Accepting Credit Cards in Your Business – Evaluating the Upside Alongside the Downsides

As most of us are aware, commerce has gone increasingly cashless and card-based over the past few years. According to the Federal Reserve, 57% of all purchase payments now flow through debit or credit, whether online, over the phone, or tapped in person.

So, what’s behind this growth of “plastic money” transactions? Well, it’s safe to say that consumers enjoy effortless swiping or inputting card info to pay securely without fumbling about with cash bills and coins. But for merchants, there’s a trade-off – potentially higher revenue thanks to customer preference for easy payments, but the downside is accepting the fees that are deducted behind the scenes on every card authorization.

As a shop owner or eCommerce entrepreneur, weighing up whether to take the plunge into accepting credit cards means carefully assessing the pros against cons. Do the benefits of catering to card-carrying shoppers outweigh relinquishing a slim margin off each sale?

In this article, we’ll consider some of the advantages along with potential downsides to integrating both in-person and online credit card processing. Let’s jump in.

Swipe 101: Understanding How Credit Card Payments Flow

Before weighing the pros and cons of accepting credit, it helps to level-set what’s actually happening under the hood when customers dip or tap a little piece of plastic.

At the most basic level, think of card payments like an intricate relay race between consumers, banks, merchants, and card networks:

1. It starts with a customer’s issuing bank, which provides their credit account and physical card connected like a key to that line of credit.
2. The card networks (Visa, MasterCard, Amex, Discover) provide the infrastructure linking issuing banks to the merchant’s bank. Think rails that move transaction authorization requests and funds between financial institutions.
3. On the merchant end, an acquirer bank handles that business’ account and payment processing. To accept payments, businesses use a gateway service that checks card credentials and routes requests between the merchant’s bank and card networks.
4. Once the issuing bank approves a transaction by verifying funds availability against the customer’s credit limit, the acquirer bank transfers the payment amount minus interchange fees charged by the network and issuing bank.

So in plain terms – customers bring the credit, card networks provide communication channels and merchants link into payment infrastructure through their chosen acquiring bank and payment processor. Understanding this flow helps clarify who earns what from each swipe. Now that we’ve demystified what’s going on under the hood, let’s examine the pros and cons.

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Benefits of Accepting Credit Card Payments

Accepting credit cards can significantly expand sales potential. Let’s delve into some of the money-making upsides that plastic brings.

More Customers, More Sales

Opening up to credit and debit allows capitalizing on their sheer popularity. It’s estimated that there are around 1.2 billion credit cards in circulation in the United States alone. By facilitating transactions, you immediately gain access to this massive group of card carriers. The fact of the matter is that plastic has become so convenient that many customers won’t buy it without it – especially for higher-priced items. This means welcoming credit cards can grow your business by giving more customers more ways to conveniently pay.

Security Breeds Spending

Customers appreciate the security protections their issuing banks provide along with the ability to easily dispute problematic charges. This makes card users more willing to spend freely without fear of fraud or hassles if something goes awry. Security chargebacks also mean merchants can avoid nonpayment issues.

Loyalty Programs Drive Repeat Business

Credit card reward programs breed loyal, high-value repeat customers. Cardholders are strongly incentivized to keep swiping their plastic to rake in airline miles, cash back, or other freebies. Aligning to loyalty programs keeps these redeemers returning frequently.

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Better Cash Flow Management

Unlike cash sales, credit card transactions mean faster access to funds through near-instantaneous bank transfers rather than waiting for deposits. This improved cash flow allows smoother operations, inventory purchasing, and financial management.

Drawbacks of Accepting Credit Cards

Of course, welcoming credit cards isn’t all upside. Let’s review key drawbacks that can cut into profits.

Paying the Fees

The biggest drawback of accepting plastic is that card networks and banks claim a percentage interchange fee from the total transaction amount. These fees vary by card type but typically range from 1.5% – 3%, subtracting from your bottom line with every dip and tap. Other charges like payment gateway fees, monthly service costs, and chargeback penalties further erode revenue.

Fraud Means You Take the Loss

While security protects customers, merchants carry all liability for fraudulent transactions. Sophisticated hackers have grown adept at breaching systems and stealing customer data for making fraudulent purchases. This fraud liability can leave your business footing the bill and losing inventory for fake sales that issuing banks later deem invalid.

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Maintaining Compliance Takes Time and Effort

To accept payments within card network rules, businesses must comply with strict standards like PCI certification around customer data security and equipment like PIN pads. Keeping up with compliance to avoid penalties adds administrative hassles alongside big fines if standards lapse.

More Returns and Disputed Transactions

It’s generally easier for dissatisfied customers to dispute a credit card charge than return hard-earned cash. Openness to plastic payments then tends to increase time spent mediating returns, disputes, and chargebacks. This costs manhours and creates the potential for abusive customers to unfairly revert legitimate transactions.

In Closing

As we can see, integrating credit card payments brings a real upside by catering to strong customer preference for effortless swiping and tapping. Yet it also introduces merchant liability and margin erosion that can’t be ignored. Ultimately though, the scale of “plastic money” makes some integration unavoidable to maximize revenue in today’s increasingly cashless society.

The key is partnering with a switched-on payment processor that simplifies compliance, provides fraud loss buffers, and leverages scale for competitive card acceptance costs. Do the diligence to find the right acquirer match, and your business can embrace card convenience while dodging many downside drawbacks.