47Credit card processingFacts, Statistics, And Trendsevery online merchant should know
Chapter 1 Outlook
From what online credit card processing involves to who the players with skin in the game are, what the credit card market looks like, and what the state of online payments is today, here's an overview of what you need to know if you are thinking of taking your business online or setting one up from scratch.
1A. The credit card market today
The players and the playing field
The Credit Card Market160millioncredit cardholdersin the US.CFPB Consumer Credit Card Market Study
Worldwide credit card circulation
14.4 billion credit cards
in the world (as of 2017)The Nilson Report
Top card networks in the U.S.The Nilson Report
Who issues credit cards in the US?
Organizations responsible for the funds do.
A bank, in most cases. Although, some financial institutions like American Express, for example, operates as issuer and network.Forbes
Number of active credit cards/person
Card-holding consumers with average credit scores (620+) have atleast
4 active credit cards.CFPB Consumer Credit Card Market Study
Did you know?500,000
applications for credit cards/day
(US Consumers)CFPB Consumer Credit Card Market Study
Consumers are using their credit cards more than they did
Average Credit Balance$4800
The highest it’s been since
2005.CFPB Consumer Credit Card Market Study
Online payments are growing(2013 to 2017)
Online payments in the US have grown 4 times as much as retail payments
It has grown by ~64% in the last four years.US Census Bureau News 2017
1B. How are online sales doing?
Online sales are strong(U.S. Consumers - last year)9/10
say they have made at least one online purchase in the past 12 months.7/10
made three or more online purchases in the last year.5/10
say they have increased the frequency of their online purchases in the last year.American Express Digital Payments Survey
Online sales are strong~19.
online transactions per person per year.KPMG Global Online Consumer Report
What are merchants saying?
Compared to previous years, 71% merchants sayAnnual Sales (online and mobile)
are increasingAmerican Express Digital Payments survey
A look at spending habits
U.S. Consumers spend12–18% MORE
when using credit cards instead of cash for purchasesDun and Bradstreet survey
Chapter 2 Safety
Arguably the biggest question on a merchant’s mind. Is online credit card processing safe? The truth is there are nuances to consider before you decide. While the data reveals that online attacks and friendly fraud are both getting worse by the day, the tools and infrastructure to combat them are getting sharper. The issue is how much the tools cost and how difficult it is to keep up with regulation that is constantly being updated. What does the state of fraud mean for small businesses? Where does it leave your customer relationships?
2A. The fraud panorama
Fraud trends in the U.S.
America is responsible for about a quarter of the global card transaction volume. But, it accounts for nearly half of worldwide credit card fraud.
If you are selling in the U.S. Think about fraudQuartz
A look at the numbers
The costs of credit card fraud have increased by26%
(U.S. 2013 to 2017)Federal Trade commission’s’ Consumer Sentinel Network Data Book, 2017
Online vs in-person fraud
The scales tipped in 2016 for the first time in credit card history
Online fraud accounted for 58% in 2016Federal Reserve Payments Study — 2017
Does the size of your business matter to a fraudster?
The size of your business doesn’t matter
to the online fraudster.
Attacks targeting businesses with less than 250 employees are expected to grow in 2018.Internet Security Threat Report 2016
Not all online fraud is created equal
Routinely reported friendly fraud rates60%–90%
(Online merchants – 2016)
Friendly fraud is the case of a customer receiving a service only to provide invalid card details or false information.Solving the CNP False Decline Puzzle — Ethoca Research Report
Chargebacks contribute to fraud too
Friendly fraud = Chargebacks
Online Merchants Chargeback losses$7B–2016
This number is expected to be 4x larger in 2020.Payment Fraud Outlook 2020
2B. Does safety impact customer relationships?
Consumers don’t believe their information is safe
Only 1/10 Americans are ‘very confident’ that websites are capable of keeping their credit card information secure.Pew Research Center Survey
Did you know?7/10
consumers make payment decisions based on which payment method is most secure.Cardtronics Health of Cash, 2017
Security concerns can impact sales37%say they have abandoned an online purchase because they did not feel their payment would be secure.
(Consumers who have made three or more online purchases in the last year)American Express Digital Payments Survey
2C. Fighting fraud
The most effective tools to fight fraud
(Address Verification Service)
(Card Verification Numbers)
Rated by merchants in the U.S.Fraud Benchmark Study, CyberSource
Effective fraud tools are underusedonly53%
of merchants require customers to enter the CVVonly39%
decline transactions when a verified billing address has not been provided.American Express Digital Payments Survey
Compliance regulations are frequently updated
62% of financial service firms are expecting regulators to revise regulatory information in 2018.
(22% are expecting new regulation)Cost Of Compliance Study, Thomson Reuters, 2017
Keeping up with regulations is difficult
Only 31% of
businesses outsource their compliance to a third party.Cost Of Compliance Study, Thomson Reuters, 2017
Does it make sense to outsource compliance?
Of the businesses who outsourced compliance in 2017, the 38% said it was because of the rising cost of compliance.
(This number was 24% in 2016)Accenture Cost of Cybercrime study 2017
Does it make sense to invest in security intelligence?
Investing in security intelligence systems saved online businesses $2.8 million in 2017Accenture Cost of Cybercrime study 2017
Chapter 3 State
Credit cards have been a go-to payment method since long before the internet was around. This is slowly changing (finally). Mobile payment adoption is on the rise, e-wallets are predicted to take over the online payment market in the next decade or so, and direct debit payments are a preferred payment method in Europe. Does this mean it is not worth accepting credit cards in 2018? The answer is more intricate than you might think.
