The credit card company charges the shop a transaction fee for using the card. The retailers allow this as it increases the chance of someone making a purchase

The credit card company charges the shop a transaction fee for using the card. The retailers allow this as it increases the chance of someone making a purchase, especially bigger purchases. The credit card company sets out in it's terms of business that the shop must not have a surcharge, and must charge the list price for good paid for by credit card. This is so that using a card is attractive to the customer. The card fees can be quite high. High enough for there to be more money than the transaction really costs, and the credit card company can then offer some of this money back to customer to entice them to use this card rather than some other card that doesn't offer cash back. The end result is that customers who pay cash are subsidising the prices of those who pay by card. It's hard to break the cycle because if a shop doesn't offer payment by card, not many people will shop there as people don't carry much cash. Amex have the highest fees. I don't know why shops even allow amex.