Did you know that in the average point-of-sale transaction which involves a credit or debit card, as many as 7 different entities are involved? Even though many of these transactions happen in 1 second or less, there is a lot that is happening.
Independent sales organizations, merchant processors, settlement banks, issuing banks, and a card network are all part of the transaction. You also have the business selling something, as well as the person who is purchasing something. This process creates “interchange,” which is the universal cost of doing business when one accepts card payments at the point of sale. It is that interchange which is the foundation of the merchant service industry.
Interesting Merchant Service Industry Statistics
#1. Almost every merchant pays the same fees for interchange. The only way to get a discount is for a business to process over 82 million transactions every year. That translates to a volume of about $5 billion. (Forbes)
#2. There are currently about 160 million consumers in the United States who hold at least one card that can be processed for transactions. (CFPB)
#3. In 2017, there were 14.4 billion credit cards held by consumers. In 2012, there were only 8.6 billion credit cards issued. (Nilson Report)
#4. Visa is the top card network in the United States, providing $1.54 trillion in transaction processing. MasterCard and American Express each process about $700 billion in transactions each year. Discover processes about $120 billion in transactions. (Nilson Report)
#5. The leading issuer of credit cards in the United States is Citi, responsible for 17% of the cards held. Chase is responsible for 15% of the credit cards issued, while American Express is responsible for 11.2%. (Forbes)
#6. Low credit scores do not dictate the number of credit cards held. As long as a consumer has a credit score of 620, then they have at least 4 active credit cards that they are using. (CFPB)
#7. More than 500,000 applications for credit cards are processed by elements of the merchant service industry every day in the United States. (CFPB)
#8. The average U.S. consumer has an average credit balance of $4,800 in 2017. This average balance is at its highest rate since 2005. (CFPB)
#9. Online payments in the United States have grown 4 times more than retail payments within the merchant service industry. (U.S. Census Bureau)
#10. 90% of consumers have made at least one online purchase which created an interaction with the merchant service industry within the past 12 moths. 70% of consumers said that they have made at least 3 purchases. (American Express)
#11. 50% of U.S. consumers say that they have increased the frequency in which they make online purchases over the past 12 months. (American Express)
#12. The average number of online transactions that are initiated per person is 19. (KPMG)
#13. Consumers in the United States spend up to 18% more than they intend when they are shopping with credit cards instead of cash. (Dun and Bradstreet)
#14. 25% of the global card transaction volume is initiated within the United States. The U.S. is also responsible for almost 50% of the global credit card fraud cases that are reported each year. (Quartz)
#15. From 2013-2017, the costs of credit card fraud have increased by 26%. In 2016, 58% of all total credit card fraud cases were online transactions, the first time in history that was the case. (Federal Reserve)
#16. Up to 90% of the credit card fraud cases for a business involve what is called “friendly fraud.” This occurs when a service or product is provided, only to have false information or invalid credit card information provided when asked for payment. (Ethoca Research Report)
#17. Only 10% of U.S. consumers say that they are “very confident” in the ability of a website to keep their credit card data secure. (Pew Research Center)
#18. 70% of consumers decide on a payment, with or without the merchant service industry, based on what they think will be the most secure payment method they can use. (Cardtronics)
#19. 1 in 3 consumers have abandoned an online purchase because they felt like their payment wouldn’t be secure. These are consumers who made at least 3 online purchases each year. (American Express)
#20. Just 53% of merchants are requiring their customers to enter the CVV information as part of the transaction. (American Express)
#21. 61% of merchants still accept a transaction, even if a verified billing address has not been provided by the consumer. (American Express)
#22. Only 31% of businesses outsource their compliance with regulations to a third-party resource within the merchant service industry. (Reuters)
#23. Cash is on the decline for merchants globally. 67% of merchants say that they will likely be completely cashless in the near future. (American Express)
#24. 90% of consumers say that they like the ability to have a choice of payment methods when they are initiating a transaction at a point of sale. 73% of consumers say that the types of payment which are accepted by a business will impact (J.P. Morgan Chase)
#25. Although Visa, MasterCard, and American Express dominate the U.S. portion of the merchant service industry, UnionPay has over 5.3 billion cards in circulation. They’ve grown by over 50% from 2012-2017. (Nilson Report)
#26. 90% of consumers in Europe say that they prefer direct debit as their primary form of payment. (BACS)
#27. Assessment fees are owed to the merchant service network for every transaction, along with interchange revenues. The combined fees can be as high as 4% of the total transaction. (Nilson Report)
#28. Credit card processing fees that were paid by U.S.-based merchants in 2017 totaled $7 billion. (Nilson Report)
#29. 40% of small businesses say that the annual cost of bookkeeping for merchant service transactions, which can be as high as $20,000 per year, is the worst part about business ownership. (NSBA)
Merchant Service Industry Trends and Analysis
There is a definite push in the retail world to move away from cash-based transactions. We have seen a slow, but steady, increase in the number of businesses which issue debit cards for payroll when employees do not hold a bank account instead of paying in cash. That means the merchant service industry will continue to flourish, especially as more of the developing world transitions into developed economies.
The only foreseeable competition for the industry comes from the realm of cryptocurrency. Payment processing with Bitcoin and similar currencies occurs internally, completely eliminating the merchant service industry from the equation. From 2015-2017, however, credit card payments registered a 10.2% growth rate among core payment types, which means e-wallets and alternative currencies are only going to be minor competition.
70% of merchants, in fact, believe that they will be accepting credit card payments in 2023 and beyond.