Here’s the truth: credit card processing is big business. Your business likely knaows this; after all, a majority of business transactions in the United States are done via credit card or some online payment. That means that your business needs merchant account services that are secure, reliable, and affordable. A merchant account provider that doesn’t meet any of these attributes sets you up for business pain and financial loss.
That being said, it’s worth asking: What do credit card transactions mean for small businesses within the United States? Just how many are truly done, and how much does that cost your business? More to the point, what can you do to reduce the expense associated with credit cards, and how can you manage your credit card transaction fees if your business is high risk?
These are all great questions. So let’s try to answer them.
How Often Are Credit Cards Processed in the United States?
Let’s be clear: This is not a small number. In fact, the number is astonishing. In 2018, there were 1.01 billion credit card transactions every day. These statistics were pre-pandemic, and since that time, e-commerce has continued to explode. As such, credit card transactions continue to rise, but it also means that cash transactions continue to fall.
Indeed, the statistics would seem to show that cash is being used less. Consider the following: In 2015, 24% of Americans said they paid all or mostly with money. By 2019, 18% were using cash, and that percentage has continued to fall. Today, that number is just 16%.
This means many things. On the one hand, it’s good news for consumers. Credit card purchases come with perks, rewards, and flexibility in payment. Of course, this can be hugely problematic for irresponsible customers, and the statistics on the rise of credit card debt seem to bear this out. Furthermore, credit card transactions are more expensive for businesses. Businesses are charged a flat fee and a small percentage of every credit card transaction. This isn’t the case with cash, and while cash has problems (depositing, accounting, theft), businesses at least keep every cent they earn on a cash transaction.
Credit card processing is an expensive service for businesses, and that’s why it is crucial that you find a processor who can meet all your needs and create customized solutions that will work for your business. We offer a variety of these exact solutions at Bankcard.
How Much Do Americans Use Their Credit Cards?
Quite a bit:
- In 2019, there were 39.6 billion credit card transactions made in the year.
- The sheer number of cards in the United States is massive: more than one billion credit cards are currently floating around the United States, and 70% of Americans have at least one card.
- Forty percent of Americans prefer to make payments with a credit card, and 60% believe that the United States will be transitioning to a cashless society.
The idea that America is moving cashless is born from some businesses moving increasingly to cashless transactions. In addition, the COVID-19 pandemic seemed to accelerate these changes, forcing Americans to rely more and more on credit cards to make payments over apps and the internet.
Of course, just because Americans have a lot of credit cards doesn’t mean they are always responsible for their credit use. Indeed, credit card debt is a significant problem within the United States:
- In the first quarter of 2022, Americans’ combined credit card debt was 841 billion USD. This is almost double where it was 20 years ago when total credit card debt was 478 billion USD.
- Forty-one percent of Americans carry a balance on their credit card, meaning they have credit card debt they will need to pay off at some point.
- The interest rate Americans pay on these cards is not cheap: the average APR is 14.56%.
How Much Does Credit Card Processing Cost Businesses?
As every business is painfully aware, processing credit cards isn’t free. Companies generally incur two types of fees when they process a credit card: a flat, per-transaction fee and a percentage fee.
And this can get expensive. Really, really expensive. For businesses with no high-risk classification, this costs anywhere from 1.5%–3.5% of the transaction. This number includes fees to the credit card company, the credit card issuers, and the merchant processor. Americans’ propensity to use credit cards can cost small businesses billions of dollars in fees.
It gets even more costly when you consider the use of other equipment. Companies will need to pay for point-of-sale devices and necessary security devices. They’ll also need to pay for programming and integration into their online stores. All of this gets very expensive, even before considering that some businesses are considered high risk.
How Many Businesses Are High Risk?
A high-risk business has a higher-than-average risk of chargebacks or fraud. As such, they will need a high-risk merchant account. Chargebacks are the bane of any business with a credit card processing function. It means that a customer has returned a good or fraud has been involved, necessitating a refund. Fraud is expensive for all parties and results in a fee levied on the business in question.
How frequent are chargebacks, and how many companies are high-risk? Both of these numbers are very high. Across all industries, the chargeback ratio is .6%, meaning that .6% of all transactions are ultimately reversed. The reasons can vary, including customers misunderstanding what they purchased, a good or service not working as advertised, or fraud. Of the various causes, fraud is the most problematic. However, it is also potentially the most preventable.
