With all the payment options available these days, credit and debit cards come out on top. In fact, in a 2018 survey, 54% of consumers stated they preferred using debit cards, while 26% preferred credit. Interestingly, credit card usage decreased by 7% from the previous year and debit card usage increased by 10%. The survey found most consumers prefer debit cards for everyday purchases, where shoppers use credit cards for larger items.
So, what does this mean for business owners? Quite simply, if you’re not offering credit and debit card payment options, you’re leaving money on the table. Whether you have a brick-and-mortar or an online store, you need a credit card reader to capture more sales.
However, it’s important to understand that all credit card readers aren’t made equally. So, before investing in or expanding your payment options, you should first make sure you have a solid understanding of how credit card readers work.
Below, we discuss the ins and outs of credit card readers, giving you foundational knowledge to benefit your business.
The players.
Before we jump into our discussion about the credit card reader itself, we need to learn some lingo.
- Cardholder: A cardholder is a person who owns the credit or debit card.
- Merchant: A merchant is the business owner who sells goods or services.
- Merchant processing (or payment processing): Merchant processing is a system that accepts credit cards, debit cards, and other forms of electronic payment, both in-store or online.
- Merchant Account: A merchant account is a type of bank account, allowing business owners to accept credit and debit card payments. When your customer pays for your product or service, the available funds from the credit or debit card are first deposited into the merchant account before being transferred to your operating account.
- Payment Gateway: A payment gateway is an ecommerce solution that allows business owners to securely accept credit and debit card payments for online purchases. The payment gateway transfers the customer’s available funds to your merchant account.
- Acquiring Bank: An acquiring bank is a bank that is registered with the major credit and debit card providers, such as Mastercard, Visa, and American Express. Often, acquiring banks are also referred to as a merchant bank.
- Issuing Bank: An issuing bank, such as Chase or Bank of America is a bank that distributes credit and debit cards to consumers.
- Card Associations: Card associations include Mastercard, Visa, American Express, and Discover. These associations do not issue the cards themselves; that’s left to the issuing bank. However, card associations help regulate the payments industry.
- POS System: A point of sale system, or a POS system, is the hardware and software that allows your customers to make payments. It serves as the hub of your business, helping keeping track of sales, inventory, employees, and customers.
The technology.
Now that we know the players, let’s jump into how credit card readers work.
A credit card reader receives data input by “reading” the customer’s payment method, and allowing for the purchase of a product or service. Modern card readers are electronic devices, able to read credit or debit cards with magnetic strips, embedded chips, or other mediums.
Let’s take a look at some of the hardware and software you’ll need for the modern-day card reader.
Magnetic stripe readers.
Most people are familiar with the traditional magnetic stripe readers. This technology is often referred to as mag-stripe, referencing the stripe of magnetic tape on the back of the card. Because mag-stripe technology has been around for a while, this type of processing is easy and inexpensive to implement.
However, unlike more modern transaction types, such as those made with EMV (Europay, Mastercard, and Visa) chip cards or NFC (near-field communication) contactless technology, magnetic strip cards are more susceptible to theft and fraud. For example, a thief can use a “skimmer,” placing it near a customer’s credit or debit card to acquire the card’s encoded payment information.
Chip readers.
Chip (or EMV) readers, identify and decode payment information from credit and debit cards that contain a microchip, appearing as the small silver square on the front or back of the card. These cards must be inserted or dipped into a card reader to allow the payment processing system to identify all information from the chip as well as the magnetic stripe.
Unlike traditional mag-stripe cards, EMV cards are less likely to get hacked. This is one of the reasons that, over the past several years, most issuing banks have replaced their conventional mag-stripe cards with chip cards. The computer chip on EMV cards generates a unique code for each transaction, effectively safeguarding sensitive cardholder data. Be advised that as the merchant you are liable for counterfeit credit card fraud in cases where the customer has an EMV chip card, but you use a traditional swipe-and-signature terminal.
NFC contactless readers.
Near-field communication (NFC) is a contactless payment method, allowing communication between the payment terminal and smartphones, tablets, or smartwatches. NFC contactless technology allows for the exchange of encrypted payment information without physical touch. The consumer simply waves the card or smart device containing the payment information over the payment terminal, and the purchase is completed seamlessly and securely.
Often, consumers use NFC contactless technology to process mobile payments and electronic wallets, such as Chase Pay or Apple Pay. In fact, according to Business.com, millennials are 2.5 times more likely to adopt technology earlier than older generations, as evidenced by almost 50% of millennials preferring mobile payments. With millennials responsible for more than $600 million in annual spending, watch for more common uses of these payment technologies over the next few years.
What to look for.
Want to grow your business while at the same time providing maximum flexibility and convenience to your customers? Upgrade to a credit card reader that offers the following options:
- Consider how you process payments. Who’s your customer base? Do you have both a brick-and-mortar location as well as an online store?
- When shopping for a credit card reader, make sure that the reader is EMV-capable, enabling you to process chip cards.
- Compare credit card reader processing speeds. You don’t want to create a bottleneck on your payments by having a slow system.
- Shop for a credit card reader that offers multiple payment options, including both EMV and NFC contactless payments. Again, your goal is to grow your business. Offering flexible payment options will keep your customers coming back for more.
- Understand how your credit card reader integrates with your payment gateway or POS system. Confirm that all security measures are met, including those required by PCI-DSS (PCI Data Security Standards). Understand how security measures are managed and updated to ensure the security of your customer’s financial data.
- Does your payment processing vendor offer options tailored to your industry? For example, accepting payments in a restaurant is different from doing so in an online store. Make sure that whichever payments partner you select, they have a detailed understanding of your particular industry.
- Learn how long it takes before you’ll be up and running with your new credit card reader.
- Examine all associated fees with the card reader, including processing fees, bank fees, and card association fees.
Team up with experts.
The benefits of implementing a modern-day credit card reader make it a must-have for your business. At North, we offer low processing fees, don’t require long-term contracts, and offer free hardware placement. We have the expertise to make it easy to provide your customers with the frictionless transactions that they’ve come to expect. Whether you’re looking for a credit card reader for your brick-and-mortar and/or online store, we have the technology you need to accept payments wherever and whenever. We’ll even help you customize your payment processing to your specific business. To set up a consultation, contact us here or give us a call at 877.840.1952.
