Credit cards and debit cards make everyday purchases easy and convenient. Consumers benefit from not having to carry around and keep track of dollar bills.
Businesses that allow customers to pay with card will make more money as customers will be more likely to shop there.
However, there is a price to the convenience of credit cards that most people don’t think about until they become business owners.
The following is a summary of the different card types and what the benefits and drawbacks are to consumers and business owners.
As implied by the name, bank cards are debit cards or credit cards issued by banks such as Chase, Bank of America, Wells Fargo, etc. Types of bank cards include:
A non-bank card is issued by its own company rather than a bank. American Express is one example of a non-bank card.
From the perspective of a consumer, both bank cards and non-bank cards can be used interchangeably. However, the business owner may notice that some cards have higher transaction fees.
Within the categories of bank cards and non-bank cards, you can have many types of cards. The different types of cards are:
Any of these card types can be either a bank card or a non-bank card. For example, a Visa Debit Card, a Basic Mastercard, or an American Express Rewards Card.
These cards all offer different benefits to the consumer. The costs of using the card get passed along to the business when they accept the card as payment. The cost of processing a card is known as the interchange fee.
Most business owners do not have control over what types of cards their customers use to pay for their products.
However, they may become aware of the different charges they are responsible for if they have an interchange-plus pricing model and can see the card types on their processing statement.
When a customer uses a debit card there is no credit processing; it is simply a dollar-for-dollar transaction. This results in a low interchange fee.
Some consumers prefer using a debit card to avoid getting into credit card debt. However, they also give up any perks that may come along with rewards cards.
A basic card is a credit card with no perks or rewards associated with it. A basic card allows consumers to build credit as long as they don’t incur any late payments.
The interchange fee for processing a basic card is higher than it is for a debit card, but lower than it would be for a rewards card.
A rewards card is a credit card that offers the consumer benefits or perks such as cash back or air miles. People typically need a credit score over a certain amount before they are eligible for rewards cards. This is to ensure that the customer is likely to pay their bills on time.
The interchange fee is often highest on rewards cards. This is because the business owner is helping to pay for the rewards the consumer earns. Although the consumer can benefit from rewards cards, it comes at a slightly increased cost to the business owner.
Bank cards and non-bank cards make life easier and more convenient for both the customer and the business owner.
However, convenience always has a cost.
While most consumers are unaware of the extra costs associated with using a card, business owners may want to familiarize themselves with these costs so they can budget accordingly.
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