Whether you are an online business or a physical business, accepting credit card payments is something that you need to consider. Many consumers and businesses around the world like to pay by credit card. Accepting this form of payment can have huge benefits – however it can also come with its drawbacks. This post delves into the pros and cons of accepting credit cards as a form of payment.
The pros
Greater customer base
Accepting credit cards as a payment option could help to expand your target audience – especially when it comes to bigger purchases. Those who cannot afford to pay the whole amount in cash or by debit card can instead choose to pay by credit card.
It’s a convenient way to allow customers to buy now and pay later. Unlike having to provide a finance plan, you do not have to worry about lengthy credit checks. Unlike a payment plan, you meanwhile get the full amount upfront paid by their credit card company. It’s a convenient form of borrowing for you and your customers.
Increased sales
Allowing customers to pay by credit card will likely lead to increased sales. Consumers may not be able to justify spending $70 on their debit card on impulse – but may be happy to use their credit card if it means being able to pay later.
A lot of international customers may also feel more comfortable paying by credit card and you could see an increase in international sales (if you sell to customers in other countries). This is because some credit cards have reduced international fees and it is easier to dispute payments using credit cards.
Improved credibility and trust
A lot of customers are more likely to trust a company that accepts credit cards. It shows that you are an established company that is willing to take on the extra fees and risks that come with credit card payments. Because credit card purchases can be more easily disputed, using a credit card can act as a form of insurance for some consumers – especially when buying high value items.
Companies that only accept cash are more consistently being seen as outdated and some customers may even assume you are laundering money. Accepting debit cards and credit cards is a way to show that you do things by the books and have embraced the 21st century.
The cons
The cost of processing fees
Payment gateways, payment processors and card networks may all charge processing fees to merchants. In fact, you can usually expect fees of 1.5% to 3.5% per transaction (however, in some cases, they can be as high as 6%). This is much higher than processing fees charged on debit cards and may affect the profits of some sellers.
Shopping around for a credit card processor can help you to access the lowest fees. Some sellers also set a minimum spend limit on credit cards. This can help to reduce losses from high processing fees. Companies that deal primarily with small transactions or already have high overheads may see accepting credit cards as unprofitable despite these measures.
The risk of fraud
There is a risk of fraud that comes with accepting credit cards. This includes chargeback fraud – which is when customers fraudulently dispute purchases with their credit card provider in order to get refunds, which then results in chargeback fees for the seller. Identity theft can also be a risk – this is when someone pays for a purchase using someone else’s stolen credit card.
There are measures you can put in place to reduce chargebacks fraud, as well as purchases using stolen credit cards. Check out these fraud prevention tips if you are an online seller or if you sell products/services over the phone.
Potential delays in payments
Credit card payments can often take longer to process than debit card payments. You may have to wait several days to receive money after someone makes a purchase.
This can potentially cause cash flow issues and may put off some businesses.
Should you accept credit cards?
You should generally accept credit cards if you sell high value items or services, as it can increase sales by providing a secure payment option and the ability for consumers to easily dispute purchases. When selling products internationally, it can be recommended for similar reasons.
Accepting credit card payments may not be necessary if you mostly sell low value items – most consumers can afford to pay for these on a debit card and the processing fees may not make it worthwhile.
