Why Don't All Retailers Accept All Major Credit Cards?

There are two main reasons why you may not be able to use your favorite credit card at a certain retailer.Image source: Getty Images.
Grocery giant Kroger recently decided to stop accepting Visa credit cards at its subsidiaries Foods Co. and Smith's Food and Drug, a move designed to pressure the credit card giant into lowering its interchange fees, or "swipe" fees.

Kroger isn't the only retailer that takes issue with certain types of credit cards. In fact, millions of retailers don't accept one or more of the four major credit card types for one reason or another.

Amex and Discover: Why aren't they accepted everywhere?

American Express and Discover have done a great job of building up their acceptance rates in recent years, but they still don't enjoy the near-universal acceptance of Visa or Mastercard. Why aren't American Express and Discover accepted as much as the other two?

Like Kroger's issue with Visa, it comes down to fees. American Express is notorious for charging higher swipe fees than the competition. While the credit card companies are tight-lipped about the specifics of their fees, American Express' swipe fees are roughly 1% higher than those of the other major issuers, according to several reports.

To be fair, American Express does have a highly desirable cardmember base. Amex cardholders have higher average income and spending than the average Visa or Mastercard user, so in many cases, it's in the merchant's best interest to accept the higher fees. However, many merchants still feel it's not worth it, thus "Sorry, we don't take American Express" is still a common refrain.

Discover is generally not as expensive as American Express for merchants to accept, but it still generally charges more than Visa or Mastercard, which is why Discover is No. 3 in terms of acceptance. Plus, Discover doesn't offer the benefit of an affluent cardholder base.

Another common reason for "selective" credit card acceptance

Swipe fees are the No. 1 reason retailers choose to accept some types of credit cards but not others.

Another common reason is for partnership purposes. Costco is by far the biggest example of this, accepting Visa credit cards exclusively. Costco is expected to generate more than $150 billion in revenue during its current fiscal year, which gives it tremendous power to negotiate with the major payment processors -- especially if it's willing to give all of that business to just one company (in this case Visa).

The standard swipe fee a merchant pays is in the 2%-3% range, but reports have put Costco's swipe fees to Visa at around 0.4%. Doing the math, this saves Costco billions per year compared to what average retailers pay.

Some businesses don't take credit cards at all

In general, paying with cash is becoming less and less convenient, especially as companies like Square make it easier than ever for small businesses to accept credit cards.

However, there are some holdouts that remain cash-only businesses. This is especially common among independent restaurants. For example, the famous Peter Luger Steak House in Brooklyn, New York, only accepts, cash, checks, debit cards (which have generally lower swipe fees than credit cards), and their own Peter Luger card. Laundromats, vending machines, and nail salons are other types of businesses you're likely to encounter that don't take credit cards of any kind.

To sum it up, there are two main reasons businesses might choose not to accept a particular type of credit card, or none at all -- fees and partnerships. Swipe fees can take a big bite out of a merchant’s profits, especially in businesses with tight profit margins like restaurants, and every percentage point counts. And, by using an exclusive partnership structure, like Costco does, a retailer can potentially cut its acceptance costs even further.

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