The SmartMoney.com has a great article on the psychological pitfalls New York taxi cabs succumbed to when forced to start accepting credit cards. The author describes the anger over the ‘5% heist’ – referring to the credit card processing fees deducted from the cab fare – and even relays stories of how some taxi cabs would initially claim the processing terminals ‘weren’t working’ yet in an effort to avoid having to accept credit cards.
But as most companies beginning to accept credit cards usually find out – the mere act of accepting credit cards often have a far bigger impact on the bottom line than the credit card processing fees they lose in the trade off.
… one thing is clear two years later: The drivers who complained so vehemently about the credit-card machines are now making more money because of them. New York City’s Taxi and Limousine Commission reports that revenues are up 13% from the end of last year, despite a recession which is hitting the taxi industry hard in other cities. Tips, meanwhile, have risen to an average of 22% on credit-card transactions, up from around 10% under the old, cash-only system.
The author then goes on to describe some of the psychological effects in play here – with our natural inclination to be loss averse while minimizing potential upsides. In simpler terms, taxis focused on the 5% processing fees while ignoring the added benefits that accepting credit cards bring.
So, the drivers — like lab subjects or stock traders — were focused on what they’d be losing. But could they have seen the potential upside? If you assume that an all-cash system and a cash-and-credit-card system are identical (aside from that pesky 5% fee), you’d be right to see no upside. But does anyone still think that people treat paper and plastic the same, when it comes to money?
Aside from practical considerations, such as that people who don’t carry much cash are now more likely to take cabs in New York City, there’s the well-established fact that credit cards encourage people to be looser with their money than when they pay with tactile, sticky bills. In just one study out of MIT, in which NBA tickets were auctioned off to MBA students, researchers found that the students were willing to pay more than twice as much when able to pay with credit card instead of cash.
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Tags: Accept Credit Cards, Benefits of Accepting Credit Cards, Psychology
Yes you are right that accepting credit cards will usually increase your current sales. According to the studies businesses that accept credit cards can get a huge rise in volume almost overnight.
[...] of course, as many merchants know, while the simple act of accepting credit cards tends to lead to higher sales (both per-transaction and gross), the costs of accepting credit cards have been increasing [...]