Merchants are charged a fee whenever there is a chargeback; if a company’s chargeback ratio gets too high, a business becomes a high-risk business. These merchants are charged extra for the use of credit card processing services. This can get expensive quickly. The total damage here is massive, with chargebacks expected to cost merchants 30 billion USD by the decade’s end. Businesses need to do whatever they can to limit these issues.
Having a high-risk business can increase the costs of doing business and processing credit cards, but this does not have to be fatal for your business. Indeed, if you find a suitable merchant account processor, you can work with them to fully integrate their offerings into your software, website, accounting platform, and more. At Bankcard, we specialize in working with high-risk businesses and can give you access to the services you need at affordable prices.
How Prominent Is Credit Card Fraud?
As noted above, credit card fraud is one of the most significant reasons that chargebacks are levied on a business. Credit card fraud occurs when a credit card purchase is made, but the user has not authorized the purchase. It can happen for many reasons, including:
- Theft of credit card information.
- Someone’s identity has been stolen, and a credit card or account has been opened in their name.
- An unauthorized user uses a credit card.
- Credit card details are purchased on the dark web, then used by other actors.
Credit card fraud is a huge problem. These days, most major credit cards have fraud protection that will reverse any charge deemed fraudulent. However, businesses will still pay the penalty if there is a chargeback, which means they have a shared responsibility to reduce chargebacks whenever possible.
How big of a problem is credit card fraud? Consider the following:
- In 2020 — after the explosion of digital payments, thanks to COVID-19 — credit card fraud increased 44.7% over 2019.
- Identity theft is the most common type of credit card fraud.
- The theft of credit and debit cards costs consumers and credit card companies billions of dollars annually.
Every business is interested in cutting down on credit card fraud, and by taking the appropriate steps and being transparent in their price offerings, companies can reduce chargebacks. Furthermore, small businesses will need to work with their merchant account providers to identify ways to better secure their networks, reduce fraud, and ensure that they only charge authorized credit cards. Thankfully, many companies, like Bankcard, have developed procedures that ensure only authorized users can actually charge an expense on a credit card. This helps to save businesses money and time by reducing fraud.
What Does All of This Mean for My High-Risk Business?
If you have a high-risk business, at least this is clear: You will need affordable credit card services that meet your business needs. After all, you don’t want to pay an arm and a leg to get money from your customers. In addition, if you have a high-risk business, you need customized merchant account services.
High-risk companies will need a variety of services that are customized to their needs. These include:
- High-risk credit card processing: High-risk credit card processing is the most basic of the services a merchant account processor offers. Simply put, a business can process credit cards in its retail location. Rates need to be flexible and customizable based on the company’s needs, and a merchant account processor should be capable of working with a business to find a viable solution.
- Alternative payment methods: Of course, credit cards aren’t the only way to make payments these days. Other methods include ACH payments or e-checks. Both approaches have become popular for customers who may not have access to traditional credit cards. Both are particularly popular in specific industries, such as subscription-based businesses, nonprofits, or membership organizations.
- Payment gateways: Most businesses have some e-commerce component these days. If your business is one of them, you will need an internet-based payment gateway that allows you to process credit cards directly from the internet. This area is particularly important for high-risk businesses, as the risk of chargebacks increases with card-not-present transactions. As such, you’ll need to work with an experienced vendor who can help you develop plans that fit your needs.
- Cryptocurrency: Cryptocurrency has become particularly popular for payments these days. However, many merchant account processors have not yet embraced its popularity. If your business takes payments in crypto, you’ll need a merchant account processor who is experienced in this area and has the software to enable you to accept crypto payments.
- Retail: The need to take payments via traditional retail services remains very high. As such, your business will need to be able to access conventional retail services. This includes point-of-sale equipment and other readers. You’ll also need technical support, regular maintenance, and a robust understanding of what fees are included with this traditional equipment. Finally, you’ll need to have all of the security on these devices regularly updated to protect your business and your customers.
So, are you ready to find merchant account services that fit your needs and can ensure you have secure access to your money? Check out Bankcard. At Bankcard, we offer various services and customized plans designed to meet your specific business requirements. We have years of history of working with a variety of high-risk businesses, ensuring that they gain access to the financial services that will allow them to succeed. Contact us today for more information and to learn more about how Bankcard can help your businesses grow and thrive.