originally published on WalletHub.com on November 14, 2024
Full article: https://wallethub.com/edu/cc/credit-card-purchase-protection/25932
What are the benefits of purchase protection programs for buyers, sellers, and credit card companies?
Buyers have the most upside potential when considering purchase protection. I would consider it close to a zero-cost insurance program for purchases made with the card, depending on the card’s terms and conditions.
Credit card companies have built an entire industry on the business model of increased convenience in payment processing, and they take a processing fee on each transaction.
The benefits for both consumers and credit card companies are not that hard to imagine. However, being a professor of entrepreneurship and a former business owner, I am keenly interested in how purchase protection programs could affect the companies that accept that form of payment. The rest of this response pertains to how these programs could affect businesses who accept payments from cards with purchase protection.
Businesses that currently accept credit cards understand the tradeoffs when a customer offers to pay with a card. Credit card companies provide an easy way for consumers to buy from businesses, even consumers that don’t have the cash on hand to cover the purchase. This helps both sales and cash flow, and businesses pay a fee for relatively quick conversion of sales receipts to cash—as opposed to only doing sales with customers who can pay cash, or a model where the business extends credit to customers and collects in the future.
Adding purchase protection to payment processing is something that credit card companies have done to add value for consumers. There are several drawbacks and benefits for businesses who accept these types of payments. Here are a few that come to mind.
Potential downside for businesses
- There could be higher processing fees, which means that the business yields even less cash from the transaction.
- Chargebacks could increase when purchases are made with a purchase protection plan.
- It is possible that the business would have to spend more time and effort to respond to dispute inquiries.
Potential upside for business
- More sales. Accepting more forms of payment should yield more sales, always a positive development for businesses.
- Customers could trust the business more if this form of payment is accepted.
- Accepting these payments might send signals of legitimacy and professionalism to consumers, which could also yield customer loyalty and repeat purchases over time.
- There is potentially less fraud liability when accepting these payments in cases where the card issuer will handle the investigations.
Not all businesses are the same, and each business should consider their unique situation before agreeing to accept payments from cards with purchase protection. In the end, if your business is reputable and you stand behind your products and/or services, accepting payments from cards with purchase protection should be an overall positive development for businesses.