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Online payments can be carried out in a variety of ways. Credit cards used to be the go-to solution but they have slowly declined in popularity among the people.
However, we understand that credit cards are generally a hassle to deal with. So, in today’s post, our main discussion will revolve around why credit cards aren’t a viable form of payment for online stores.
This post will focus on 6 unique reasons why credit cards can hinder your online store activities.
Let’s get started.
6 Important Reasons Why Credit Cards are Bad
Generally speaking, credit cards seem very tempting for businesses and users because of their marketing techniques. But in reality, their operations are quite tedious and questionable.
Let’s see why is that the case and how you can avoid problems related to credit card payments.
Whenever a credit card payment is conducted, it passes through at least 4 filters. Your bank, your credit card company, the customer’s credit company, and the customer’s bank.
Each filter takes its due time to process the transaction. In some cases, it happens in seconds. While in some cases, it can days to process.
How does that affect my online store?
As an online business, you don’t want your payments to take days in processing. It adds ambiguity and a general distrust among your customers.
Moreover, when the banks get involved, nothing is ever simple. You can get stuck in a constant back and forth communication process with your bank.
It wastes your time and resources.
How do I avoid this problem?
One easy to avoid this trouble is by using online payment methods like PayPal and Payoneer. Both are easy to use and feature fast-track payments.
The best part? These services do not involve third-party services like MasterCard or VISA.
2. Processing Fees
Credit card payments aren’t conducted freely. Even if you use the same company and bank as your customers, you still have to pay multiple fee charges.
These fees include service charges, membership charges, currency conversion charges, and many more.
Are these charges constant across all payments?
That’s the thing. No matter how small or large the payment is, the involved parties always keep their cut.
On top of that, when the payments cross a certain mark, the charges also go up with it. So, you are never sure how much you are going to pay in terms of fees.
For example, suppose your online store sells online courses for $100 regardless of the category. You never get the full $100 credited to your account.
After all the fees are cut, you get 65% to 75% of the original sale. So statistically, that’s 25% of your profits that are taken by third-party services.
3. Potential Scams
One major downside of taking credit card payments is that you are never sure if it’s a legit purchase or a fictitious one.
People can often use their debit/credit cards to pay off something when they don’t have the funds for it.
If your system isn’t well-integrated, it can lead to sales without any revenue. You can ask for refunds and back-track transactions but it can take days to come through.
How severely can it affect my business?
Firstly, it will mess up your monthly finances and your project revenue. You will have to alter your business plan and adapt to such a situation which is never good.
Secondly, you will have to involve your bank and the credit company to backtrack any payment. As an online store, you might not have enough time to spare for such a task.
How do I avoid these potential scams?
You can use an in-house payment system provided by your store platform. For example, Shopify provides its own form of payment system that ensures the elimination of scams.
Other than that, you can use PayPal or Bitcoin for online payments. Both options are secure and protected by multiple-step verifications.
When it comes to debit/credit cards, they are always credited towards your net income. To most people’s surprise, this income is taxable under the IRS guidelines.
At the end of every fiscal year, you have to have the tax accumulated on your transactions. As a small business, it can heavily affect your revenues.
How much tax do I have to pay?
In the US, the effective tax rate starts from 10% and it goes all the way up to 21% for an entire year. It might not seem like much but it will surprise you.
You can end up paying thousands of dollars in tax on top of your bank service charges. This can significantly reduce the profits you want to break even the costs.
As a growing online store, you should try to save as much as you can in terms of taxes. You can do this by using an alternative payment method.
5. Complex Operations
Credit cards are generally complex to set up and integrate with an online store. This is because you have to add multiple types of information.
It includes your bank details, your credit card history, and your billing addresses. Let’s say, you change your bank or want to add a new account?
You have to repeat the entire process again.
Is there any way to simplify it?
Other than not using a credit system, there is no way around it. As your online store grows, you have to move onto convenient payment systems.
Currently, there are a bunch of options that you can use for such a purpose. You can use PayPal or TrasnferWire for online payments.
We have a detailed comparison of PayPal vs TransferWire that you can check for their pros and cons.
6. Unstable Interest Rates
Credit card companies are always changing their policies to extract as much money as they possibly can. You are never sure how much your account is credited for.
One day it could be 3% and the next day it might climb to a 5% rate. This brings a lot of uncertainty to the table.
Why do credit companies operate this way?
These companies are businesses as well. As a globally spread network, credit card companies are all alike. There are no good or bad companies in this scenario.
How do they generate money? At your expense. You are one that ends up paying large sums of money for simply using their service.
For up-and-coming online stores, this can have a negative impact.
Wrapping Things Up…
Credit cards are widely used for online payments. However, it doesn’t necessarily reflect that credit cards are beneficial for your online store and your customers.
With this, we come to the end of our post on why you shouldn’t use a credit card payment system for your online store. We hope this information proves to be useful for you.