What to use to process credit and debit card transaction such as Mastercard & Visa in your business
At its core, it's a two-step process.
- Determine whether you will need a merchant account, a financial middleman (Bank) that approves transactions and deposits into your bank account, or credit cards transactions go directly into your bank account without the need for a merchant account.
Point-of-sale (POS) systems
- Usually requires a merchant account and application can be made to provide Electronic Funds Transfer at Point Of Sale. (EFTPOS)
- POS with accounts system, standalone or online system Eg. Vend.
- Best for businesses with a physical location that want to connect multiple locations or cash registers to each other and/or to other business systems such as accounting or inventory.
Mobile credit card processors
- Usually requires a credit card reader that attaches to your phone. Does not usually require a merchant account.
- Software is normally online Eg. PayPal and via App Store.
- Best for a business that sells in a variety of places, wants to process transactions anywhere in the store or does only a few transactions a day at its physical locations.
- A piece of hardware used to swipe credit cards in person or, in some cases, to manually enter credit card numbers from phone or Internet orders.
- Requires a merchant account and is usually provided by merchant account providers as part of their service.
- Software is built into the device and reporting is via bank / merchant statements
- Best for a business that doesn't need its credit card processing system to do anything but accept payments.
- An e-commerce solution, shopping cart software or third-party marketplace — such as eBay, Amazon etc that lets Web-based businesses accept payments at their website, blog or online store.
- Most e-commerce sites hosted by a third party do not require a merchant account. Stand-alone e-commerce sites that use shopping cart software may need a merchant account.
- Software is via merchant provider. Tools are normally provided to create “Pay Now” button code for websites and shopping carts.
- Best for businesses that conduct a variety of business transactions online.
What is it? Merchant account services act as middlemen between the business and the customer's credit card company or bank. Merchant account services process payments and make sure the money is appropriately withdrawn from a credit card account and placed into the business's merchant account. Once the money clears all of the processing protocols, it can be transferred from a merchant account to the business's regular bank account.
Who should use it: Merchant services providers are an option for nearly all types of businesses, including brick-and-mortar, mobile and online businesses, but some methods of accepting credit cards don't require the use of a merchant service.
There are a few different types of merchant accounts:
- Merchant accounts: The merchant services provider usually, but not always, offers merchant bank accounts that allow debit and credit card payments. These accounts act as holding locations for the debit and credit card payments a business receives. Once the funds have been approved, the merchant services provider transfers the money, minus its commission, to the business owner's bank account. When opening a merchant account, it is important to ensure the merchant services provider offers the type of merchant account you need, based on the type of business you run. Types of merchant accounts include the following:
- Retail merchant account: This option is typically chosen by businesses that operate in a storefront location, where the customers' debit and credit cards are physically swiped through the payment terminal.
- Internet merchant account: This type of account is for businesses being run online. It allows businesses to collect and process credit and debit card information from their e-commerce website.
- Mail Or Telephone Order (MOTO) merchant account: These accounts are for businesses that operate by taking payments via the telephone and/or direct mail.
In addition to the payment-processing services and merchant accounts, merchant services providers offer many other tools for businesses including the physical equipment needed to accept debit and credit cards, such as in-store point-of-sale swipe terminals, and a number of fraud and security prevention tools.
Equipment: Merchant services providers offer businesses a variety of equipment needed to accept debit and credit cards, including POS terminals, card swipers, PIN pad terminals and wireless terminals. Most merchant services providers give businesses the option to rent or buy the equipment. Business owners can also purchase the equipment from a source other than the merchant services provider.
Cost: Merchant accounts are more costly than most other kinds of credit card processing methods. Business owners should expect to pay numerous fees each month and per transaction costs. Typically, average fees include the following.
- Monthly statement fee
- Monthly minimum fee
- Gateway monthly payment
- Transaction fees (anywhere between 0.8 percent and 5 percent per processed transaction, plus 20 to 50 cents for each transaction made)
Security: Providers should be EMV-compliant and adhere to the Payment Card Industry (PCI) Data Security Standard, the debit and credit card industry's rules and regulations governing how credit card information should be handled, used and stored.
