Credit Card Services Research

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Table of Contents

Introduction
Interchange Fees
Loss Compensation
Advantages for Increased Sales
Charging Business and Processing Fees
Conclusion
References

Introduction

Operating a credit card generally requires paying particular fees for using the comfort and provided services, which a bank can offer. Nevertheless, there are some ways to avoid paying monthly fees for using credit card, as well as paying for such services as maintaining expensive processing software, paying for the web security services, customer service fees, and others. The best solution is to resort to third party credit card processing services. On the one hand these services liberate merchants from paying numerous regular fees, on the other hand, merchants will have to pay fees on selling the product.

Interchange Fees

The free merchant accounts, which are generally used for avoiding paying regular fees presuppose paying fees on transaction. As a rule, the third party credit card processors also take fees as a reserve, in order to get insured against charge backs, nevertheless, if there are no charge backs for the particular time period, these fees are refunded to merchants. The average fees generally depend on the processor, and the company, which is engaged in processing the third party credit card transactions, as well as on the total sales of the merchant. Thus, the fees are 5 – 11 %, taken from each transaction (Mandell, 2005)

As for the regular fees, these are the charge back fees, and reserve fees, which may be the percentage of the total sales, or a fixed sum.

Loss Compensation

In order to compensate losses, merchants generally have at least two alternatives: the first is to refuse from using the third party credit card processor, or minimize the total sales. Originally, the lower the sales, the lower the losses, as if the total sales exceed some stated edge, the fees are increased. Consequently, there is an evident solution, to cooperate with several processors, or arrange several accounts within a single processor, and equally reallocate the financial sources within these accounts. Surely, this statement is absurd, nevertheless, resorting to these services is a convenience, which should be paid for. (Eccles and Crane, 2007)

Advantages for Increased Sales

If the sales increase, it means that the company develops steadily, and customers trust it; consequently, there is a solid basement for the further increase of the sales. Thus, the third party credit card processors take lower charge back fees. Some of the processors offer additional services, when the total sales reach some particular heights. (Liaw,2008)

Charging Business and Processing Fees

Originally, operating banking accounts, providing all the necessary measures for safety and security of the account holders’ finances requires essential investment. The fact is that, the more reliable the bank, the higher these fees are, consequently, the higher fees should be paid by account holders. In order to minimize these fees, the banks take percentage from both: merchants and consumers, in order to make both pay less, and encourage them to resort to the services of the bank in future. Moreover, these fees are the guarantee, that the finances are reliably protected and, the bank may be trusted. (Liaw,2008)

Conclusion

Finally, there is strong necessity to mention that the third party credit card processors offer the services, aimed at increasing the comfort for merchants and account holders, who aim to avoid paying some regular banking fees. On the other hand, they have to pay other fees and charges for using these services.

References

Eccles, R. G., Crane, D. B. (2007) “Doing Deals: Investment Banks at Work” Harvard Business Press

Liaw, T. (2008) “The Business of Investment Banking” Wiley Publishing

Mandell, L. (2005) “The Credit Card Industry” Twayne Publishers, Boston,.

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