Card Swipe Fees Are Killing Your Favorite Independent Restaurants

Smaller transactions have gotten more expensive for independent restaurants and cafés to process at exactly the same time customers are relying on card payments more than ever.

If you’ve felt sticker shock at restaurants and cafés in the post-pandemic years — cappuccinos that cost $3 in 2018 going for $5.50 now — here’s something you might not realize: your buying habits play a role. At Rebelle, every time you swipe a card to pay for a morning bagel, we pay for the privilege of serving you. And for small independent shops like mine, those processing fees can add up to about half of the net profit we’d stand to gain. When we ask you if you can pay in cash, we’re not trying to be annoying — we’re trying to stay in business.

Everyone is concerned about the economy right now, especially restaurant workers and operators. As everyday people feel a cash crunch, their budget for eating out gets re-routed to meet basic needs like groceries, rent and fuel. I get it, because I am living it too. And as we all collectively cut back on our dining dollars, restaurant operators scrutinize their monthly P&L statements to find marginal efficiencies.

I found myself sitting down with my P&L recently, brow furrowed in frustration as my brain overheated: If I can shave a few points in expenses and have them flow to the bottom line, we can make it through the winter. But with food costs already running super efficient thanks to a zero-waste philosophy and labor costs subsidized by my “free” time (lol) there wasn’t much I could trim.

When I saw what we pay for merchant fees a.k.a. card swipe fees, I got heated. The percentage has crept up by at least a full percentage point, which sounds marginal but adds up to over $10,000 per year, roughly the price of a brand-new double-decker oven or three new fridges or an espresso machine. Most importantly, it feels like a number I can’t shave down with operational efficiencies — the higher the sales, the higher the fees.

What has driven the rise in processing fees

Two big structural shifts in the post-pandemic business climate turned merchant processing from a predictable and negligible overhead line into a silent drain on margin:

• Commission structures changed. Square, our POS and payment processor, used to charge a flat 2.75%. In 2019, that shifted to a hybrid model: a percentage plus a fixed fee per transaction (2.6% + 15¢). This shift is very important and we’ll come back to it in a second.

• Cash use disappeared for everyday transactions. At Rebelle, the share of card payments has climbed from ~80% a decade ago to over 95% today. When we opened in 2017, about 20% of our transactions were paid in cash, and we made daily deposits at the bank. Now we just go twice a month for coins.

These two changes put restaurants and cafés in a pinch. On one side, you have the mega-monopolies of Visa, Master Card and the rest of the card companies that buddy up with payment processing companies, which reap the marginal benefits of bundling millions of payments; on the other side, a cashless clientele who sees paper and coin currency as a nuisance. Turn your back on the former, and the latter will turn theirs on you. Accepting card payments isn’t so much a choice as it is a necessity to run a business in 2025.

Smaller transactions have gotten more expensive to process at exactly the same time customers are relying on card payments more than ever. I don’t know why Square changed its fee model but if I had to guess, it’s because the payment giants could see where consumer behavior was headed: more transactions, lower value. If they have to work harder, it needs to be worth their while — nobody wants to do twice the work for half the money.

This change in structure makes a lot of sense from a business perspective. These companies have data centers to pay for, overhead and marketing, and engineering teams that continue to expand the universe of payment-processing technology — all things that cost a lot of money. Every transaction carries a fixed cost, just like every bagel sandwich I sell requires a minimum amount of staffing, rent, utilities and on and on.

But when you run a café where 20% of your sales hover around $6 — a bagel with spread at Rebelle inclusive of tax — that fixed fee part of the processing cost becomes punishing. It threatens not just profitability but the basic viability of the business model.

Having a two-part fee has allowed Square to decouple its rate changes in ways that obfuscate the real cost to the merchants. This year, the company has updated their fee structure twice: in the spring, it increased the fixed fee from 10 to 15 cents, and then it ratcheted up the percentage component in the fall. I guess it feels less jarring to increase the rate bit by bit, but every ratchet makes me wince.

There’s even a new twist — you can pay a monthly fee to buy a lower processing rate, not unlike buying a lower interest rate on a mortgage. Crazy times we live in.

Let me show you the numbers

Maybe this is harder to illustrate with an anecdote, but that’s where I want to start: Every time someone wants to put a $3 bagel on a credit card, I’ll ask if they have cash and point to a sign we’ve printed by the register: “Cash preferred for transactions under $5.” Inevitably, most people don’t carry cash or if they do, they’d rather not break a $20 and end up with a handful of burdensome coins.

I can understand how some customers would be turned off by the perceived obstacles just to buy a single $3 bagel. But that single swipe costs me 23¢ (15¢ plus 2.6% on the post-tax $3.21 total) before we’ve even talked ingredient and labor costs, which works out to a 7.7% commission. When restaurants and cafés net a single-digit profit margin, giving up 7.7% of any transaction means it’s a wash. I am not here to sell bagels at a literal loss.

I’m trying to persuade my customers away from small purchases on credit — we’ve even started offering a 5% discount on gift cards $50 and up to use for small purchases. It works on some of our regular customers who are invested in our long-term survival, but others are offended at being inconvenienced for a problem that is, in their minds, ours to figure out.

The story gets even hairier when I show you a detailed breakdown — this is representative, based on the actual share of transactions around different price points we see at Rebelle:

(The price points are technically representing price brackets, but I am giving you the bracket average for simplicity.)