Pros and cons: The benefit of using a merchant services provider is that it can fulfill a business's credit card acceptance needs on its own. Merchant services providers also offer necessary tools, such as merchant account management and fraud protection.
As an all-in-one solution, however, the main drawback is its costs, which is one of the reasons some businesses don't accept credit cards.
What to look for: Best advice is to look for a vendor with simple, up-front pricing and to always read the fine print. This means swipe fees, transaction rates, monthly fees, minimums, maximums and other numbers should be crystal clear, so you're not faced with any unpleasant surprises. Knowing your contract terms is important.
Mobile Credit Card Processing
Who should use it: Mobile credit card processors are best suited for merchants that want to be able to accept credit cards anytime, anyplace. Some examples are farmer’s markets, repair people, food trucks, street vendors etc that want the option to accept credit and debit cards away from the cash register.
Merchant account: Just like merchant services providers, mobile credit card processors have their customers set up a merchant account to receive credit and debit card payments. The only difference is that these accounts can receive and process payments wirelessly.
Equipment: Mobile businesses need their own equipment to swipe credit cards, just as retail stores do. To accept credit cards via mobile devices, you will need a compatible smartphone or tablet typically iOS or Android, a card reader such as the “PayPal Here” device that connects to your smart device via an app.
Cost: Mobile credit card processors have a fee structure similar to that of regular merchant services providers. Some costs include the following:
- Monthly statement fees
- Monthly minimum fees
- Transaction fees
Security: In addition to obeying the PCI Data Security Standard, the best mobile credit card processors use websites that have both Secure Sockets Layer (SSL) protocol and encryption keys. In addition, the individual apps the business owner uses to accept the debit and credit cards often are password protected and include additional safety measures in case the mobile device is lost or stolen.
Pros and cons: The ability to accept credit cards anywhere benefits both businesses and consumers. Not only does it promise significant revenue streams, but the convenience also enables businesses to provide better and faster customer service. By having mobility options, they're free to collect payments from anywhere in the store. The major drawback is that there are fees. Business owners need to weigh their need for accepting credit and debit cards wirelessly versus the cost to do so. One important consideration is your customer base, if there aren't many customers who want to make mobile debit or credit card purchases, the added cost of mobile credit card processors may not be worth it.
What to look for: There are a variety of mobile credit card processors, so it is important to compare the options before choosing one. Considerations include monthly and individual transaction fees, and the type of equipment the processor offers. Whether businesses are using iOS, Android or BlackBerry devices, it is critical for mobile businesses to make sure the equipment the mobile credit card processor provides is compatible with the type of mobile device they use.
The transaction features mobile business owners should look for include the ability to capture signatures directly onto a mobile device and calculate sales tax, accept tips, manage customer info, and email or text receipts.
What is it? POS systems use a combination of a merchant account, software and equipment to process checkout transactions, accept credit card and cash payments, manage inventory, manage customers, generate sales reports and more. POS systems can be stationary or mobile using a tablet or smartphone.
Who should use it: POS systems are ideal for businesses with physical locations that have medium- to high-volume sales, such as retailers, restaurants, spas and salons.
Merchant account: Most POS system vendors require a merchant account, but some do not. For instance, providers that process through gateways.
Equipment: There are two types of POS systems: traditional and mobile. Traditional POS systems typically come with some combination of a credit card swiper, terminal with a screen (typically a touch screen), receipt printer and cash register. Mobile POS systems come with a tablet terminal or stand that includes a credit card swiper and, in most cases, a dongle that attaches to a smartphone's headphone jack. However, you'll need your own iPad or tablet, as they are not provided by the vendor.
Cost: The cost of POS systems varies depending on the type of POS system you choose, type of credit card processing and, in some cases, sales volume. Here are the different fees to keep in mind:
- Credit card swipe fees
- Equipment costs
- Chargeback fees
- Sign up, application and setup fees
- Subscription fees
- Early termination fees
- PCI compliance fees
Security: Like other credit card processing services, POS systems come with PCI compliance. Mobile POS systems have even more stringent security, such as SSL and encryption for transactions and password protection for apps, as well as data backups and remote wiping in the event that devices are stolen.
