Plastic Fantastic
When I was a young man I worked as an editor at an educational subsidiary of a major publishing company. One day I was called into the president’s office, where he and other company executives told me that they wanted to move me into marketing.
They told me this would be a great career move for me, would mean more money, advancement opportunities, yada, yada, yada. Although they weren’t going to go so far as to put a horse’s head in my bed, it was pretty clear that this was an offer I was not expected to refuse. At the end of the meeting, as an afterthought, the president told me, “You’re going to need to get a credit card.”
At the age of 24 I had never considered applying for a credit card, and as far as I know, nobody in my average, middle-American family had either. Back then most people used cash or checks, which meant that they only bought things with money that they actually had (gasp!).
When I was born, in fact, there was no such thing as a credit card, at least in our sense of the term. The first general purpose plastic charge card was issued by American Express in 1958, and the first real credit card was issued the following year by Bank of America as the BankAmericard (became Visa in 1977). A consortium of banks launched “MasterCharge” in 1969, which was changed to MasterCard 10 years later.
Prior to those initiatives from the banking community, most people thought of a credit card only as a “charge account” at a specific merchant such as a department store or gas station. The exception was the Diner’s Club card, which dates back to 1950, but it was much more limited in scope.
At any rate, I applied for an American Express card in 1978. Back then it was considered to be quite a status symbol, by the way, and the only reason a nonentity like me was granted one was that my employer had cosigned my application. Amex did not allow cardholders to carry a balance, which was probably a very good thing as it got me into the habit of paying my entire bill each month. For many years it was the only card I used.
Meanwhile, many of my fellow Americans seem to have gone nuts with credit cards. Close to 80 percent of U.S. families have credit cards, and about two-thirds of those carry a monthly balance. That results in around a trillion dollars in revolving debt, on which the average interest rate is over 13 percent.
Nor is one card enough, as the average consumer carries between 5 and 6. In 2008, Visa alone had 339 million credit cards circulating in the United States, or more than one for every man, woman and child. Mastercard was second with 263 million.
Small businesses, such as yours and mine, have also become reliant on credit cards in recent years as a source of financing. In 1993, only 16 percent of small business owners acknowledged that they used cards as if they were a line of credit from a bank, but by 2008 that number had grown to 44 percent. The three largest bankcards issue what amounts to over 80 billion dollars annually in high interest small business loans.
The hyperbolic growth of credit card use has been a bonanza for the banking industry, but there are a couple of flies in the ointment. One is the default rate, or the percentage of people who stop making the minimum payments on their credit cards for whatever reason. During the recession the rate has doubled, to over 10 percent, and 10 percent of two trillion dollars is a lot of money. Since credit card debt is not secured by any collateral, and default is considered a civil rather than criminal issue, banks end up writing off much of that debt.
The other is fraud, which has come to be known as identity theft. In 2008, the number of victims increased by 22 percent, to nearly 10 million (this company was one of them), and the total volume of those charges has reached 50 billion dollars annually. According to a survey conducted last March by Unisys Security, credit card fraud is now the number-one fear of Americans, beating out terrorism and health problems.
In September I sat down with a group of retailers in California, and I asked them what was the largest bogie on their radar screens these days. Their answer was “PCI DSS,” to which I replied, “Whosagigawhatsis?”
In order to prevent identity theft, retailers told me that they were being required to comply with a complex set of rules regarding the handling of credit card orders. Failure to comply could result in severe fines along with other sanctions, and compliance is exceedingly difficult. One very large merchant told me that they had hired consultants and spent tens of thousands of dollars on the problem.
I’m sure that most of you are familiar with PCI DSS, or Payment Card Industry Data Security Standards, but I confess that I was not, which is especially disturbing since we accept credit cards ourselves. I came away from the meeting with the impression that PCI DSS was another oppressive mandate from Congress, like CPSIA, but it turns out that is not the case.
PCI is an association of major card issuers founded by American Express, Discover, JCB, MasterCard and Visa. They created the security standards in order to protect consumer data, and they devised the enforcement mechanism.
As I tried to decipher all the information provided by PCI, I kept thinking of Groucho Marx. “Why, a 4-year-old child could understand this … run out and find me a 4-year-old child. I can’t make head or tail out of it.”
I don’t know whether or not we can find such a child, but apparently we will need to find someone, and so will you. The alternatives are either to stop accepting credit cards or to leave your business liable to the growing risk of fraud, neither of which seems like a good idea.
Dear Reader:
This past summer, Art Materials Retailer magazine completed a major project to improve and expand our coverage of the art material marketplace. We were able to identify well over 3,000 art supply stores worldwide that had not previously subscribed to Art Materials Retailer. With this issue, all those locations have now been added to our circulation.
I would like to welcome all those retailers to our printed magazine and also to our monthly, new product-based e-newsletter. Any retailer, new or old, who wants to be assured of receiving the free newsletter can sign up at ArtMaterialsRetailer.com.
We have also added those 3,000 retail locations to our popular store finder on ShopArtSupplies.com. This service is available to all our readers, at no charge, so make sure your listing is online and accurate.
Best of luck with the upcoming holiday season, and let us know if we be of any other assistance.
The Publisher |
