How Choosing Credit Over Debit Hurts Small Businesses (and You)

by Mike Glanz

Hello all! I am a big time fan of Len Penzo and it’s a privilege to share some of my thoughts on his blog.   A few weeks ago, I read Len’s article on why choosing debit or credit is like picking salad dressing; in that post he mentioned that he always chooses credit over debit when using his bank card unless he needs some cash back.

Today, I’d like to share one additional thought for you to consider before making the choice between credit and debit, based on a small business owner’s perspective: choosing credit ultimately costs small businesses and YOU more money.

Here is an overview chart summarizing the costs and benefits of each option.

Payment Type: Consumer Benefit: Business Cost: Consumer Cost:
Credit Fraud protection & occasional rewards Per transaction & percent Documented propensity to spend more
Debit Limited fraud protection Per transaction Nothing

Using Credit Costs Small Businesses Money

One major thought to consider when choosing between credit and debit is the effect it has on your local small businesses.    The difference in cost between debit and credit transactions for a small business is around 3 percent.      The business typically pays approximately 30 cents for each debit transaction whereas they pay approximately 30 cents  plus  3 percent of the order per credit transaction.  

What difference does 3 percent make? Let’s say after paying all its costs, advertising, payroll, taxes, and more taxes, a small business has a margin at the end of the day of 10 percent (that’s pretty good nowadays, especially for a smaller business); that means your 3 percent credit card fees are costing them 30 percent of their profit!

As an example, if every customer paid with credit, a small family business would see its profit reduced from $50,000 to $35,000 — and if their margins before card fees were closer to 5 percent, then you are looking at cutting their profit from $50,000 to $20,000!

Why should you care?   Three reasons:

  • What’s good for your community is good for you.
  • Supporting small businesses promotes competition, which increases
    value, and decreases prices.
  • Many small businesses provide better service (If price were
    everything, no one would buy Apple computers!)

Using Credit Cards Costs YOU Money Too

By choosing credit over debit, small business owners aren’t the only ones who have to pay more; you do too!   Here’s why:

First, credit cards make you spend more money.   Dave Ramsey has noted in the past that people using credit cards typically spend over 10 percent more money than they would have otherwise, dwarfing the “1 percent cash back” that you may be getting back in rewards.

Second, the added fees that local small businesses have to pay for credit transactions often gets passed on to the consumer through higher prices and that means less money for your local economy.

Now, I understand the need for fraud protection when shopping online or even out of town.    However, is fraud protection really necessary for shopping at your local grocery store, restaurant or the like?   They need our business and support just as much as we rely on them to deal honestly with us.   It’s nice to be part of a community who you know you can trust.

For all these reasons, I choose to stand by my local stores rather than taking my business down the road to the megastores, and I will continue to think twice when that option to choose credit or debit pops up.   I will ask myself if I really need fraud protection at this store.   Likewise, I will also consider whether choosing credit, instead of debit, will just hurt us all in the long run.

As Len mentioned, we all have different scenarios running through our heads as we approach the decision between the two — online shopping, the idea of credit card rewards, convenience, etc.    My hope is that you are now more aware as to how this choice ultimately affects your local businesses, and therefore you!

About the Author

Mike Glanz is the founder and operator of, the largest marketplace for booking movers online.   For the record, they only accept credit cards.


  1. 1


    Where I live, there is only one small store that I know of, and it is a cute little hardware store. Usually my purchase is so minor that I use cash anyway. You reminded me though, I need to shop there more often. Although maybe some of the restaurants I go to would benefit from me using cash instead of credit cards.

    I have no issue using my credit card at the bigger stores at all though.

  2. 2

    David Chen says

    I don’t think there is much point to discriminate between small local stores and bigger stores. Yes, those bigger stores seem remote to you. But their employees are small folks like you and me, their stocks are owned by small folks directly or indirectly through mutual fund and pension fund.
    And if small business want to encourage people to use debit card, they should have returned some of saving to debit card users through discount that is only available to debit card user.

  3. 3


    Small businesses accept credit cards since you are more likely to buy more using plastic. Nope, I just can’t bring myself to feel guilty for using my cash back rewards cards whenever I make any purchase over $5. I also feel more pain when using a card than when I use cash, so it’s just all around better for me to stick with credit. I know I’m one of the weird ones, but do what works for you, right?

    • 4

      Dennis says

      You SHOULD feel guilty. The bank is giving you NOTHING. That 5% comes from the merchant, not the bank. Your not weird, just selfish.

