I thought it might be of interest to share this on the forum as many people are surprised when I share this in conversation.
If you think Credit Card bills are bad on the consumer side, you should see the merchant side of credit card billing. It is a train wreck that makes cellular phone contracts look like childs play. I'd need a PHD in BS to figure these things out. I think the credit card companies have had decades to perfect the mumbo jumbo and add fees for everything.
Here are the basics of how credit cards work in my view, please discuss if I made an error (this is actually a simplified version!)
Consumers
Consumers pay for credit cards in late fees, interest fees and many other potential fees. If you have a no annual fee card and always pay your bill in time, they might actually save you some money, or at least that is what they want you to think. You know "cash back" or airline miles earned, etc. We will touch on this below.
Merchants
For merchants that accept payment via credit cards there are many pitfalls and hazards that must be addressed. The simple fact is they are not cheap, we have to pay for each and every transaction. This initially can range from about 2% (some will claim lower, but we will look a bit closer at that) and just goes up from there. This is just the start of it though. If you have a high cash back card, it is simply charging the merchant more to take that card.
Since we are paying a hefty price to have a middle man in there, we should expect something in return, perhaps security? Nope! Credit cards have almost no security. Need proof, how many times have you had to change credit cards in the last 5 years? No other business model could sell such a flawed product and still be in business!
This is the part that people find interesting.
Who pays for all of that fraud? Merchants get to pay this bill! Yep, you can call your card company and report fraud, or maybe they even catch it and turn things off for you. Oh, ain't that great? Guess what, they just pull the money from the merchant even though they know the merchant had nothing to do with the fraud. The merchant accepted the payment, so they must be to blame. But, wait, I thought you were offering the merchants a secure payment solution? Hmm... Keep in mind that the merchant has already released the products or service by the time this happens. This is a total loss!
Now over the years I have played with all of the "security tools" the credit card companies offer us, and I am here to say that none of them work. At Aloft we use a third party business that's only job is to analyze every card transaction and tell us if it might be safe to ship or not. If they say yes, and it ends up a scammer, they insure the transaction for loss. This is yet another added expense, so now I am paying even more % per order to do this!! But trust me, it is needed, remember, no security!
Now you might think we have reached the end of the expenses, nope! The amount of labor needed to deal with credit card orders is endless, and we all know labor isn't free! So, lets say someone managed to slip through a bogus order, now we have to research this, reach out to customers (sometimes the customer forgot they ordered something and thought it was fraud), maybe shipping companies to reverse a shipment (more money) and we get fined a Chargeback from the Credit Card company! If it was fraud, we now get to report this to our third party so we can hope to get the insurance to pay off. And did we mention the bills and all of the mumbo jumbo fees? More labor.
Why don't Credit Card companies fix the security?
Because it makes them billions of dollars! It would not be hard for them at all to fix ALL of the security issues, but that is not in their interests, they make a huge amount of profits of of the fraud! Just the charge back fees alone is enough reason for them to keep a healthy level of fraud in the system. They are structured so the fraud does not hurt them, it actually benefits them.
So what does this all cost?
That is a darn fine question. That "cashback" you get with the credit card is paid by the merchant. Thus the merchant must raise prices by that much plus all of these other fees just to break even.
I really do not understand why this broken system persists! The credit card companies and banks make tons of money but the merchants and consumers pay the prices. Why are these middle men even in the mix? They take the profits and don't even offer the very basics of what they promise. It is a busted system.
In this day and age I do not understand why we all have some many greedy companies in the mix. Paypal is a bit better for merchants, but they are not cheap either, the biggest issue with them is they do not refund fees when a payment is refunded or cancelled. A horrible practice IMHO.
This is why we now accept Zelle payments, while not ideal, it does look promising. There is no cashback or other BS, no charge backs, no elaborate fee structure, etc. This allows us to offer a small discount for using this payment method.
-Wayne
p.s. Why in the world do we not have a HUGE class action suite against these companies? They don't supply the very simple thing the system relies on and we all pay for.
