The incredible growth of noncash payments over the past decade has forever changed the American consumer. In 2003, plastic overtook paper as the most popular payment option in the U.S. The speed and convenience of credit and debit cards were simply too much for the average shopper to pass up. Sixty percent of all retail purchases and over ninety percent of online sales are now completed with plastic.
What does this mean for small businesses? Because they fear the fees and the complicated contracts, some smaller firms resist electronic payments. This isn’t always a bad decision. For example, if you run a small general store, it is actually possible to lose money by accepting plastic. But in the overwhelming majority of cases, small business owners eschew electronic payment because of commonly held misconceptions.
What is a Merchant Service Account?
Every time a credit or debit card transaction is processed, a merchant service provider is working behind the scenes to ensure the safety of both the customer and the merchant. Providers are the ones who approve or decline electronic purchases. They work with both brick and mortar and virtual stores. After they have approved a transaction, merchants make sure that the requisite funds are collected from the customer’s credit card company or debit account. After deducting services fees, the provider will deposit the remaining balance directly into the merchant’s account.
Now, returning to our general store, they may not benefit from a merchant service account. Since these accounts charge service fees for each transaction, if a business has a low average sales price, they could actually lose money by offering credit as an option. Let’s say a customer comes in and only buys a cup of coffee for 1 dollar on credit or debit. Transaction fees and the discount rate alone will probably be enough to ensure a small loss. That may be why most convenience stores refuse plastic. Alternatively, they can set a minimum purchase price to make sure they don’t lose money.
But most small businesses do not sell cups of coffee. They sell items that are considerably more expensive and price is seldom a concern. Let’s be honest here, small businesses do not succeed based on price alone. The fact is that they simply cannot compete with larger firms when it comes to discounts. Bulk orders, warehousing and lower shipping costs mean that the big chains can outsell small firms almost all the time. So how do they succeed? How is it that over fifty percent of the workers in the private sector are employed by small businesses?
Competing with online juggernauts like Amazon on price is all but impossible for most small businesses. The savings they receive based on economies of scale is simply too much to overcome. But small businesses have two obvious advantages over even the largest of companies. Number one, they are local. So, if a person needs a last-minute gift, he will always drive downtown and shop at a local business. And number two, large retailers, whether online or in the flesh, cannot possibly compete with the service and knowledge offered by smaller stores.
No matter how technologically savvy and connected the modern shopper is, they still prize superior service. In fact, study after study has suggested that people are willing to pay higher prices for a more enjoyable shopping experience. Nothing is more important than taking care of the customer at the register.
Yes, maybe the American consumer has gotten a bit spoiled, but the fact is that he has grown accustomed to electronic transactions. Whenever he enters a store that isn’t selling coffee and candy bars, he expects the merchant to accommodate him at the register. This means accepting cash, checks, credit and debit cards.
Credit or Debit?
Much has been written about debt in America. Access to easy credit has led to a record deficit, an unprecedented housing crisis, and high levels of personal debt. Fortunately, Americans are starting to get smart. In 2006, debit card payments outpaced credit card charges for the first time in US history. In case you didn’t know, a debit card actually deducts money directly from your checking or savings account, so there is no borrowing. The increased reliance on the debit card is one reason why personal savings are on the rise for the first time in years.
The standard merchant service account gives small businesses the ability to process both credit and debit card payments with the same machine, a point of sale terminal or card reader. As we mentioned%
- Merchant Account Definition
- 3 Ways Your Business can Start Processing Credit Cards
- Why Merchant Accounts Are Vital to E-Commerce
- How to Offer Security and Convenience when you Accept Credit Cards
- How to Begin Setting Up a Merchant Account