  4. 5


    Thanks for giving us the “credit or debit” point of view from a small-business owner’s perspective, Mike! Great job! I think you make some good points, especially regarding the costs to small businesses. However, I have two counterpoints to your article: 1) Although I understand the data that shows people who use credit cards ultimately spend more than those who use cash, I do not subscribe to the idea that credit cards *make* anybody send more money — we are ultimately responsible for our own decisions; 2) I don’t think we can put blind faith in waiving fraud protection just because we are shopping locally. Let me give you one anecdote: My father-in-law was ripped off from a local merchant a couple years ago — lucky for him he used a credit card, or he may have never recovered his $400. :-)

    Thanks again, Mike!

    • 6


      Thanks Len. Good points. I’d have to say in response to 1.) I agree – we need to take responsibility for our own spending habits, regardless of if it’s credit/debit/cash. I’d have to argue though, if it does help us subconsciously to spend less money by using debit/cash, why not make the switch?
      2.) I’d agree again. Blind faith wouldn’t be prudent. But faith built up over the years in a favorite neighborhood company helps me determine which places I feel safe to use my debit card at – like the local grocery story in my neighborhood I’ve been shopping at for 6 years.

  5. 7

    Diane says

    Sorry, I only use my debit card at the ATM. Period. I will never use it for transactions since having a minor brush with fraud two years ago (a mere scanning error and not malicious, but impossible to correct). I use cash when I can at local stores, but nothing will persuade me to use a debit card for anything public. Never. Ever.

    And I don’t spend more with credit. I have a budget, and I manage to that.

  6. 8


    Hi Mike, that’s a point of view I’ve never thought of before. I never use debit because I don’t want to give up fraud protection. While I don’t think I’ll start using a debit card, I can see a good argument for spending cash, especially with businesses you trust. It doesn’t “make” you spend more, it saves the business money, and it doesn’t support the mega-banks (with credit card fees) which I hate anyway.

  7. 9

    Modern Hamlet says

    I pay with my bank debit card on 90% of my transactions and have always tried to differentiate between big chains and mom & pop stores. While my bank incentivizes selecting credit over debit (via their rewards program), I only choose credit when shopping at big chain stores. Mom & Pops always get debit.

  8. 10

    Spedie says

    I have often thought of trying to go plastic free – I don’t have a credit card, but am thinking of dropping my debit card, and going CASH and CHECK all the way – just like I used to.

    I am 47 years old, and my goodness, how the heck did I buy plane tickets, rent cars, etc for over half my adult life without a credit or debit card? I managed to do it, and do it quite well.

    Cash costs businesses nothing compared to debit and credit.

    Planning with cash is not that hard, I managed to do it, and was much better off before I fell into the “plastic trap”.

    Think about it…no credit cards, no debit card(s)….it would be harder to steal my identity. Businesses would make more in their profit margins, etc.

    I recently had my credit union write me a letter and send me a new debit card because “a third party had notified them that my debit card number had been compromised”. I am one of those people who shop the same stores and gas stations with consistency. It still happened!

  9. 11


    It sounds like you are advocating cash! That would be the lowest (none) cost alternative. If all businesses only accepted cash, there would be an under reporting of income. Realistically, there is no perfect method of payment. I prefer credit cards for a variety of reasons, one of which is record keeping.

  10. 12


    One correction to your perspective on debit vs credit. You, and all other business owners who accept PIN debit, do pay a fee in addition to the transaction fee for debit. The fee is a network pass through charged by the debit network that is processing the payment. In the old days the processors used to charge a flat fee of $.50 to $.75 cents per transaction because there were caps on PIN debit fees charged by most networks. That’s no longer true. Look on the back of your debit card and you will see 2 or three logos at the bottom. PLUS clears through the ATM network. NYCE, STAR, MAESTRO, INTERLINK, AFFN, ETC. are point of sale debit clearing networks. Each has a fee. For instance STAR charges .80% + $.23 per transaction with no cap and AFFN charges .75% + $.20 with a cap of $.85 per transaction. Most other networks have similar rates (and no Caps) which amount to about half the cost of credit card interchange but are a little higher on the per transaction fees. The net effect generally is that, for most merchants, credit is cheaper for small tickets and PIN debit is cheaper for large sales. I apologize if this is confusing but there really is no simple answer.

    • 13


      James (and JoJo’s comment below)
      Sorry to generalize like that. You’re right, small purchases like those under $20 can turn out to be more expensive for businesses when a consumer uses a debit card and PIN. From our perspective at, most (if not all) purchases are large enough to cost us a big chunk of change in credit card processing fees.

    • 14


      I completely agree with James. I work with convenience stores whose average ticket it 8.00. and I am always telling them to use credit on anything under 12.00 (give or take this depends on the rates and the card being used. for for generalities.. well say 12.00)

      there is no such thing as a FLAT debit fee. Like James pointed out, the BANK interchange fees for debit vary and are .05 and .22 cents to 1.61% and .o4 cents. or a just .85% on the amount being charged. Then you have the credit card company that has to charge something.. whether its .05 cents .. or .20 cents.

      so for a pack a cigarettes at 5.12 and they run this as a debit.. it wil cost the merchant approx . 35 as debit.. and as credit small ticket it will be 1,66 + .06 so that 5.12 will cost the merchant .25cents. So, running it as credit for a 5.12 purchase is .10 LESS per transaction with specific amount.

      if you have 1000 transactions that are small .. running them as a credit will have the merchant 100 just by swiping and having them sign for the transaction.

