Reward Cards and Small Businesses: A Love/Hate Relationship

Michael Söze

Consumers love the free flights, gadgets and cash back they earn by paying with reward cards - small business owners, on the other hand, do not.

The reason for their dislike is simple. It costs merchants more when consumers use their reward cards, and being that 40% to 70% of transactions that the average retail merchant sees are made with incentive based credit cards, it's negatively affecting their bottom line.

According to credit card experts, most consumers don't even realize that the perks they enjoy are ultimately hurting merchants - who end up footing the bill. This ignorance is something that small business owners sure wish they could change.

"Very few consumers realize that these interchange fees are what fund these cards," said Curtis Arnold, the founder of CardRatings.Com, a credit card ratings website.

Thanks to a settlement between Visa and MasterCard and the Department of Justice, retailers are now free to steer customers to other forms of payment, although few have taken advantage of the new freedom.

"There has been very few -- if any -- merchants that have taken advantage" of the ability to direct their customers away from certain cards, said Trish Wexler, spokeswoman for a Washington D.C.-based group that represents financial institutions including Visa and MasterCard."When rewards cards customers shop at that merchant's store, they spend more money."

Reward cards: Can't live with them, can't live without them.

via CNN Money