The economic downturn continues to affect the merchant account payment processing business. Payment processors and card issuers make the most money on when consumers use credit cards to pay for purchases. Debit cards are somewhat less profitable. And, of course, no money is made when consumers pay by cash.
This holiday season, 71% of consumers will pay for purchases using cash or debit cards, according to the National Retail Federation. A survey conduct by USAA reports that two-thirds of holiday shoppers plan to use cash more often than in 2008.
People tend to spend more money when using credit cards to make purchases. Therefore, shoppers using debit cards or cash will spend less because it’s “real money” as opposed to credit to be paid at some future date. Debit card spenders will buy more than those paying cash, but it’s still significantly less than if the buyer uses a credit card.
Paper checks will continue to drop off as debit cards overtake check payments for most retail purchases. For online purchase, the trend towards paying for cash will help increase payments by echecks. Since cash is not an online payment method, people will authorize and electronic check payment.
The shift away from credit cards is good for shoppers in that future debt is avoided. But, it’s bad for credit card payment processors who are already experiencing serious margin squeezes eroding profitability.
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