Charging small tickets items boost card business
By Jeremy M. Simon | Published: June 28, 2006
Interactions between consumers and retailers, along with a rapacious appetite for new avenues of charge volume growth, have motivated credit card companies to help facilitate small-charge transactions of $5 or less. By encouraging the use of credit cards for small purchases, lenders hope to cash in on the additional transaction volume.
In the United States, around 400 billion transactions of $5 or less occur every year, totaling $1.3 trillion in 2004. Visa estimates that online low-dollar transactions totaled $3 billion in 2004, with about half of that for music. In 2005, Visa cardholders spent over $17 billion at fast-food restaurants, an almost 63 percent increase from the prior year. Research firm TowerGroup predicts that by 2009 the volume of small-item charges will reach $11.5 billion domestically and $40 billion worldwide.
For merchants, one problem involved with small-ticket charges is the extra cost. Retailers must pay fees for card-based transactions, which can wipe out their profit on the smallest transactions. Another concern is associated with providing customer service, the cost of which eats into profitability on small-ticket items.
Chains such as McDonald's and 7-Eleven are already accepting plastic for small transactions.
With consumers evidently increasingly willing to use credit or debit cards to make small payment purchases on a variety of low-priced goods and services, the indication is that merchants, retailers and card issuers could all benefit. Merchants can draw more customers and increase their profit margins, banks gain new classes of merchant customers, consumers can leverage small expenditures to earn more rewards, and the credit card associations get a new source of fee revenue.
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