Should businesses let their customers pay with credit over the Internet? Today, assessing the value of Internet credit payment by listing its benefits and drawbacks is common. Credit, as the saying goes, is king. But that doesn’t mean everyone uses a charge card. In fact, many consumers pay for Internet purchases by electronic check. According to a 2007 study by the Federal Reserve, there were 62.7 billion electronic check payments in 2006 alone, and many of them were conducted online.
Online credit payment has benefits and drawbacks for businesses and consumers alike. Below, we look at these benefits and drawbacks from both perspectives: business and consumer.
Benefits and drawbacks for businesses
If your business is considering allowing customers to pay by credit card online, consider the following benefits and drawbacks of online credit payment:
Drawback: some consumers don’t pay with credit. A 2009 study by TransUnion—one of the nation’s top credit reporting agencies—found that over 70 million Americans are without a general credit account. The easiest way around this statistic is to operate an online ACH account in addition to an online credit account.
Benefit: reaches a broad spectrum of customers. While over 70 million consumers don’t have a general-purpose charge card, over 600 million consumers do. That means that offering online credit payment allows millions of remote consumers—some of whom may not have a checking account—to buy from your business website.
Drawback: higher transaction fees than ACH payment. Card services fees are typically higher than ACH fees. But, considering that trillions of credit transactions occur each quarter, avoiding online credit payment because of transaction fees is shortsighted.
Benefit: customers spend more money. Research shows that the average charge purchase is $40, compared to an average of $9 for a cash purchase.
Benefits and drawbacks for consumers
The benefits and drawbacks of online credit payment for consumers correlate with the benefits and drawbacks for businesses:
Drawback: with charge payment comes debt. In the U.S., the average credit card debt per household is over $14,000. With credit debt being a top precipitator of bankruptcy, many consumers either buy small with charge cards, or don’t use them at all.
Benefit: increases buying options. The opportunity to make online charge payments increases buying options in terms of (a) payment options and (b) the ability to buy from businesses whose sole online payment option is credit.
Drawback: recurring charge arrangements. Some businesses notify consumers of a recurring charge agreement in the middle of fine print that most consumers don’t read. Consequently, many people complain of recurring charges after believing they were applying for a free trial offer or a discount package. Such experiences make some people wary of online purchases altogether.
Benefit: easy to make large purchases. We always hear about the peril of charging big purchases that aren’t affordable, but what about charging big purchases that are affordable? For many consumers, charging large, online purchases is a matter of convenience, not living beyond their means.
At AVP Solutions, we understand the seriousness of contracting with a merchant service provider (MSP). That’s why we analyze a business’ payment needs before suggesting solutions. To learn more about how an Internet merchant account could benefit your business, contact us today.