Why Cash Surcharges Are The Latest Scam, And Rewards Credit Cards The Answer

When you pay for something with a credit card, the business charges your card and you get the item or service. The business gets the purchase price minus the interchange or merchant swipe fee. That can run around 3% of purchase price, though it depends on the merchant (many big merchants pay less), on the amount of the sale (fees tend to be a higher percentage of small transactions), and the type of card that you use.

  • The business gets convenience. It’s a simple transaction, and money electronically deposited in the bank.

  • They can sell more stuff to consumers, who may not carry cash. They can sell larger amounts to those consumers, who aren’t constrained in how much they can buy by the amount of cash they’re carrying. In fact, consumers aren’t even constrained by how much is in their checking account, since the card offers borrowing, too.

Merchants gain a lot of sales, and bigger sales, by accepting credit cards. Consumers find paying by card convenient. Plus, rewards!

But merchants would like to pay less for this service. They still want the service because they want the sales. They’d just like the government to force Visa, Mastercard and others to provide it less expensively – like the government required for debit cards (which is why debit cards covered by price caps generally no longer offer rewards, but merchants want those caps lowered now too).

A dirty secret is that cash has its drawbacks, too, and it’s often cheaper for a merchant to accept credit cards than it is to take cash – although it depends on the kind of business.

  • Cashiers make incorrect change
  • Cashiers pocket some of the money
  • It costs money (staff time) to account for the cash and take it to the bank
  • Large cash businesses may have higher insurance rates, because of theft by employees but also because they’re a tempting target for robbery
  • You need a place to store the cash securely

Cash also spreads germs, and most bank notes have traces of drugs. Often merchants who prefer cash do so because of tax fraud. It’s a lot easier not to report cash transactions to the IRS than it is not to report transactions handled electronically by a bank.

But accepting cash is not free and the Wall Street Journal covers the increasing trend of businesses to charge a fee for accepting cash. Many businesses prefer to be ‘cashless’ because it’s less costly to them. But if they’re going to accept cash they’re going to charge. Many businesses also like to charge fees to take cash and to take credit cards because that’s a hidden tax on customers; a way to hide the real price of goods (i.e. legalized fraud).

Paying with cash used to be a way to get a discount. These days it can often cost an extra $1 to $6—the sort of transaction fees once limited to swiping a credit card or using an out-of-network ATM.

Reverse ATMs like those at Yankee Stadium are now common at cashless venues and restaurants across the country as a way to cater to those who prefer paying in cash. People who want to pay their parking tickets, tolls, taxes or phone bills in cash, meanwhile, often learn that government agencies and businesses have outsourced that option to companies that usually charge a fee.

All that can amount to a penalty on the people who prefer paying cash. Though it is more common to buy things with cards and mobile devices, cash remains the third-most popular way to pay, accounting for 16% of all payments in 2023, according to the Federal Reserve.

Reverse ATMs are like vending machines for prepaid debit cards, put in $20 and get a gift card back worth (say) $18.50. These machines, though, do not generally have MCC codes that qualify for credit card accelerated earn categories. Businesses going cashless, and requiring people to turn their cash into credit in order to pay, is a surcharge on cash.

The trend towards charging for cash acceptance puts the lie to the claim that credit card fees are somehow unfair to merchants and should be regulated (which, really, turns out to be a tax on consumers). Retailers shouldn’t be able to charge extra to accept payment for their services – whether a cash surcharge or a credit card one – just advertise a single price. That price should include “paying your employees” and also “paying for their health insurance,” too.

About Gary Leff

Gary Leff is one of the foremost experts in the field of miles, points, and frequent business travel - a topic he has covered since 2002. Co-founder of frequent flyer community InsideFlyer.com, emcee of the Freddie Awards, and named one of the "World's Top Travel Experts" by Conde' Nast Traveler (2010-Present) Gary has been a guest on most major news media, profiled in several top print publications, and published broadly on the topic of consumer loyalty. More About Gary »

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  1. So now merchants can charge 3% to use a credit card or charge some fee to use cash? How else should we pay without getting an additional “fee”.

  2. By far the trend is to charge a “non-cash” fee. Ive seen this as 3-6 percent of the bill which i think is insane. This is just a push to increase prices by adding fees on to the end of the bill (i.e. further “decoupling” of the services). We should not be paying the following fees; just charge the full price:
    1. Service fee
    2. SF mandates fee
    3. Health Insurance mandate fee
    4. Non-cash fee
    5. energy surcharge
    6. suggested tip on top of all this at a minimum suggestion of 25%.
    7. finally sales taxes
    8…oh and POS platform fee

    Really? This was an actual bill for a restaurant in SF…..no wonder they are all going out of business. A simple burger with fries at a sit down restaurant is now over 40 dollars without even a Coke. Oh, if you want table bread now….you will pay for it too.

