Major advantages of credit cards to the retailer include all of the following except the
a. issuer does credit investigation of the customer.
b. issuer maintains customer accounts.
c. retailer receives more cash from the credit card issuer than from the customer.
d. issuer undertakes the collection process and absorbs any losses.
The correct answer and explanation is :
The correct answer is c. retailer receives more cash from the credit card issuer than from the customer.
Explanation:
Credit cards offer significant advantages to retailers, but the statement in option c is not one of them. Let’s break down each option to understand why:
- a. Issuer does credit investigation of the customer.
- True: Credit card issuers (such as banks or credit card companies) perform a credit check on customers before they issue a credit card. This is beneficial to the retailer because they do not need to worry about the customer’s creditworthiness. The issuer assumes the responsibility of determining if the customer can handle debt.
- b. Issuer maintains customer accounts.
- True: Credit card issuers manage customer accounts, including billing, payments, and interest calculations. This reduces the administrative burden on the retailer since they do not need to handle customer payments or account details. The retailer gets paid immediately and is not involved in the complexities of account maintenance.
- c. Retailer receives more cash from the credit card issuer than from the customer.
- False: This statement is incorrect. When a customer makes a purchase using a credit card, the retailer is paid by the credit card issuer, but the amount paid is typically less than the amount the customer spends. The credit card issuer charges the retailer a fee (merchant discount fee), which is usually a percentage of the transaction. This fee can range from 1% to 3% or more, depending on various factors. The retailer therefore does not receive more cash from the issuer than from the customer. Instead, they receive the customer’s payment minus the merchant fees.
- d. Issuer undertakes the collection process and absorbs any losses.
- True: The credit card issuer is responsible for collecting the payments from customers. If a customer fails to pay their balance, the issuer absorbs the loss, not the retailer. This is advantageous to the retailer because they are not at risk of customer default.
Conclusion:
The key advantage of credit cards for retailers is that they are paid quickly, and the responsibility for credit checks, account management, and collections falls on the credit card issuer. However, the retailer does not receive more cash from the issuer than from the customer; they only receive the customer’s payment minus processing fees. Thus, option c is the correct answer as it is the statement that does not reflect a true advantage.