Why is it more expensive to withdraw cash on a credit card than it is to make a regular payment transaction to a retailer?

You can use a credit card to withdraw cash at an ATM, over a branch counter, or at a Bureau de Change. There is usually a handling charge for each withdrawal, typically a small percentage of the amount withdrawn (e.g. 2.5%, though this is usually subject to a minimum amount of, say, around £2.50). This is because by taking cash you are accessing the direct line of credit rather than going via a third party, such as a retailer, who would usually pay the card issuer for the credit service.