Over half of the transactions we do are valued under $10 — folks who come in for a bagel and spread and maybe add a small coffee. Our cost of processing these small transactions (the first two brackets combined) has grown by 63% under the new fee structure.

And remember: we also pay processing fees on tax I’m collecting for the state and on tips that go to my team. That’s really backwards, given that I’m already working for free to collect the state’s revenue. The figures in the table above do not capture this impact.

If we did more high-ticket sales — catering orders, dozens to take home — we’d be closer to that $28–$94 range where the difference in processing fees is pretty meaningless. We push hard on growing our highly profitable, big-ticket catering business but it’s not our bread and butter. The core of our business has always been a bagel with spread and a coffee to go.

It’s curious that modern credit cards were invented for dining out when processing them is causing so pain to restaurants today, but I don’t think the creators intended for the cards to be used on morning coffee and bagels… and I don’t actually want to sell you a single bagel with nothing on it unless you’re paying cash. If it’s me at the register and you try to charge a $3 bagel, I’ll just gift it to you and wave you off. I’ll lose out on the transaction if we charge it, and I’d rather you come back later and spend real money.

The pressure to raise average check size against the desires and patterns of the clientele is how you end up with business models like PopUp Bagels, who don’t sell single bagels at all. Their minimum order of three bagels and a schmear goes for $15 in Boston, which drives up the ticket size and reduces the relative burden of processing fees. As their CEO put it:

“If you sell a bagel for $2 and have a lot of very small [orders], it’s pretty tough to make that work. Our unit economics would dramatically change if we did that.”

Their average order value is $22. Ours is $15. If our average ticket were 50% higher, like PopUp’s, we’d save at least $200 a month on processing fees alone — not counting the indirect operational efficiencies that come with fewer transactions at a higher value.

On days when I have to dig deep into my toolkit of creative cash flow moves just to pay the bills, I wonder if Rebelle would do better with a model like PopUp’s. No payroll for a sandwich maker; no ancillary prep for eggs, bacon, sauces; no pressure to come up with creative lunch sandwiches and pastries; nobody buying a $3 bagel to “taste it on its own” before committing to a sandwich. I get the genius in the low overhead and simple menu.

At the same time, there are certain expectations of a bagel shop in America and bucking them as controversially as PopUp does not appeal to me — and neither does the inevitable public backlash. Instead of adopting their model, which is financially attractive but inhospitable to customers’ needs, I rely on upsell and catering to nudge customers toward larger orders and lower processing costs. Our loyalty program, weekly promotions, and specials all help drive up the value of the average ticket.

And still, we’ve only managed to move the needle by $1 in the last year.

Where did cash go?

The pain of processing fees is inescapable because cash is virtually extinct and so much of business now happens on credit. Cash, for all its untraceability in an increasingly surveilled world, cannot compete with the convenience of tapping to pay at the register or pre-ordering online.

Beyond convenience, cards offer perks that cash can’t: fraud protection, rewards, and, crucially, extra cash flow for customers. Sometimes you’re not flush with money, but you still want a treat to perk you up — so you put it on a credit card, or on an AfterPay program (which, for the record, costs us a 6% commission).

Up until September 2025, we could have passed the cost of credit-card processing on to customers through a surcharge. I had a small surcharge on online orders for this purpose. But the new Massachusetts law on Unfair and Deceptive Fees, which prohibits tacked-on fees at restaurants, ended that possibility and forced everyone — including us — to raise prices and “bake it in” instead.

Look, I’m not going to complain about laws that improve protections for the consumer — I am one, too. But I feel squeezed in the middle, not having a real choice to decline card transactions and having to accept ever-higher processing charges.

I guess I could raise prices again — and what happens when prices go up? Processing fees go up with them, because they’re charged as a percentage of total sales. Not really the fix we’re hoping for.

So where’s the relief?

In these economically precarious times, customers are more disciplined with their spending and cutting back on meals out. I feel “penny wise, pound foolish” trying to micro-optimize profitability when the real challenge is simply getting people in the door in a dicey economy. In desperate times, we feel pressure to take the sales we can get and figure out the rest later — usually through unavoidable price increases when the pressure becomes too much. I remind myself that 0% profit on $1M is still $0. Margin needs to be watched carefully, or it runs away.

There is also the possibility to negotiate. I recently reached out to Square to “review our program” and found a way to reduce our processing fees from a net 3.6% to 3.0%. Sometimes we forget negotiating is an option with large faceless companies, but I never miss an opportunity to practice my bargaining skills!

And there is a glimmer of hope on the regulatory side of things:

Mass Restaurants United, a coalition of independent restaurant operators, is advocating for MA S.688 — a bill that would stop restaurants from paying processing fees on taxes and tips that we collect on behalf of the state and our employees. That alone would be a massive relief. We already do the work of collecting and remitting taxes for free; having to pay processing fees on that money is wildly unfair.

The mental math we have to juggle as small independent businesses is insane, and considering the impact of changes to our credit card processing rates is yet another source of anguish at an inconvenient time. As consumers, our habits can really make a difference to the long-term sustainability of the businesses we love to patronize.

So please, do me this favor: for your everyday morning coffee, consider carrying a little cash — or even loading a $20 gift card at your favorite spots.

It’s a tiny change, but it makes a surprisingly big difference.