We’ve been hearing more and more reports from travelers who go overseas and are charged by merchants for using credit cards. In one case a person was even pressured by the merchant to use a different credit card. This practice is called “steering.” A merchant will tell you that they do accept credit card X, but encourage you to use a different card instead. In more egregious cases, a merchant will tell you that they absolutely will not accept a certain card for what you want to buy — even though their store window says they will. Why are they doing this?

The answer is interchange fees. Credit card companies charge merchants a percentage of each transaction. These fees apply to American Express, Discover, debit cards and even smart cards. However, credit card interchange fees are among the highest. Rather than continue to absorb these fees, merchants (especially foreign merchants) are sometimes passing these fees on to the consumer. In some cases, travelers have even reported signs on store windows saying something like the following:

• National Debit Card: NO FEE
• National Credit Card: .75%
• Diners Club Card: 5%
• American Express: 5%
• Foreign Credit Card: 5.75%

This particular sign was reported to us by Kelly S. while on a trip in Europe. These fees are in addition to any taxes you would pay, but do reflect the actual fee the merchant would be charged to process the transaction. It isn’t hard to understand why a merchant might try to pressure a traveler to use a different means of payment for expensive items. Using a foreign credit card to make a 3,000 euro purchase would cost the merchant 172.50 euros. If the traveler would pay in cash, that’s money in the merchant’s pocket.

Paying in cash is just about the only thing travelers can do if a merchant is going to insist on passing these fees on to the consumer. In that case, travelers will want to find a good ATM and debit card which charges low fees for withdrawing cash. Most merchants prefer cash to any other means of payment. Unfortunately, on the flip side, consumers lose any additional purchase protection their credit card may have provided as well as attractive credit card rewards. If you are going to use cash, here’s a tip for the travel thrifty: Merchants that are not charging additional fees to process card transactions will sometimes give you an equivalent discount for using cash. All you have to do is ask.