If you think Credit Card bills are bad on the consumer side, you should see the merchant side of credit card billing. It is a train wreck that makes cellular phone contracts look like childs play. I'd need a PHD in BS to figure these things out. I think the credit card companies have had decades to perfect the mumbo jumbo and add fees for everything.
Here are the basics of how credit cards work in my view, please discuss if I made an error (this is actually a simplified version!)
Consumers
Consumers pay for credit cards in late fees, interest fees and many other potential fees. If you have a no annual fee card and always pay your bill in time, they might actually save you some money, or at least that is what they want you to think. You know "cash back" or airline miles earned, etc. We will touch on this below.
Merchants
For merchants that accept payment via credit cards there are many pitfalls and hazards that must be addressed. The simple fact is they are not cheap, we have to pay for each and every transaction. This initially can range from about 2% (some will claim lower, but we will look a bit closer at that) and just goes up from there. This is just the start of it though. If you have a high cash back card, it is simply charging the merchant more to take that card.
Since we are paying a hefty price to have a middle man in there, we should expect something in return, perhaps security? Nope! Credit cards have almost no security. Need proof, how many times have you had to change credit cards in the last 5 years? No other business model could sell such a flawed product and still be in business!
This is the part that people find interesting.
Who pays for all of that fraud? Merchants get to pay this bill! Yep, you can call your card company and report fraud, or maybe they even catch it and turn things off for you. Oh, ain't that great? Guess what, they just pull the money from the merchant even though they know the merchant had nothing to do with the fraud. The merchant accepted the payment, so they must be to blame. But, wait, I thought you were offering the merchants a secure payment solution? Hmm... Keep in mind that the merchant has already released the products or service by the time this happens. This is a total loss!
Now over the years I have played with all of the "security tools" the credit card companies offer us, and I am here to say that none of them work. At Aloft we use a third party business that's only job is to analyze every card transaction and tell us if it might be safe to ship or not. If they say yes, and it ends up a scammer, they insure the transaction for loss. This is yet another added expense, so now I am paying even more % per order to do this!! But trust me, it is needed, remember, no security!
Now you might think we have reached the end of the expenses, nope! The amount of labor needed to deal with credit card orders is endless, and we all know labor isn't free! So, lets say someone managed to slip through a bogus order, now we have to research this, reach out to customers (sometimes the customer forgot they ordered something and thought it was fraud), maybe shipping companies to reverse a shipment (more money) and we get fined a Chargeback from the Credit Card company! If it was fraud, we now get to report this to our third party so we can hope to get the insurance to pay off. And did we mention the bills and all of the mumbo jumbo fees? More labor.
Why don't Credit Card companies fix the security?
Because it makes them billions of dollars! It would not be hard for them at all to fix ALL of the security issues, but that is not in their interests, they make a huge amount of profits of of the fraud! Just the charge back fees alone is enough reason for them to keep a healthy level of fraud in the system. They are structured so the fraud does not hurt them, it actually benefits them.
So what does this all cost?
That is a darn fine question. That "cashback" you get with the credit card is paid by the merchant. Thus the merchant must raise prices by that much plus all of these other fees just to break even.
I really do not understand why this broken system persists! The credit card companies and banks make tons of money but the merchants and consumers pay the prices. Why are these middle men even in the mix? They take the profits and don't even offer the very basics of what they promise. It is a busted system.
In this day and age I do not understand why we all have some many greedy companies in the mix. Paypal is a bit better for merchants, but they are not cheap either, the biggest issue with them is they do not refund fees when a payment is refunded or cancelled. A horrible practice IMHO.
This is why we now accept Zelle payments, while not ideal, it does look promising. There is no cashback or other BS, no charge backs, no elaborate fee structure, etc. This allows us to offer a small discount for using this payment method.
-Wayne
p.s. Why in the world do we not have a HUGE class action suite against these companies? They don't supply the very simple thing the system relies on and we all pay for.
We may be adding the ability in the future, but messing with the site is kind of low on the priorities right now. Sorry.