How Your Business Can Accept Credit Cards
Paper currency has a long history in the United States. Even before the Declaration of Independence was penned, coins and bills were quite common in the colonies. The era of national American currency officially began with the First Bank of the United States (1791). In time, popular commodities like gold, tobacco and animal skins lost out to an established monetary system everyone could agree on.
Though it may not make the history books, we are currently experiencing a similar shift in popular payment methods. For over two hundred years, cash was king in America. Personal checks came along a few years later, but they were never as popular as paper money. It wasn’t until 1950 that a non-paper option was introduced.
Depending on whom you ask, the modern credit card was first offered by either American Express or Diner’s Club in 1950. It was advertised as “plastic money” and it was only issued to preferred customers. Since most retailers did not have the equipment to process these transactions, they were only accepted at select locations. It wasn’t until the 1980s that these cards caught on with the average American consumer.
With the help of the debit card, which was introduced in the late 1980s, plastic payments outstripped paper payments (cash and checks) in 2003. Six out of every ten retail purchases are now made with a debit or credit card. The numbers are even more lopsided on the internet, where ninety percent of purchases are electronic.
What’s next?
If history has taught us anything, it is that old ways of doing things rarely come back into fashion. In short, there is absolutely no reason to suspect that cash will ever again be king. If anything, cash is growing less popular by the day. Slowly but surely, we are headed toward a truly cashless society. What does this mean for modern businesses?
Cash only establishments are indeed a dying breed. The small general store, the local diner, or the town barber shop may be able to get away with it. After all, their customers understand that the services and products they offer are typically inexpensive. They also know that accepting plastic costs money. However, shoppers are not nearly as understanding when they shop for more expensive items.
Survey after survey has confirmed that customers expect multiple payment options when they shop at most retail stores. We also know that when their preferred payment option is refused at the register, they almost never return to that store.
Merchant Service Accounts
As we mentioned, sixty percent of retail purchases are made with plastic, and every single one of them was approved by a merchant service provider. They check the cards, collect payments, and transfer funds to their client merchants. For these essential services, they charge a number of standard fees. Like the credit cards they process, the rates vary from customer to customer.
The single most important factor when it comes to rates and fees is how the merchant accepts payments. If he processes plastic payments in person, his rates are often quite reasonable. The explanation is simple. People are less likely to use stolen credit cards in person than they are on the internet because of additional security measures. When a card is present, the cashier can ask to see ID or check to see if the signatures match. But an online seller has no such security measures. Unless the card has been reported as stolen, he has virtually (pun intended) no way of knowing if he is doing business with the rightful cardholder. Not surprisingly, rates for online sellers are much higher than they are for traditional retailers.
What are the benefits?
While it is true that a merchant always receives more when a customer pays in cash, it is also true that customers typically spend more when they pay with plastic. The average credit card sale is about twenty dollars higher than the average cash sale. Customer surveys also confirm that shoppers think more highly of businesses that offer multiple payment options, while cash only outfits are generally viewed with a jaundiced eye.
Where to Start?
As we mentioned, the single most important question is how you will be accepting plastic payments. Traditional retail sellers must actually swipe each card by hand through something called a point of sale (POS) terminal. These terminals are designed to accept both credit and debit cards. When the customer uses a debit card, he must enter his pin number before the transaction can be reviewed.
Online sellers must also apply for and obtain a merchant service account, but because they do not do business in the flesh, they obviously do not need a point of sale terminal. All internet sellers must install specialty software called payment gateways instead. These gateways give them the ability to process electronic payments in real time and to protect their customers’ financial information by encrypting it.
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