Compare Pros and Cons of Accepting Credit Cards
An Expert Comparison of Credit Card Processing
If you own a business, chances are you’ve at least considered accepting credit cards. As with any other business decision, there are pros and cons to doing so. However, most business owners find that the positives outweigh the negatives.
In order to accept plastic, you’ll need to set up a merchant account with a bank or provider. Essentially, a merchant account is a bank account that allows you to accept credit and debit cards. It also serves as a binding agreement between the merchant, bank and payment processor for the settlement of card transactions. You will also need to purchase credit card terminals.
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Cost of Accepting Credit Cards
A merchant account comes with a variety of fees, both periodic and recurring. Very generally, the average processing cost for an in-store transaction is around 2 percent of the sale price, while the average cost for an online transaction is up to 2.5 percent. Merchant account providers charge more for online transactions because they are perceived as riskier.
In addition to transaction fees, you may be asked to pay application fees, statement fees, fees for failing to meet monthly minimums, termination fees and the like. These fees are always negotiable. Ask to have them reduced or waived altogether.
Credit card terminals are fairly inexpensive. Basic terminals cost about $200 and wireless terminals go for about $1,000. In some cases, you can lease credit card terminals from your merchant account provider. Leasing allows merchants to get top-of-the-line terminals for a low monthly fee. However, keep in mind that you may be paying more than the cost of the equipment in the long run. Be sure to read the fine print and inquire about the length of the lease.
Accepting Credit Cards Pros
- Increased sales - Accepting credit and debit cards greatly increases your customer base. Many consumers no longer carry cash, so they won’t shop at places that do not accept credit cards. Also, customers are likely to spend more at each visit when they use credit cards because they’re not constrained by the amount of cash they have on hand. In most cases, the increase in sales from accepting credit cards more than makes up for the fees.
- Internet sales - When you decide to accept credit cards, your customer base is expanded to the world. You can sell products to people who have never stepped foot in your store and never will.
- Fewer errors - Credit card transactions tend to be more accurate than cash transactions. When you swipe a credit card, there’s a reduced risk of charging the wrong amount and no risk of giving a customer the wrong change.
- Happier customers - Customers will appreciate the convenience that comes with paying by credit card. If you don’t accept credit cards, don’t expect a lot of repeat business.
Accepting Credit Cards Cons
- Cost - Accepting credit cards comes at a cost. You’ll have to pay fees for each transaction, and those fees are complex and difficult to understand. However, as we mentioned earlier, the increase in sales after from accepting credit cards usually more than covers the cost of credit card fees.
- Fraud/security issues - Credit card transactions are susceptible to fraud, and you may be stuck with the bill if you process a stolen card. Also, merchants must be extremely careful about how they store customer credit card information in order to avoid data breaches that can lead to widespread fraud.
- Accounting issues - Accepting another form of payment will make your accounting more complicated and time consuming. It adds another layer of detail to the books.