Math 1030- Final

Project
Scott Gardner

ACCEPTING CREDIT
AND DEBIT CARDS
AN OVERVIEW FROM
A SMALL BUSINESS
PERSPECTIVE

Gardner 1

Scott Gardner
Math 1030
Final Project
March 25, 2015

Introduction:
In todays world, electronic payments are becoming ubiquitous as a symbol of simplicity
and of convenience in paying for goods and services from a consumers point of view. Many of
us now carry debit and credit cards with us at all times and not cash or checks. This is changing
the payment landscape for small business owners. Where once cash was king, business owners
must now take a detailed look at all payment channels and what makes the most sense for their
financial bottom lines.
In the following pages, I would like to examine the many questions presented to small
business owners trying to decide if accepting debit and credit cards as a payment mechanism is
the right financial decision to make. By delving into the payments structure, I hope to learn and
present an educated base of understanding. As someone who is currently deciding on whether
to open a small business, this will help me better understand the payment landscape and the best
solutions for me and my financial future.

Gardner 2

Major areas for examination:

My goal in choosing this topic and producing this report is to give me and others the
information necessary to make a more informed decision about all forms of payments
especially credit and debit cards. By exploring the electronic transactional flow, cost
structure/who makes money, and risk vs. rewards of cards versus other payment types- a
knowledgeable foundation should be laid to accomplish this goal. Here are the major topics I
will be covering.
Show the transactional flow of card transactions and who makes money along the
way
Explain why there is hesitation among some small businesses to accept cards as
payments
Arguments of potential benefits of card acceptance
Hypothetical cost analysis showing financial impacts of various payment choices

Transaction Flow:
Most people who start to think about payments, probably think as I did- cash or card and
getting a machine or system set up to accept cards from customers. But as I started to
discuss options with people in the industry, I was shocked to realize how many entities
touched a single card transaction and how each entity made money and thus cost me money
as the business owner.

Gardner 3

(Bancardsales.com)

Who make money from a card transaction:

Merchants/ultimately the consumer pays for the use of accepting the card as a
payment mechanism. Approximately $.20 for a debit card transaction and 3.0%
of the purchase amount for credit card transactions*
Merchant Acquirer/Processor receives 1% for each card transaction*
Bank receives 2% for each credit card transaction*
Both the Acquirer/Processor and Issuer pay the Association approximately .25%
each for credit card transaction*
Approximate figures (Visa Inc.)
As you can see, in each case of accepting a card as payment type, costs are passed onto
the business owner.

Why wouldnt a business want to accept cards:

Gardner 4

As you can see from the above flow chart, at a minimum, six parties touch a single card
transaction and many of them make money along the way. This immediately changes any
equation on card acceptance because of the cost associated with it. Along with cost, the
bookkeeping and cash flow delay may be seen by some as a possible hurdle to accepting cards,
in fact according to recent data from Intuit shows that 55 percent of the nations 27 million small
businesses do not accept credit cards.
(Forbes.com)

Potential Benefits of accepting cards:

According to an article by Business News Daily, by 2017, just 23 percent of all point-ofsale purchases are expected to be made with cash. That means more than three-quarters of
transactions will be made with another form of payment, predominantly credit and debit
cards. Taking into account this information, businesses who do not accept cards as payment
will soon find themselves losing a big piece of the pie to competitors.
There are other potential benefits of accepting cards. It could be argued that it may
ultimately save the merchant money. By accepting cards as payments, returned checks and
unpaid invoices will decrease and depending on your type of business, you may get your
money faster instead of waiting 30 days for an invoice to be mailed and then paid. Also, the
big benefit of course is ease of use for customers and increased sales. (Business News Daily)

Hypothetical Cost Analysis:

So lets take a moment to put some approximate numbers to this investigation (Average
Ticket/Sale Amount=$50- Total Monthly Sales$ 10,000):

Gardner 5
Average Ticket Price of $50.00

Mont
hly
Sales
Amou
nt

Avera
ge
Fee

Monthly
Cost

Annual Cost

Debit Card Transactions

(Association Fees)
Credit Card
Transactions(Association Fees)

$500
0
$500
0

$.20

100 x
$.20=$20
$50 x
3%=$1.50
x
100=$150
$10

$240

3%

Merchants Services Monthly

Statement Fee
Merchant Services Monthly
Gateway Fee
Merchant Transaction Fee (1.0%
+ $.20 per Tran)
Total Cost to accept cards
Potential Lost Sales
(Approximate 30% decline)
Net $ advantage to accept cards
vs. not

$1800

$120

$15

$180

200 x
$.70=$140
$-335.00
$-3000

$1680
$-4020
$-36000

$9665/$70
00

$115,980/$8
4000

(Business News Daily)

(Visa Inc.)

Conclusion:
As someone who is thinking of starting up a small business, I had no idea the

complexity and costs associated with the decision to accept cards as a payment mechanism. It is
understandable how some small business owners find the costs extreme and too high to justify.
In working hard for your living it does seem a bit shocking to fork over approximately 4%
(based off of table approximation) of monthly sales, just to have the privilege of accepting cards.
However, the cost of not accepting may ultimately be the decision of staying in business or not
having a very successful- competitive business model.

Gardner 6

It is my determination that the benefits of accepting cards outweigh the costs. As more
consumers expect the ease of using plastic the potential for lost sales and the permanent loss of
customers- 50% or more (based on data provided by Business New Daily) to your competitorsin some ways makes the fees to accept cards reasonable and worthwhile. While there are many
other factors to take into account as you establish your business, finding the best pricing model
for accepting cards may have the biggest impact on your bottom line.

Gardner 7

Works Cited:

Bancardsales.com
Bing Images.com
http://www.bancardsales.com/merchant-account-transaction-flow/
Web. 4 Feb. 2015

Visa Inc.31 Dec. 2013

Forbes.com
http://www.forbes.com/sites/tjmccue/2013/08/16/why-dont-more-small-businessesaccept-credit-cards/
Web. 2 March. 2015

Business New Daily

http://www.businessnewsdaily.com/4394-accepting-credit-cards.html
Web. 2 March. 2015