Accepting Credit Cards

Credit cards have become an important part of our economy. They serve two main functions, each of which has important benefits for consumers. First, they function as instruments of payment that are often more convenient than cash or checks.

Credit cards are also a convenient transactions medium in many situations. Modern communications media have made it possible to order merchandise by telephone or over the Internet. However, it is largely impossible to transmit cash or checks by these media. If a customer had to send a check by mail every time he or she ordered something over the phone, the transaction would be no faster than if it was ordered by mail. By the customer giving their credit card number over the phone, the merchant need not wait for the check and can send the merchandise immediately.

A second advantage of a credit card as a payments medium is that merchants can easily recognize and authenticate the card. If a customer presents a check in payment, the merchant must worry about whether or not the customer actually has sufficient funds in his or her checking account to complete the payment. For frequent customers and local banks, it is not too difficult to build sufficient trust between merchant and customers to allow checks to work well. But many merchants are reluctant to take out-of-town checks because of the difficulty of tracking down customers whose checks are returned by the bank.

Even calling the customer’s bank to verify the availability of funds does not guarantee that the merchant will be paid. Checks usually take between a day and a week to clear through the banking system and be debited from the customer’s account. Even if the customer’s balance was sufficient at the time that the merchant accepted the check, it may not be able to cover the transaction once the check finally reaches the bank.