Pros and cons: The biggest benefit of using a POS system is that it offers an all-in-one solution for processing transactions, managing sales and running the front and back end of your business. They often come with robust software that lets you sync data such as inventory, financial, customer information and more. You also have mobile options, so you can take your POS system with you wherever you go. Additionally, there are POS systems designed for specific types of businesses, whether you own a restaurant, shop, salon or spa, there's a POS system for you.
There are some drawbacks, however. As with some credit card processors and merchant accounts, you may have to sign a long-term contract that comes with a hefty early-termination fee. You'll also have to consider setup and training time, especially for teaching employees how to use the apps, software and equipment. As there are several types of POS systems and features, you'll need to do your homework to figure out which types of equipment, system and software are right for your business.
What to look for: "Before deciding on a POS system, it is important to determine your small business’s needs and make sure that your POS has what you need to succeed. You also want to ensure that your POS system provides an integrated solution by syncing with the other sources of data in your business, like your accounting, to give you a consolidated view of your sales, payments, inventory, CRM and payroll."
1. Determine the needs of your business: It’s important that the POS has the capabilities and features that matter to you. You also want to ensure that your POS system provides an integrated solution by syncing with the other sources of data in your business, like your accounting, to give you a consolidated view of your sales, payments, inventory, CRM, and payroll.
2. Anytime, anywhere access: Unless you want to be chained to your store, pick a solution that allows you to connect from wherever you are, whenever you want. You may want to view your sales, inventory or even staffing data from the office, at home, or on the road.
3. Know who you’re working with: Your POS is going to be a business-critical part of your life. Make sure you select a trustworthy vendor and confirm how your POS processes credit card transactions, since that’s often done by a third-party.
Online Credit Card Processing
Who should use it: Any type of business, including brick-and-mortar, mobile and e-commerce businesses can use third-party providers. They are best suited for businesses that either have a low credit score or don't do many credit and debit card transactions each month.
Cost: As with other credit card payment processors, the cost of using third-party online credit card payment processors can vary greatly. One of the reasons many small businesses like third-party processors is the lower setup and monthly fees. The transaction fees, however, are typically higher than those charged by merchant services providers. Most third-party processors have a tier system, in which transaction fees are higher on smaller amounts of monthly sales and go down as monthly sales go up.
Security: Like mobile credit card processors, third-party providers abide by the PCI Data Security Standard and use websites that feature SSL encryption, which provides an extra layer of protection for sensitive credit and debit card information.
Equipment: The only equipment needed for brick-and-mortar stores wanting to use a third-party processor is a mobile card swiper that can easily connect to a smartphone or tablet. E-commerce businesses just need a website with the necessary payment buttons, shopping cart or checkout systems for customers to make purchases.
Pros and cons: The major benefit of using a third-party processor is that businesses don't need to get merchant services approval. For entrepreneurs with bad or no credit, finding a merchant services provider that will accept them can sometimes be a difficult process, making online credit card processors a great alternative. Setup is also fast. It can be ready within a day or two. There are several disadvantages, however. In addition to transaction fees that are higher than those of most merchant services providers, there is an increased chance that a customer will dispute the charge.
This is because the name of the third-party processor not the business shows up on their monthly credit or debit card statement.
What to look for: Four main things to look for in an online credit card processor:
- Easy to integrate into online store. There should be no tech skills required, and any coding should be cut and paste to embed into your online store, blog or website.
- Provides e-commerce solutions. The vendor should make it easy to run your online business by providing a shopping cart, buy buttons and, if you don't already have a website, even a website builder.
- Easy for customers to use. Because customers are inputting their own information and doing checkout themselves, checkout should be easy, seamless and done in as few steps as possible. Additionally, customers should be able to enter their credit card information immediately and not be required to set up an account with the processor before they can make a purchase.
- Offline capabilities. If you also sell in-person, the best online credit card processors offer offline sales, for instance, using a mobile credit card processing dongle, such as PayPal Here.
Another important consideration is price. Because both the monthly and transaction fees can vary greatly, business owners need to devote some time to researching all of the options to determine which one is the most cost-effective, based on their monthly sales. Also make sure that there are no additional or hidden fees, such as setup and maintenance fees.