Published On: Wed, May 16th, 2018

The Shocking Future of Online Credit Card Payments

Most people think that credit cards are a recently developed payment solution.  However, the use of ‘credit’ for retail purchases has been in use for nearly 200 years.  Sure, in the early day’s merchants did not issue plastic cards to their customers – heck plastics weren’t even developed yet.  Instead, merchants would keep a ledger with the name of their most-trusted customers and what they owe.

In fact, the sort of localized credit remained common well up to the 1950’s when something new was introduced on the payments landscape – the introduction credit card.  Since then these plastic cards have taken over commerce around the world. But there could be a challenge to credit card processing as we know it and here is the shocking future of online payments.

photo/ Michael Jarmoluk via pixabay

The Times are Changing

Just as the interest has changed several industries, its impact is also being felt when it comes to payments – not only in how customers pay but also how payments are processed.  Since the mid-90’s, we have seen the rise of ‘alternative payment methods’ and according to industry analysts, these methods are beginning to eat into the dominance of credit cards.

In 2010, industry research from Javelin Strategy & Research noted that ‘online use of credit cards continues to decline, representing a sustained and ongoing change in consumer behavior.’  This was important as the use of credit cards for online payments represent less than one-half of all transactions.

While this trend is due to a number of causes – including online payments from those without credit cards – it does indicate that the time is changing when it comes to online payments.  Part of this reason is that the credit card was never designed for buying things online.  Instead, the stripes or chips embedded on the cards were meant for paying for goods in person.

Think about it, one either needs to risk keeping their credits numbers and security codes stored on their computers or they need to enter this information every time they make an online purchase.  As such, the use of credit cards for online shopping is less than ideals.

Another reason for the shift away from credit cards is the expense.  While most consumers don’t see the charges for using credit cards in the things they buy, merchants do.  As such, the use of credit cards over cash means that merchants are effectively accepting a discount on their list prices.  This is the reason why most gas stations have different prices for cash and credit as their margins are generally razor thin.

In the days before the internet, these expenses could add up to 5 percent or more of the total transaction cost and in many cases, merchants would need to what two or three business days to get paid on the sale they already made.  As such, accepting credit cards – while necessary – was an expensive option for most businesses.

Enter alternative payment providers who are offering new ways to not only make but also process payments.  For consumers, this includes using mobile phones and other digital devices as wallets; however, this does bring up security concerns.

What Does This Mean for Business?

As mentioned merchants need to offer a variety of payment solution for their customers these days; if not, then they are effectively saying no to business.  However, credit cards are an expensive option and alternative payment methods are gaining favor.

For businesses, this is due to options such as lower processing fees, little or no chargeback fees, and even faster processing.  Combined, this means that businesses are not only paid less for offering non-cash payment options but they also carry less risk in the event of a fraudulent purchase.  

The latter is a big plus in the age of rampant identity theft.  In fact, identity theft that nearly $16 billion was lost in 2017 alone.  For businesses without protection from this sort of fraud, the costs can be significant and as such a better way is needed.

However, the rise of alternative payments also brings about complications as many providers are local in nature.  This is because many providers are early-stage companies and the industry has yet to coalesce globally. As such, the best option for a vendor when considering an alternative payment type, such as a cryptocurrency, is to make sure it matches the what their customers will use.

While it’s undeniable that online payment solutions are evolving; obstacles remain.  These include the 1950’s design for purpose of credit cards, security concerns of many mobile payment solutions, and the competitive landscape which has yet to go through a major round of industry consolidation. 

As such, we remain in a period of transition and the best option for businesses large and small is to understand their customers and then offer payment options, while secure, will also ease the process of converting online visitors into paying customers.

Author: Ravi Kumarr Gupta

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