The credit card is the new currency of the online world. It is a great way to buy things online – it is universally accepted, easy to use, and relatively safe. But, it is also relatively expensive. Merchants pay a transaction fee on every credit card transaction or purchase, usually between one and six percent (depending on a number of factors) [1]; and most of us are not even aware of it. But whether we are aware of the hidden charges or not, these costs are passed along to the consumer.

But, is this not merely the price of doing business? Credit card companies, in exchange for a fee, provide a valuable service. Although it is a little overly complicated, with “issuing banks,” “acquiring banks,” “card associations” (e.g. Visa and MasterCard), “independent sales organizations,” “payment gateways,” “payment processors,” which make it a little pricey, this approach provides both safety and convenience. And this, in turn, promotes commerce (or at least that is the theory).

It may be argued, however, that the transaction charge is a fee for a valuable service, but not one that you need. When you make a purchase on your credit card, you are, in essence, taking out a loan. The merchant pays for transaction and the first month’s interest, and after that, you are on your own. But, why go to all the trouble and expense, when all you want to do is make a simple purchase? And secondly, is a ballooned transaction charge – probably around a two percent tax, nationally, when it is all averaged out – on most non-cash purchases, really a good way to promote commerce?

We might be more reluctant to use credit cards, if knew the true cost (something that the credit card companies and politicians have worked very hard to hide). Nevertheless, what option do we have, at least for online transactions? And what incentives are their for the banking community to give us any?

In the long-run, reliance upon credit cards is likely to be problematic. As we make the transition to “a non-cash society,” will monetary transactions be regulated primarily by the U.S. Government or by the “terms and conditions” of your credit cards, whatever they maybe?

In the future, it will be necessary to develop alternatives, such as improved electronic checking and debit cards with changing account numbers, transaction holding periods, spending limits, and transaction confirmation. And because traditional computers will never be secure (at least, not if you can install new software on them), it will be necessary to develop a stand-alone banking device, like an iPod. And finally, it may be necessary to consider the development of a Federal “electronic cash” system, to replace the “cash” system, we currently have in place.


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(1) Small merchants generally pay a transaction fee of between three and six percent, depending on the amount of the transaction and the volume of their business. The transaction charge on a $10 purchase, using Papal, for instance, is roughly 6%. Whereas, the transaction charge on a $100 item is just over 3%. Not surprisingly, larger merchants are able to negotiate better rates.