Tariffs v. Banks: Rewards Cards Aren’t So Rewarding for Small Businesses

So you’ve started a small business, and the first thing you want to do is apply for a premium credit card. You’re hearing all over social media that these cards are essential if you want to scale your business, rack up rewards, and be taken seriously as an entrepreneur. It all sounds great, but what if we told you those credit card rewards aren’t free? They’re funded by you, the small business owner, baked into prices, and quietly paid for by everyone, including people who don’t earn rewards at all.

Here’s the fine print you don’t see when you apply. In addition to annual fees, there are interchange fees, which are the biggest cost. These are paid by the merchant, not the cardholder. Typically, they range from 1.5% to 3.5% per transaction, with higher fees tied to premium and business cards that offer more rewards. These fees are split between the issuing bank, the card network (Visa, Mastercard, or AmEx), and the payment processor. The hard truth is this: rewards aren’t free. Cash back, airline miles, and points are funded primarily by interchange fees, making banks look generous while merchants foot the bill.

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That business dinner you paid for with your premium card just cost the restaurant an extra 3.5% in fees. The bank then turns around and presents that same money back to you as airline miles or rewards. As a consumer, it feels like you’re saving money by spending it. But the restaurant you supported is effectively returning money to you that could have gone toward payroll, supplies, or other necessities to keep its doors open. When banks advertise 2% cash back, that money is coming directly from the seller’s margins.

Does this hurt merchants more than tariffs? Yes, especially small businesses, and eventually customers as well. We’re often told that tariffs are the sole driver of inflation, but what about banks? When merchants are forced to absorb these fees so banks can market themselves as the good guys, one of three things happens: the business accepts lower profit margins, raises prices to offset the loss, or refuses cards or adds surcharges and risks losing customers. The second option is the most common, and that’s where inflation quietly enters the picture.

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More and more people are being encouraged to start small businesses, scale quickly, and apply for premium credit cards, especially in this economic climate. Thousands of workers are losing their jobs, with many turning to self-employment or entrepreneurship as a result. It’s a predatory cycle designed to keep the working class on a hamster wheel. This system of payment-driven or hidden price inflation indirectly contributes to broader financial downturns.

As more people use premium rewards cards, everyone ends up paying more. The small business owner who just wanted points to help fund their business is now contributing to inflation and, ultimately, the loss of their own potential customers. Rewards card users receive what feels like “free money,” while non-rewards users subsidize them. In this scenario, banks win, but small businesses lose pricing power. Rewards cards don’t create value; they redistribute money upward, not always directly, but certainly indirectly.

“I’d consider myself financially literate, having amassed around $1.5 million over the past six years through various business endeavors,” says serial entrepreneur Lisa K. Stephenson. “For businesses with large sales volume, we don’t absorb those costs. We negotiate with payment processors or avoid them altogether by using other channels, such as Zelle for Business or invoicing. Passing fees on is a last resort. While we could bake them into prices, we choose not to.”

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Lisa makes an important point by highlighting alternatives like Zelle for Business and invoicing. Additional options include ACH payments and wire transfers. High–net-worth transactions often bypass cards entirely, which matters more than many realize. Small businesses swipe; big money invoices. Credit card rewards hold little appeal for high–net-worth individuals because they create a system that benefits banks, not the cardholder. Banks rely on small businesses to absorb shrinking margins, then call it a win when those same owners fund vacations with airline miles.

Those miles, as mentioned earlier, were never free. The IRS closely monitors small business sales, and purchases must be legitimate business expenses. You can’t justify spending $120 at Macy’s and call it a business deduction if you run a painting company. Wealthy individuals use cards only when the math works. If rewards, cash flow timing, and tax advantages outweigh the fees, they use cards. If not, they don’t. High earners typically use cards for cash flow management, not perks, and pay balances immediately to avoid interest. Rewards become a business tool, not a lifestyle.

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The current payment infrastructure available to small business owners is also driving up the cost of goods. Your local mom-and-pop shop can’t afford to have neighboring businesses walk in and pay exclusively with premium rewards cards. It’s great for banks, but damaging to merchant profit margins. Rewards cards are designed to encourage spending and convince users that the annual fee is justified. Banks extract interchange revenue, and the cycle repeats. Who loses? Small business owners, customers who pay higher prices to subsidize these fees, and even the cardholders themselves, who pay annually to institutions that quietly contribute to inflation and the loss of their own customers. The banks’ hands remain clean.

by Riley Cook