Reading time: 4 – 7 minutes

After joining up with Sean and Josh as the third founder of TransFS back in June I found myself in the middle of the world of payments and payment processing (for those that don’t know, our company is a comparison shopping engine for merchant services – i.e. credit card processing). I knew a little about this world from my undergraduate work in finance and information technology and also through my involvement in various microfinance initiatives but I wanted, and needed, to know a lot more.

Sean, the founder who knows the most about the payments industry, suggested I read “Paying with Plastic: The digital revolution in buying and borrowing” by David S. Evans and Richard Schmalensee to get up to speed. Needless to say I followed Sean’s advice but I have to admit I was a tad worried about how the read was going to go.  I mean, seriously, a book about credit cards published on a very academic press (MIT Press). I thought it was going to be incredibly dry.

Much to my surprise I found the book very well written and engaging. Evans and Schmalensee do a great job of both telling a compelling story and getting the facts across in a meaningful way.  This is a sizable feat given the subject matter.

That said, I highly recommend this book to anyone in and around the payments world.  However, I also recommend this book to anyone who regularly uses credit cards and other alternative payment media (i.e. paypal, charge cards, debit cards, etc.) and has an interest in finance and economics. In fact, there is a great section in book on “multi-sided platform economics” that is applicable to a number of other industries, including web applications and media.

Learning about how the credit card industry became the way it is today and learning how the whole system works was very intellectually stimulating.  I have to confess that I constantly find myself thinking about what is going on behind the scenes every time I swipe my AMEX card, and that is a direct result of reading this book. Here are some fun facts to start you off:

• Diners club was the first “card” payment program.  It was started by a man in NYC after he forgot his wallet and was stuck contemplating how to pay for a meal at a restaurant.
• Merchant discount fees, the fees merchants pay to accept credit cards, have steadily declined over the last 30 years.
• While merchants generally dislike paying to accept credit cards these days, when credit cards were first introduced a lot of merchants were ecstatic. Why? Because a lot of merchants were running their own internal credit programs at the time and found it both hard and costly to manage them. Credit cards allowed merchants to outsource this headache.
• In Australia interchange fees (fees paid to the acquiring bank on each transaction processed) were regulated for the first time fairly recently. This meant credit card companies had to find other revenue, which they did by charging annual fees on their cards and lessening or removing rewards. While you might think this would cause a drop in credit card usage it did not. Credit card usage continued to grow at roughly the same rate.
• Visa, MasterCard, AMEX and other card companies are generally some of the largest brand advertisers in the country.
• Checks, while widely used in the U.S., are hardly ever used in Europe and other nations.
• Smart cards (like the AMEX Blue Card) are used heavily in Europe and Japan but are not widely used in the U.S.

If you want to learn more about this fascinating, and crucial industry, please check out “Paying With Plastic.” The book is full of incredible information. However, one thing the book doesn’t get into is what merchants are charged for accepting a specific persons credit card.

Are you curious what merchants are charged when you use your credit card of choice? Check out TrueCostOfCredit.com – a site built by my partners, Sean and Josh.  Just enter the first six digits of your credit card number into the site and we’ll provide you with a report about what using your credit card costs merchants.

As transactions become increasingly digital and we move closer to a cashless society, understanding the way payments systems work will be very helpful.  “Paying with Plastic” can help you understand the current payment systems and will also give you a sense of what is to come with mobile payments, biometric based payment systems and other interesting innovations in the payments space.

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For another great read related to payments I highly recommend “The PayPal Wars” by Eric M. Jackson. Jackson was an early employee at PayPal and he chonicles all of the ups, downs and interesting stories that made up the early years of PayPal in his book. “The PayPal Wars” is a fantastic read (reads like a thriller actually) and will delight payments industry folks, entrepreneurs and readers interested in technology and startups alike.