Also for people without a business background: Gross profit is what you charge (Hamburger at Burger King: $1). Net profit is the money you make from it after you pay costs. Burger King doesn't make $1 per burger, since they have to buy meat, ship it to their stores, have it prepared, etc. Losing 3 cents out of every dollar to AMEX instead of 2 cents to Visa/MC doesn't sound like much, but it's huge if you're only making 5 cents per burger.

That's why fast food didn't take credit cards for so long - I hear the CC companies inked deals at lower than normal rates for some huge-volume small-margin companies like Walmart, McDonald's, etc. The credit card companies want more widespread use of their cards so people start using them for everything. As a small merchant, you're not going to get that and it's yucky. It's part of the game right now unfortunately, but that AMEX additional 1% of GROSS is really huge in many industries.

Same with Sam's Club/Costco kind of places. Their margins are below what those credit cards charge out of the gate (except for Discover) but their order volume is so high that they were able to negotiate with at least Visa or Mastercard.

Actually, Costco does NOT take credit cards, with the only exception being Amex.

They will takea Visa/Mastercard Debit card, but you have to enter the PIN. Debit charges are processed at a lower rate, since they're essentially an interface for ACH, and having a valid 4-digit PIN entered (plus buying stuff on a membership card) supposedly eliminates fraud.

(I was there this past weekend to capitalize on their great deals on flat screens.)

They don't take Discover? I'm surprised. Sam's now takes that and Mastercard. I would think Costco's superior volume could get them an awesome deal.

It's not so unreasonable for Visa to take 2% (they often take more than that.) Outright fraud costs them around 1% (though they'll never reveal their stats.) Doing collections costs them a lot, and they lose some to cardholder bankruptcies. They do provide a valuable service of isolating you from all these. Taking checks probably costs you a larger percentage of revenue than credit cards.

Fraud in online transactions is almost always charged back to the business. It may be different face to face, I'm not sure. And then they make money on interest.

My ideal online payment solution (and I think it'll happen later) is for everyone to have a number they put into a site to buy. Then they have to log into online banking and approve the charge. There'd be a description of the company and the charge automatically with the debit, and "Approve / Decline / I Don't Know This User" choices or some such.

It'd reduce fraud to near-zero levels, and I don't think it'd cost too much to set up. Credit cards will live on for a long time as short term credit, but I reckon banks could offer that at much more reasonable rates with a much better idea of people's finances and credit profiles. And with widespread enough adoption, merchants could start telling CC companies to take a hike. Heck, the bank could even make it a "card that you control" or something to not break from the card tradition.