Credit Card Processing: A Pretty Good Deal for Merchants

By nature, extending credit entails some risk of loss.

That is why companies who process credit card purchases will never do so for free or anything like it. Any party thats involved in the credit chain needs to be paid for not only its troubles, but for its risk of loss. Credit card fraud, for example, happens every day.

In recent years, however, credit card processing fees have gone down. So much so that many merchants now accept credit cards for purchases of as low as one dollar.

How did credit card processing become so cost-effective, and can this trend continue?

Credit Card Processing: The Early Years
The first credit cards came into use in the United States during the 1920s. Oil companies and hotel chains were among the early adopters. They--the merchants--extended credit to their customers and then did the processing and collection in-house.

In 1946, the Flatbush National Bank of Brooklyn offered the first bank-issued credit card. The merchant was thus relieved of the risk of actually extending credit and the headache of collecting payment. Credit card processing had been outsourced to the banks.

That became the model.

Musical Middlemen
Over time, merchants who accepted credit cards were less and less on the hook for the often tedious task of credit card processing. A variety of middlemen stepped in to do the job.

MasterCard and Visa built effective systems for credit card processing, and American merchants benefited hugely. People bought more and more stuff on plastic, and the big credit card companies raked in the money for handling the messy details.

Then, suddenly, the Internet happened.

The Internet Changes Everything, Including Credit Card Processing
The World Wide Web allowed a plethora of smaller credit card processing outfits to sprout and thrive. Because of the Internet, smart small companies could process electronic payments and perform other middleman functions just as well as giants like MasterCard and Visa--if not better.

Today, credit card processing on and via the Internet is a massive trend thats only getting larger. Just for the months of November and December in 2008, online retail sales are projected to top $44 billion. Almost all of those transactions occur via credit card.

With the pie so big and the technology there to make the job doable, thousands of companies are competing for the privilege of processing credit cards for merchants large and small.

This has resulted in drastic price decreases. Online processing gateways now routinely cost ten dollars or less per month.

With credit card processing so cheap and at such low risk for the merchant, using a credit card to buy a pack of gum is now often perfectly acceptable.

Reliability Essential in a Credit Card Processing Company
Getting a great price on credit card processing is always important and, in this environment, more likely than ever. However, price isnt everything.

The best credit card processing companies justify their fees by providing excellent service to their merchant partners. Sometimes, getting it cheaper somewhere else isnt as appealing to a busy merchant as seeing things working perfectly now.

Sources
About.com
Public Broadcasting Corporation