May 21, 2013

How credit-card processors fuel the economy

We all have to live by the rules, and credit-card processing companies are no exception. Despite the negative press these companies sometimes receive, they actually serve the economy in a powerful way.

Commercial monetary exchanges are the blood supply for the economy. Say you’re at a farmer’s market in Utah, and you swipe your card in a mobile payment device to pay for your fresh produce.

Now add that transaction to the thousands of other transactions that occurred that same day in a particular city. It’s not hard to imagine that $100,000 dollars passed through the computers of a credit-card processing company within a very short amount of time.

So, what is the significance of that? Well, as it turns out, the faster the velocity of money (the quicker one digital dollar passes from one transaction into the next), the more driving force that pushes the engine that pumps the economy.

Picture it like pistons in the engine of a car. In the old days, people may have waited for a week or two for a monetary transaction to be processed. Today, monetary transactions are measured in seconds. That means one dollar goes a lot further. Why? It’s all about how quickly one dollar changes hands. The more times a monetary transaction travels from one account to another, the more value is added to the economy.

The opposite occurs in a monetary freeze, as we saw illustrated with the financial meltdown in the wake of the Lehman Brothers debacle. When people start hoarding cash, or stop using credit cards, the economy seizes in the same way an engine does when it has no oil. The astute use of credit cards actually increases the velocity of money, which creates more wealth for the country.

That said, remember that irresponsible use of credit may increase profits for debt collectors, but taken to an extreme can result in a personal financial disaster. When that happens on a large scale, it sets the stage for a recession, and no one wants to go there anytime soon.

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