Credit Card | B2B Finance Glossary

What is a Credit Card?

A credit card is a rectangle-shaped piece of plastic or metal issued by a bank, institution, store, or financial services company to an individual or a business. Credit cards allow users to pay for goods and services on credit: the funds holders borrow from the institutions that issued them the cards.

Borrowing limits are preset based on individuals’ credit ratings or businesses’ past histories and relationships with their banks. If the funds borrowed on credit are not paid in full by the payment is due, the individual or business will accrue interest and any other agreed-upon charges. For example, if credit cardholders fail to pay their minimum payment by the time it is due, they will have to pay a late fee on top of the minimum payment.

Credit cards usually charge a higher annual percentage rate (APR) than other loans. APR is the annual interest rate of a year, which means it’s calculated annually instead of monthly or weekly. Regarding credit cards, interest charges on unpaid balances are usually applied one month after a purchase is made unless previous unpaid balances roll over from prior months (which means there would be no grace period for any new charges).

Certain laws require credit card issuers to provide a grace period of 21 days at the minimum before interest accrues. Additionally, different cards accrue interest in different ways, which is why it’s important for holders to know if their interest is accruing daily or monthly since this can make a big difference in how high one’s interest payments will be.

What are the Different Types of Credit Cards?

Most credit cards attract customers through incentives and perks, including rewards points they can redeem for cash back on purchases, airline miles, hotel room rentals, and retailer gift certificates. Here are the different types of credit cards:

• Major credit cards. Major credit cards include Visa, Mastercard, American Express, and Discover. These are the most popular types of credit cards, and they are owned by the country's four major credit card networks. These networks help transmit the transaction from the merchant to the credit cardholder’s bank and are responsible for setting interchange rates associated with credit card transactions.
• Branded credit cards. There are also branded credit card versions with a company’s or store’s logo on the front. Certain branded credit cards can only be used at the retailer they are associated with, and it’s typically easier for consumers to qualify for a store credit card than a major credit card. These types of cards usually offer special discounts, promotions, and specific sales that apply to holders.
• Co-branded credit cards. Co-branded cards are another card type, and they usually involve a specific retailer working in tandem with either Visa or Mastercard. These can be used at all locations and stores – not just at the branded retail store associated with the specific card.
• Secured credit cards. Secured credit cards allow cardholders to get a card if they leave a security deposit. They make it possible to access limited lines of credit that are equal in value to the security deposit that is initially made, which are usually refunded once the cardholder proves that they are a responsible user. These cards can help those with poor credit histories or who cannot get other types of credit cards; this way, secured credit cards can help these individuals build or repair their credit.

What are the Advantages and Disadvantages of Credit Cards for B2B Payments?

While credit cards make it easy for businesses to quickly collect their revenue, they also include punitive interchange fees that can be as high as 3.5%. That means businesses accepting payments via credit cards are losing out on 3.5% of their revenue at any given time – and are having their bottom lines drained just for attempting to collect the payments owed to them.

For businesses that collect smaller amounts of capital, 3.5% might not seem like that much loss. However, for B2B payments, which tend to be much larger than consumer payments, a 3.5% merchant fee can be a major loss.

What Solutions Allow Businesses to Ditch Credit Card Fees for Good?

Now that digital payments have become ubiquitous, it’s essential for businesses to be able to collect payments online effortlessly. However, businesses also need solutions that don’t involve interchange fees.

Paper checks might seem like a good alternative to credit card payments, and they currently make up 40% of all B2B payments today. However, paper checks are subject to long DSO periods since they are sent from the payer to the payee through the postage system. Additionally, they are highly susceptible to fraud, which can cost anywhere from $4-$20 to process a single paper check.

At the same time, wire transfers and ACH payments can take days to collect, and these payment methods are built on pre-internet payment infrastructure that has not been updated in decades.

Businesses need to upgrade to a next-gen payments-as-a-service model that allows them to accept cashless, feeless, and instant payments. Paystand’s Bank Network makes it possible for direct-bank, zero-fee transactions. That means businesses can accept online payments without punitive fees and without the wait time associated with paper checks. On top of that, Paystand’s infrastructure is backed by blockchain technology – allowing us to offer next-gen financial offerings that are set to transform the CFO toolkit.

If you’d like to learn more about how Paystand is pioneering new B2B payment technology and helping businesses everywhere break up with punitive credit card fees for good, you can request a demo with us here.