continue to grow, including “buy now, pay later,” person-to-person and account-to-account services, real-time payment platforms (including those from the Federal Reserve), digital currencies, wallet providers, and open banking companies.
Visa and Mastercard also recently presented merchants with a $200 billion offer to lower the credit card interchange fees charged to merchants for processing credit cards and end a 20-year lawsuit. Fees will drop by an average of 0.1 percentage points over five years, and standard credit card fees will drop to 1.25% over eight years. Merchants have additional fee flexibility, and merchants who accept one of the network’s credit cards no longer have to accept all credit cards. The court still needs to approve the settlement.
However, merchants are balking at this proposal. “Even the marginal reductions proposed in the bank fee settlement could allow Visa and Mastercard to raise their own fees without limit,” said Jennifer Hatcher, chief public policy officer at the Food Industry Association.
Businesses need to reduce “structural costs that have increased to such an extent that they threaten the survival of small and medium-sized enterprises,” the TRA said. “Research shows that some consumers are spending more with credit cards, but the benefits are increasingly outweighed by the unpredictable rise in fees that come with each transaction.”
Medora Lee is USA TODAY’s money, markets and personal finance reporter. Please contact us at mjlee@usatoday.com. Subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.