      Please be care when you tell the merchant debit is always cheaper. Its not true. For larger ticket items, it is.. depending on the card that is used.

      So for the merchant, with transaction amounts under $12-$15… credit is cheaper for them.

  11. 15


    I use Debit only anyway. As far as I know in the UK the exact same fraud protections are applied to debit cards as they are credit (my debit is run by VISA).

    • 16


      Hi Forest –

      I thought, regarding identity theft, the rules applied the same to debit and credit cards in the US: if someone steals your identity and makes fraudulent purchases as you, you are not responsible. I think it might just be harder to deal with banks on that point as they are very good at making you forget you’re the victim. I didn’t make that statement in the article because I had no definite proof of those protections covering both credit and debit cards.

  12. 17

    JoJo says

    When I frequented a co-op, I always asked the cashier which was cheaper, running my debit card by the PIN or by signature (essentially debit or credit). She said if it was under $20, it was cheaper to run it as credit, otherwise it was cheaper as debit.

    So in small businesses, I always ask the cashier if I don’t have enough cash on hand.

  13. 18

    Joe says

    “Supporting small businesses promotes competition, which increases
    value, and decreases prices.”

    Huh? Buying the best product at the best price from ANY business, large or small, promotes competition. You’re “voting” for the business who supplies the best deal. Supporting small businesses “just because” promotes small businesses, not competition.

    • 19


      What drives your buying decision defines what type of competition you’re promoting. If you’re buying strictly based on price, you’re encouraging us to Wal-Mart ourselves to death – resulting in lower and lower quality of product and service. Seth Godin says in a post on his blog “Cheaper is the last refuge of the person who’s not a very good marketer.”

      Most small businesses, in my experience, have reigned superior in offering higher quality products and customer service along side their products. And many times, their pricing is within pennies of the big chains. Small businesses rise to threaten sluggish older larger companies, hence competition.

  14. 20


    I always use credit card for everything even a gallon of milk at the corner store. I do have a debit card but I use it only to get cash from the bank’s own ATM a couple of times a month.

  15. 21

    TMS says

    The day a store offers me a discount for debit/cash is the day I will consider not using my cash back credit card for every single purchase.

    • 22



      Have you checked out PerkStreet? They’re an online bank that offers cash back on their debit cards. Might be an incentive to switch to using Debit.

      • 23


        Mike.. what the interchange rate on that debit card? it might end up costing the merchant more money. Someone has to pay for that cash back and its usually the business owner.

  16. 24

    No Debit Here says

    A former employer with several convenience stores and some cash flow issues (he lost a supplier because he couldn’t meet the tight payment terms, and went to a pricier supplier with longer terms) runs everything (including debit cards) as credit – signature and no PIN.

    The register software doesn’t display a debit option and there is no keypad for entering a PIN.

    If transactions are more expensive for my former employer, why is he doing this? (His prices are way high and I’m confident he don’t lose money on any transaction, but 2 or 3 percent is nothing to sneeze at, especially at the high volume he does.)

    I assume he has some barrier preventing him from running debit, but I can’t imagine what it is. (Is there some sort of hefty initial cost barrier involved?)

  17. 25

    Community First says

    @ No Debit Here there “SHOULD” be no charge, at least not with OUR payment processor. I dont remember our old payment processor (years back) but I just signed a deal with a new one within a week or less (easy simple process of paperwork and very nice guy). They work with MANY companies under one to supply everything you could imagine (utility/phone bill payments, visa/gift card reloads, international cards, prepaid phone minutes, and other things on top of visa/credit/ebt retail processing). Our card reader has a built-in debit pin pad (built into the pad that the store clerk uses. they would just have to turn the pad to them and have them enter). Also it has a slot in the back for a pin pad (most do. you can check the model of your card reader and google/ask the company). an external pin pad for mine runs $25 or less. A reader like mine was under $200 (again it was free. i have an old nurit that supports it too but won’t support bill pay or some service, so they gave me a new one.)

    My rates for debit/credit card are 0.55% debit purchases and 1.58% credit. Don’t believe there’s no other fixed rate/charge. When it comes to bill pay/reloadable we make money (up to 14% on att prepaid mins, 35% on visa reloadable gift cards, 27% long distance, and lets not talk fixed rates of bill pay lol) . This is for a non-profit though so it all goes to a good use. These are community services.

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