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Living with credit, Rewards, Shopping

To really help small businesses, pay with cash not credit

Kelly Dilworth

American Express cardholders can save big through the end of 2016 by using their cards at local businesses, but if you really want to support those mom-and-pop shops, you’ll do more overall by using cash instead of credit.

Through December 31, American Express cardholders will earn double the number of points, cash back or miles at select small businesses. Check the map for small businesses participating near you.

This year’s unusually generous promotion is tied to the American Express-created “holiday” Small Business Saturday, the Saturday after Thanksgiving. Previously, AmEx offered cardholders modest $10 to $30 credits when they used their cards on Small Business Saturday.

According to Bloomberg News, this year’s consumer-friendly 2x rewards offer is part of a wider strategy to win over more small businesses, many of which have declined to accept American Express because of its notoriously high credit card acceptance fees. Each time a cardholder uses a debit or credit card, retailers pay a small percentage to the card issuers to process the transaction.

“Many of those mom-and-pop businesses – florists, dry cleaners, liquor stores – have been reluctant to pay for the privilege of having that sticker on the front door, saying ‘American Express Cards Welcome,’” wrote Jennifer Surane.

To attract more small businesses, American Express has deployed a number of outreach strategies, including targeted personal finance articles for small business owners, educational boot camps and a “Shop Small” marketing campaign.

“In the past two years, AmEx has worked to add 1.6 million of them to its network, a strategy it says is now bearing fruit: Almost 75 percent of AmEx cardholders say they have used their card at a small business,” Surane wrote.

The current 2x rewards promotion, though, marks the first time American Express has offered small businesses such extensive help attracting new customers.

But if you’re really interested in helping your favorite small businesses and prefer to shop locally, you’ll make a bigger impact by forgoing credit altogether and using cash each time you visit a local mom and pop.

Why? The credit card acceptance fees that American Express and other card issuers charge retailers can have a substantial negative effect on small businesses’ bottom-lines — particularly if cardholders pay with pricey rewards cards.

According to the National Retail Federation (NRF), credit cards typically charge an average of 2 percent of every transaction, which adds up quickly when a business processes numerous transactions.

Premium credit cards with generous rewards programs often charge substantially more. For example, the NRF says a premium rewards card can cost as much as 3 percent to process.

For a small business operating on a razor-thin margin, those charges can have a meaningful impact.

Many small businesses would still rather you use a card if it’s your only form of payment. If an enticing promotion such as American Express’ small business rewards bonus encourages you to visit restaurants or stores you wouldn’t have otherwise, then you’re also helping those businesses.

However, if you visit a local business regularly and are determined to give back to your community by supporting it, then the best thing you can do is patronize that business as often as you can and bring cash instead of credit.

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