It’s to the benefit of credit card companies that we think of credit cards as a cost-free alternative to cash or checks. In fact, those companies are now trying to convince us that using cash or checks is more costly, at least in terms of convenience.
But it costs extra to process a credit card charge, as we learned when we started Cumberland Books. For a business as small as ours to deal directly with the credit card companies, it cost about 5% of the sale when all the fees were taken into account. Back when we charged list price for our books, those fees took a 12.5% bite out of our profits(5% of 40%). When we lowered our prices, the bite shot up to 33% (5% of 15%), and so we had to switch over to Google Checkout, which charges 2% + 20 cents, bringing the bite back down to 13% or so.
This problem could be solved fairly if we added a surcharge for credit card users that covered the cost of charging the sale. But that is prohibited by the credit card companies. They want you to think that using the card is free, and so they require sellers to not distinguish between cash sales and credit sales. As a result, cash customers pay more than their fair share.