  3. I contend why merchants don’t want cash and prefer cards is to prevent employee theft of cash(post voided transactions and then sweep the cash).
    This is very common in the UK and works well with an uneducated untrusted work force. How nice to be considered untrusted but perhaps reality of retail today.

  4. Cash costs (some?) businesses more to handle than debit cards. When you make the customer who wants to pay cash go to the machine that has a fee to get a debit card instead, the customer who wants to pay cash pays for all the costs (counting cash, storing cash, bringing cash to the bank) of paying in cash.

    While I love my rewards cards, since the least expensive way for a merchant to accept payment is credit cards, it’s perfectly reasonable for businesses to charge customers who want to pay with a more expensive method a fee to cover that expense.

    The government should stay out of it though – now that merchants can charge the fee, there is no reason for any legislation limiting the fees credit cards can charge. Businesses can charge a fee to cover the credit card processing costs, and consumers can elect to pay the fee or pay with a debit card.

  5. What I realized is that my family has just stopped going out to eat as much.
    So far, I have only encountered these fees at restaurants.
    I like the idea, higher or lower, of just having a price on the menu. Your menu prices allow me to decide if I want to patronize your establishment.
    Choosing your restaurant, and receiving a bill that is 33-40% more will assure that I never return, and post a negative review as well.
    I despise nickel and diming. What makes those expenses so much more special than every other expense that has always dictated prices.

  6. I agree with Carole. On your bill it states “this note is legal tender for all debts, public and private”. It seems that charging extra for cash, or going cashless, should be illegal.

    “Often merchants who prefer cash do so because of tax fraud”
    For better accuracy, remove the “often” qualification. That is the only reason. It’s all mom and pops who underreport revenue, and are handling the cash themselves so they don’t care about cashier theft.

  7. It’s everywhere now. Resorts charge 3-5% for using a CC. Seen it now in doctor’s, dentists, automobile repair shops.

  8. Fee to pay with credit card seems reasonable since businesses pay a fee to the bank and payer gets some kind of benefit in exchange. No fee for paying with debit card makes sense since cost to business is so minimal. The few cents businesses pay to banks for debit transactions is their cost for the convenience of not handling cash. Paying with cash? Sure, businesses charging a very small fee or not reporting all of it to the IRS is to recoup their cost of handling the cash. Seems to me that’s how it should all work, and there is no honest refutation of this conclusion. Debit (and the other forms of electronic cash) is the most sensical option where everyone benefits, except maybe the banks and point enthusiasts lol.

  9. The only place I’ve seen a cash-handling fee is my stinking bank, when I ask them for some of my own money!

    But my business is charged a round 2%-plus-tax by Square for credit card payments. For those of us operating on a thin margin, that might be half our profit. Thank heavens Australia permits merchants to add a credit-card fee, though it must be no more than the actual cost.

    As always, before you read anything check who’s writing it and does he have an affiliation with the credit card industry… mmm

  10. Credit cards have another benefit for merchants. People who pay by credit card often buy more because they don’t have to consider whether they have enough cash in their pocket to make all of their intended purchases until they can replenish their available cash. I have to say this, I will quit going to a restaurant that charges extra for a credit card transaction when fast food places take them at no extra charge.

  11. This is also entirely biased against those who are in-banked living in areas where banks will not have a footprint. While I have plenty of credit cards, I am taking it back by the number of businesses that are credit only and will not take cash. I don’t think it’s far-fetched to consider this part of systemic racism against people who are unable to gain refit and unable to become bankable.

  12. I just had dinner. There was a surcharge for using a debit or credit card, and a lower price if paid in cash.
    My dentist and oral surgeon have a 5% surcharge if you pay with a credit card.
    Also, I just put a deposit down on a package tour. If I pay the balance with a check, I’ll get a 5% discount.

    Sorry, but most business that I have encountered still prefer cash.

  13. By the way, some of the local gas stations list two prices, a lower one for cash and a higher one for credit card transactions.

  14. Gas stations do this gas is $4.00 a gallon but if pay cash it is $3.90 How many gas stations get held up at gun point? do the same thing at a hotel and see how many hotels will be held up at gun point 100 rooms $200 a night means there is how much in the register and safe? $20,000 in unmarked bills 🙂

    There was a retail store in Massachusetts where the manager left to make the deposit at the bank and was held up and shot .

  15. The agreements with Mastercard and Visa used to require merchants give the lowest price for credit purchases. This did not allow adding a surcharge to recover the credit card fees for the merchant. I would like to know when that changed. The adding of a surcharge for using a credit card is pure greed. Many low margin places (such as grocery stores) do not add a surcharge.

