There are some businesses that have hesitated to begin accepting credit card payments. The primary reasoning is that accepting credit cards requires paying fees, in terms of annual fees or a percentage of the transactions. While it is true that this cuts into the profit made per transaction, the benefits a company could gain from accepting credit cards more than account for this small added expense.
History
The first credit cards were issued by individual companies to their consumers as a way of offering services or selling products without collecting cash upfront. The Diners Club Card, which came about around 1950, was the first widespread card that could be used in many different businesses. This card allowed customers to dine at restaurants without paying cash. Gradually, companies emerged that offer broad credit to many consumers, which can be used at any business in any industry that chooses to accept the card.
Function
Credit cards allow a business to extend credit to a consumer very quickly, without having to take a significant amount of background information, and without having to assume total risk. If a customer uses a major credit card, such as Visa, Mastercard or Discover, and later does not pay the credit card bill, the business has already gotten paid. The major credit card company pays the business, and it's the credit card company that loses out if a customer defaults on payment.
Effects
Accepting credit cards makes a business seem more legitimate to consumers. Because credit cards are so widely accepted, many shoppers expect to be able to use a credit card to pay for a purchase and may not be prepared to pay in cash. Some consumers even prefer to use credit cards for all their purchases, due to the protection major cards often offer to them in the event of identity theft. Finally, many consumers want to be able to purchase items that they can't pay for in advance. Being able to use a credit card offers them the ability to buy and use an item today, while making payments on it for the next few months.
Significance
A business that chooses not to accept credit cards will most certainly lose out on some potential business. Any consumer that chooses to pay with a credit card only, or wants to buy an item they can't truly afford today, may leave your store without making a purchase or find another vendor offering the same services. Accepting credit cards may cost you a bit of extra money upfront, in terms of getting your payment processing set up, paying annual fees and a percentage of the transactions, but the added business that you will gain by capturing all those card-using consumers will more than compensate for this loss.
Potential
Credit cards are a huge business. More and more credit cards are offered to consumers every day, and more exciting offers, bonuses and points programs are being created to provide more benefits to card users. As more consumers find it easier to carry cards instead of cash, making purchases with credit cards will become a standard. Likewise, technology may make it more affordable for a business to accept credit cards. For example, PayPal offers a very affordable way for a business selling goods and services over the Internet to accept credit cards.
