Review of Interchange Fee Reforms and the Ripple Effects on Small Businesses
In recent years, shifts in payment policy—particularly around interchange fees and surcharging—have had far-reaching consequences for small businesses across the United States and globally. While large retailers have often had the leverage to negotiate better rates or absorb processing costs, smaller merchants face a more fragile equation: balancing customer satisfaction with the growing cost of accepting card payments.
Policy reforms that cap interchange fees or allow surcharging have sparked a wave of experimentation among small businesses. In states where surcharging is permitted, an increasing number of merchants have adopted “cash discount” or surcharge pricing models as a cost-offsetting mechanism. Early surveys and anecdotal evidence suggest that upwards of 15–20% of small businesses now implement some form of card fee recapture strategy—either by offering a discount for cash or by adding a small percentage at checkout for credit card users.The motivations behind these choices are clear: rising card processing fees, squeezed margins, and limited bargaining power with payment processors. Many business owners report feeling compelled to pass on these costs to survive—yet hesitate out of fear of alienating price-sensitive customers. This tension presents an intriguing policy experiment, particularly when comparing states or countries with different surcharging laws. For instance, in jurisdictions like Australia, where surcharging is widely accepted and regulated, the practice is normalized and has been shown to correlate with marginally lower prices for cash-paying customers.
Economically, the core debate revolves around power and price transparency. Surcharging can be viewed as a tool for cost pass-through and consumer signaling—one that shifts the hidden burden of interchange fees back into public view. However, where surcharging is banned or restricted, small businesses are often left with little recourse but to raise baseline prices or restrict card acceptance altogether. A nuanced policy analysis suggests mixed outcomes: while surcharging empowers merchants and may nudge customers toward lower-cost payment methods, it can also create friction at the point of sale and contribute to perceptions of unfair pricing. Data from sources like the Federal Reserve’s Small Business Credit Survey could help quantify these effects, especially if combined with regional comparative studies and payment provider data on surcharge adoption rates.
Ultimately, the long-run impact of interchange fee and surcharge reforms hinges on three variables: merchant adaptation, customer tolerance, and regulatory consistency. For small businesses, the freedom to surcharge may be more than a pricing decision—it could be a matter of survival in an increasingly card-dominated economy.
Sources:
Evans, David S. “Economic Aspects of Payment Card Systems and Antitrust Policy.” Journal of Payment Systems & Strategy, vol. 2, no. 2, 2008, pp. 175–200.
Federal Reserve Banks. Small Business Credit Survey: 2023 Report on Employer Firms. Federal Reserve System, 2023, https://www.fedsmallbusiness.org.
National Retail Federation. “Credit Card Swipe Fees Are Out of Control.” NRF.com, National Retail Federation, 2023, https://nrf.com. Accessed 18 June 2025.
Pew Charitable Trusts. Consumers’ Attitudes Toward Credit Card Surcharging and Cash Discounts. Pew Charitable Trusts, 2022, https://www.pewtrusts.org.
Reserve Bank of Australia. Review of Card Payments Regulation: Conclusions Paper. Reserve Bank of Australia, June 2016, https://www.rba.gov.au/payments-and-infrastructure/review-of-card-payments-regulation/.
United States Government Accountability Office. Credit and Debit Cards: Federal Entities Do Not Have Clear Authority to Limit Interchange Fees. GAO-10-45, Government Accountability Office, Nov. 2009, https://www.gao.gov/products/gao-10-45.