  16. @Gary – happy for every dollar you make form credit card referrals but your constant lobbying for the credit card industry and their silly business practices is out of place. Otherwise mark your comments as “paid content” and all good.

  17. I agree completely with Gary. There should be one price for everybody and it should include everything required except government mandated taxes. I absolutely do refuse to shop or shop the minumum necessary with establishments that add junk fees and surcharges.

  18. @tomri
    If the gas station wants cash, then they assume the risk.
    The alternate is credit card skimmers attached to gas pumps which empty out your checking account.
    Pick your poison!!

  19. It’s not “paid content” advertising or lobbying.

    It is more like ideologically-driven content or “this is a great way for me to get points/miles and I don’t want to see it go away for me and others in this game”.

  20. For those questioning the “legal tender” situation: most commercial transactions do not involve a debt. Your cash is “legal tender for all debts, public and private.” This means that if you have incurred a debt, the creditor is legally required to accept your cash as payment. There are limits of reasonableness: a penny is legal tender, but a court would not smile upon a debtor that repaid a $1000 debt in unrolled pennies. When you dine at a restaurant, you are incurring a debt and the restaurant is required to accept your cash: you order, you are served your meal, and THEN you are presented with a bill. If you order from take out, you pay FIRST and receive your food later; the vendor can demand payment in painted peanuts if they wish.

    As for businesses that surcharge credit cards, I have zero sympathy and usually take my business elsewhere. At a farmers market that has had to hire private security because too many vendors were robbed of cash while packing up at the end, there are vendors who nonetheless charge extra for credit card payment. They do this not because cash is somehow less costly, but because customers accept this argument that we should allow businesses to offload their banking costs (just as too many businesses feel that wages should be offloaded through “tips”).

  21. It’s long overdue for retailers’ advertised prices to be all-inclusive prices (excepting perhaps taxes set by government). But legislators don’t like to rock the boat too much when it comes to business interests in their home constituencies or which can finance their election campaigns — or, more critically, that of their opponents — if they aren’t “business-friendly” enough. So we will probably continue to have a bit of a Wild West or charging going on for quite some time.

  22. As a small business owner, I’d much prefer to receive payments by check or ACH. With credit card fees at 3%, I’m splitting the profits with the bank. I don’t like paying junk fees, so I won’t charge my customers for them either. I’m all for ‘the price you see is the price you pay,’ even including taxes. Most other countries can do it, so why not here in the US?

    A totally separate concern is for those that can’t get credit or debit cards. Businesses that won’t take cash are locking these people out. Or if they charge extra fees, they are overcharging the people that can least afford it.

    As a compromise, I’d be for a system that includes a government issued debit card with no fees that replaces paper/coin money. Issued to anyone that wants one and tied biometrically to the user. Businesses and consumers would be charged nothing to use it, with the cost offset somewhat by the elimination of paper and coin currency. Anyone on government assistance could get their funds through the card, and others that prefer to use the zero fee card could add funds to an account that earns interest similar to savings bonds. And, the current credit card system would continue, but totally unregulated. The triopoly (MasterCard, Visa, Amex) would be opened up to new competition. Bank fees, awards, rebates, interest rates, etc would be controlled primarily by competitive forces.

  23. Gary, the treatment of taxable tips to the employee is much more favorable than the reality of what the employee actually receives, and tips are a non event to the employer, if customers are not tipping enough in the collective, then adding a mandatory minimum tip in theory levels the playing field and has been around forever in the minimum tips required for large parties at restaraunts. The idea that a restaurant in the US should have an all in price is preposterous and unworkable, becuase the federal tax rules and state level minimum wage rules and sales tax schemes are based on the current US system of tipping. Tipping is spreading around the world because it costs the employer nothing and many customers like to tip and employees like to receive tips. Well that and tap and pay systems can easily ask for and add the tip to the payment. Customers not having to do any math makes tipping even easier.

    I think we will see fees to accept cash become more prevalant, as less and less people have cash on them, the cost to businesses of accepting cash can only increase, as cash becomes rarer and rarer in the wild.

  24. Support businesses that accept cash with no BS surcharge.
    If we allow cash to go away as Big Brother wants, this helps pave the way for CCP style monitoring, a social credit score, and even MORE TAXATION.

  25. I support cash use. It’s important for privacy and a means to try to be more secure when facing coercive authorities and malicious actors who can more easily and surreptitiously cause a remote electronic shutdown or complete drain of online accounts than they can with all distributed stashes of cash a person may own.

  26. I visit New Zealand frequently. Hotels often charge a 2-3% cc fee on checkout. If I book the hotel in advance on a travel website (Expedia, Orbitz, etc.) and pay at booking, no surcharge.

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