3A. Multiple payment methods matter
Cash on the decline2/3
of merchants say that they are very likely to go completely cashless in the near future.American Express Digital Payments Survey
Check payments are on the decline
check payment volume
will reduce by46%Nilson Report, Growth in Purchase Transactions 2009 – 2019
Did you know?9/10
people like having the ability to use a variety of payment methods when making a purchase.Cardtronics Health of Cash report
Payment methods are important to customers
(Of the consumers who make an online purchase at least once a week)
73% reveal that the type of payment a business accepts impacts whether they will buy from that business.JP Morgan Chase Report — The Intersection of Payment and Commerce in a Digital World
3B. Alternative Payment Methods
How are alternative payment methods doing?
E-wallets will grow the most as a payment method in the next five years
(Compared with bank transfers, cash on delivery, charge cards, debit cards, PostPay, PrePay, and others)WorldPay, Global Payments Report Perview
E-wallets are the future, but they’re not there as yet
(As of 2018)
Only 16% of
consumers have ever used e-wallets.JP Morgan Chase Report — The Intersection of Payment and Commerce in a Digital World
PayPal is the e-wallet of choice
is the most recognized and used online checkout service
77% of the cardholders in the USare familiar with the service.
62% of the cardholders in the US are familiar with and are currently using the service.
69% of consumers believe Paypal’s technology is better at protecting their financial information.Globe News Wire Survey 2016
Credit cards are more popular than ever
Credit card payments registered the highest growth rate10.2%
among the core payment types.Federal Reserve Payments Study 2017
Can cards compete with alternative payment methods?
Credit Cards are expected to be the e-wallets’ only serious competition over the next five years.Federal Reserve Payments Study 2017
Merchants predict credit cards will never be out of fashion7/10
merchants believe they will still be accepting credit card payments in five yearsJP Morgan Chase Report — The Intersection of Payment and Commerce in a Digital World
3C. Location influences preferred payment methods
UnionPay owns the growing Chinese market
While Visa, Mastercard, and American Express own the US market share, UnionPay owns the global credit card market, growing 51% from 2012 to 2017.
(UnionPay went from 3,534 million cards in circulation to 5,341 cards).The Nilson Report — Payment Cards Worldwide
Direct Debit is Europe’s preferred payment method90%
of consumers with bank accounts in the UK have at least one direct debit mandate.BACS Direct Debit Consultation Outcomes 2017
Chapter 4 Costs
Last (but certainly not least), there is the question of how much it’s actually going to cost you to accept payments online. Apart from the obvious costs that you will owe your gateway or merchant service provider (a cut of which will go to all the players we met in Chapter 1), there are the not-so-obvious costs that you need to plan for: from accounting to a checkout experience and ever-dreadful chargebacks.
4A. The usual suspects
A breakdown of credit card processing fees1. Non-negotiable fees
An assessment fee is owed to the card network facilitating the transaction (Visa or MasterCard, for example). An interchange fee is owed to the bank that issued the credit card being used for the transaction.
Together, these non-negotiable fees work out to between 2% and 4% per transaction.2. Negotiable fees
And finally, you pay your gateway or processor a markup fee.
It’s in negotiating the markup fee that you can minimize how much it costs to process credit cards.
Here’s a detailed guide to processing fees and how to get the best price for your payment processor →
The cost of credit card processing fees
(Credit card processing fees paid by U.S. merchants in 2017)$7 billionThe Nilson Report
4B. Additional overheads
Additional cost: Building a checkout experience6/10
merchants who saw an increase in online sales in 2017 said that an improved checkout experience played a significant role.American Express Digital Payments Survey
Additional cost: Bookkeeping
Annual costs can be anywhere from$1,000–$20,000
40% of online small business owners say bookkeeping and taxes are the worst part of running a business. 47% said that the financial cost was the biggest burden bookkeeping posed to their business.NSBA Small Businesses Taxation Survey
Additional cost: Fraud8%
of online revenue is at risk of fraud
Customers aren’t liable if a fraudulent or erroneous charge hits their credit card account. While this is a huge part of the reason consumers find credit cards safe to use and prefer them, it can be a cost on your business if it isn’t planned for.Global Fraud Attack Index 2016
4C. Chargebacks: Another cost to think about
What are chargebacks?
A chargeback is a disputed transaction.
When a customer initiates a chargeback, she is disputing that the charge was made and is asking for her money back.
Minimum cost per chargeback
A chargeback can cost anywhere between$5–$30
(depending on your gateway; if a dispute escalates to arbitration, it can incur fees upwards of $500).Chargeback Fees: Processor Library for Merchants (chargeback.com)
Friendly fraud = Chargebacks9/10
cases of chargebacks are probable case of fraudFederal Reserve Bank of Kansas City, Research Working Papers 2016
Your chargeback rate will tell you if you’re being scammed
If your chargeback rate is
then you might be a victim of chargeback fraud
If you divide your total chargebacks by the total number of transactions within a monthly period, you have your chargeback rate.
The average chargeback rate is around 0.5–0.8%, with an industry-standard maximum of 1%.CyberSource Fraud Benchmark Study
The crucial difference between chargebacks and returns8/10
customers admit to filing a chargeback out of convenience
(6 out of 10 customers admit that they’re unaware of
a store’s return policy at the time of purchase.)Consumer Insights Survey (chargeback.com)
Chargebacks lead to losses
It's impossible to
put an exact number
to chargeback losses.
Chargebacks do incur losses. A partial picture of what these losses are is possible, and it's enough to conclude that chargebacks can significantly affect a business’s bottom line.Federal Reserve Bank of Kansas City, Research Working Papers 2016