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Why do some businesses not take credit cards

Saturday, January 03, 2015

Reasons retailers and small businesses may not accept credit card payments

A recent study found that 66% of all forms of payment on point-of-sale devices are completed with credit cards, debit cards, or gift cards. Among these metrics, it’s clear that credit card purchases dominate, accounting for a large share of transactions with card users. On the opposite end, cash is estimated to account for 27% of purchases. Compared to transactions with cardholders, this is a much smaller share of the market. As a result, business owners that don’t take credit card transactions may be missing out on opportunities to increase customer engagement and customer loyalty, drive revenue, and generate new business.

Yet, there are enough businesses in the marketplace that continue to operate as cash-only businesses and require that customers pay cash. This article will explore the reasoning behind why some businesses choose not to accept credit card payments as well as the problems associated with limiting payment options.

Is it even legal to not accept credit cards?

There is no law that requires businesses to accept credit cards. Conversely, there is some legislation in place in certain areas of the United States that restricts businesses from requiring major credit card transactions only. These requirements largely pertain to making sure that unbanked populations (customers who don’t have a bank account) have access to goods and services. However, most businesses that don’t take credit cards tend to be smaller, operate within a demographic that has customers who prefer cash, or may have issues with internet connection to set-up a merchant account and other technology-based financial services.

Why don’t businesses accept credit cards?

There are several factors that go into a business’ decision to not accept credit cards. However, the most common reason is related to the higher fees associated with payments via credit cards. When a payment is completed with a credit card, there are several types of processing fees that can occur (and can be expensive and costly for small businesses).

Types of processing fees include:

  • Interchange fees. Interchange fees are fees for the use of a card during a transaction and go towards the credit card issuer. These types of fees can also be considered swipe fees. Credit cards are around 1.8% while debit cards are more affordable, usually around .3%.
  • Assessment fees. Assessment fees are extra charges on the total amount of sales made within each card network each month. Payment is made directly to credit card companies and financial institutions that service credit card carriers. Usually, these charges are between 0.13% and 0.15%.
  • Payment processor fees. Payment processing fees are included for additional payment processing services that the merchant may incur to pay for the technology to complete payment. Payment processing fees can range from 1.5% to 3.5% for each transaction. There may also be an annual fee incurred for services as well.

As you can see, these transaction fees and pricing packages can add up, especially for small businesses. Fees and hidden costs can cut directly into profit margins which can significantly impact operations. Some businesses have instituted a minimum charge in order to utilize credit as a payment option during a transaction. When cash is used as the primary use for payment, cash flows can be better guaranteed and assured.

It is worth noting that some businesses accept some card payments, but limit to certain carriers based on higher processing fees. For example, some businesses may accept Visa or Mastercard, but not accept American Express or Discover. Not only are the fees higher, but it can be easier for customers to refute charges and get their money back from the card issuer, requiring chargebacks from the business.

Reduction of risk

Cash reduces the risk of losing money from fraud or chargebacks since the money is instantly available for deposit, as opposed to credit card transactions that can be posted several days after the transaction takes place. While counterfeit cash can certainly be used, accepting cash payment only eliminates employees from having to worry about identity theft, fraud, or other attempts to misrepresent someone else’s financial means.

Reduction of complexity during payment

If businesses have an established customer base that is satisfied with paying with cash, business owners may decide that they want a more simplified approach for cash reconciliation and overall operations. Instead of adopting new systems, incurring new fees, and dealing with tax implications (since all transactions are digitally recorded), some businesses may forgo credit card payments to reduce complex payment situations. This may be especially useful for vending machine businesses, one-time services (like babysitting), nail salons, food trucks, and some restaurants. This way, business owners may not have to invest in new equipment, machines, or network set-ups in order for payments to be accepted.

Easier accounting

Cash accounting is a relatively simple system: your earnings and income depend on cash in and cash out. Instead of having to track complex transactions with cards, the amount of cash deposits and withdrawals can be easily analyzed for a better understanding of the business’ financial position in real-time.

Classified as a high-risk merchant

Some businesses may not be approved for a merchant account due to risk analysis completed by financial institutions. This could be associated with the business’ debt, lack of credit history, or low credit score. If this is the case, the business may have no other choice than to run a cash-based business.

Problems with not accepting credit cards

While there may be viable reasons for a business to not accept credit card payments, there are also significant issues with this structure, especially when it comes to business opportunities and business operations. Some of the major problems with a business that does not take credit cards includes the following:

  • Reduction in transaction volume. With the decrease in cash transactions in the United States, a cash-only business runs the risk of having a lower volume of transactions over time. If the business were to adopt credit cards, they could expand to other customer bases that are looking to pay with this particular method.
  • Negative customer experience. Many rewards credit cards that customers use are designed to provide perks for ongoing use. As such, customers are highly incentivized and motivated to use their credit cards as a mode of payment. When this is not an option, customers may not want to return to your place of business or have a positive experience at our location.
  • Theft risk. Keeping money on-hand is a huge theft risk for businesses. If thefts know that your business only accepts cash, your business will be more vulnerable to money being stolen. However, if you have a diversified approach to payment, you will be able to be sure that some of your funds are more secure.
  • Reduces opportunity for high-value transactions. If you offer products that are high-cost, you will have trouble attracting a customer base that will want to make a high payment with cash. For one, accessing high levels of cash may be difficult. Alternatively, the customer may feel more comfortable paying with a credit card to make smaller payments on the card over time.

Next steps

Are you ready to explore options for payment methods at your business? Are you ready to learn more about the reasons, benefits, and issues with not accepting credit cards at your business? Are you looking for the best credit card option for your business?

Heartland is ready to help.

Heartland helps nearly 1,000,000 entrepreneurs make and move money, manage employees and engage customers with human-centered technology solutions that allow them to rise above the daily grind and lead their businesses into a brighter future. Learn more at