Swipe, dip or tap. How to take credit card payments
In the very recent past, point-of-sale (POS) terminals only accepted credit cards by a single method: swipe. But today, new technologies, security protocols, and consumer trends have given rise to new options for accepting credit card payments at your business.
While new developments in terminal technology offer more security, convenience, and customer appeal, the variety of acceptance methods is leaving some merchants confused about which type of terminal they should use.
Since there isn’t one correct answer, we’ll cover the latest card acceptance technologies and the benefits they offer for different business types to help you narrow down the best options for your business.
Swipe: Traditional magnetic stripe cards
Of course you’re familiar with accepting credit cards via swipe. You’ve likely used a swipe-based credit card reader to make purchases with traditional credit, debit, gift and EBT cards as a consumer. And if you already operate a business that accepts credit cards, you probably know your way around a traditional stand-alone terminal or POS system.
Accepting credit cards the traditional way entails swiping a credit or debit card through a magnetic stripe reader to access the cardholder data stored in the stripe on the back of the card. That data, called “track data,” is used to verify the card’s validity and the available funds. The bank that issued the credit card will either authorize or decline the transaction request and send the decision to the terminal or POS system with a code.
Ways to swipe credit card transactions:
- Standard, stand-alone, counter-top terminal
- Integrated POS system
- Small hardware attachment that plugs into the USB port on a PC
- Mobile phone attachment plugged into the phone’s audio jack, or paired via Bluetooth
We’re referring to swiping as the “traditional method” because new developments in terminal technology have made it the “old” way, and new security protocols aim to make it obsolete in the future.
The new technology, referred to as EMV chip card processing, doesn’t use the magnetic stripe on cards at all. Instead, the cardholder data is stored in a data chip embedded in the card. Whereas a magnetic stripe authorization code is the same for subsequent transactions with the same card, a data chip creates a unique code for each transaction. This makes it theoretically impossible to duplicate, curbing fraudsters who steal data and create counterfeit cards.
The major card brands and financial institutions that issue credit cards have collaborated to push the industry-wide adoption of EMV transaction processing in the U.S. The card issuers began replacing magnetic stripe cards with chip cards in 2015. And the card brands implemented a liability shift for in-store fraudulent transactions.
Before the liability shift in October 2015, financial institutions were liable for reimbursing cardholder funds and reissuing cards when fraud occurred. Today, post liability shift, merchants who fail to use EMV technology to process chip card transactions in-store are liable if fraud occurs.
For now, credit and debit cards are being issued with both a magnetic stripe, and an EMV chip to allow merchants more time to upgrade their POS equipment. So it’s up to each individual merchant to decide when to upgrade.
Many merchants have already taken the EMV plunge. Early 2017 data from the Strawhecker Group suggests that 52 percent of merchants have upgraded to EMV. But for certain businesses, there are still good reasons to swipe.
Since liability comes in the form of chargebacks, some industries with low chargeback risk and low average tickets may find that the financial risk is lower than the financial cost of upgrading equipment. Especially when expensive POS systems or multi-lane terminals make upgrading earlier than planned a significant investment.
Quick service restaurants (QSRs) are one example of an industry with some incentive to wait on costly upgrades. The chargeback rate at QSRs is low to start with. Add in their need for fast transactions (EMV adds a few seconds to processing time), and the cost of upgrading multiple terminals tied into the ordering system, and it’s clear why some QSRs have opted to stick to regular upgrade cycles.
Micro merchants who only process a few transactions a month, or do business primarily with known associates won’t be highly motivated to upgrade to EMV. A local thrift store likely doesn’t have a chargeback rate to speak of, and could continue swiping cards with no major hiccups. Every business will have their own variables that determine the urgency of moving away from swipe transactions.
Whether accepting swipe payments on an in-store terminal or via a mobile device attachment, the transaction process—and security level—is about the same. Unfortunately, increasingly sophisticated fraudsters have learned how to infiltrate processing systems and steal data for fraudulent transactions from systems that process swipe transactions. This and other innovations in payment security have led to the development and implementation of EMV chip card technology.
Dip: EMV chip credit and debit cards
“Dip” is the new terminology for processing a chip card in an EMV-enabled terminal. Whereas traditional cards are swiped, chip cards are dipped. Dipping a chip card entails inserting the card into a slot, usually near the bottom of the terminal. Some models require leaving the chip card in the terminal for the duration of the transaction. As EMV is perfected, some terminals are again allowing the customer to insert and remove the card more quickly while the transaction is still being processed. But at this time, the dip motion is still somewhat of a departure from a true swipe.
As discussed above, allowing customers to dip their chip cards can save you a lot of headaches and management time dealing with excessive chargebacks. But it’s important not to make the mistake of assuming your chargeback rate will stay the same if you don’t implement EMV. Merchants can expect to see chargebacks that may have been invisible to them before since the card issuers have traditionally taken care of fraud.
Before EMV, fighting a chargeback basically required documenting that the customer made a purchase. A receipt with a signature could be enough to get you off the hook. But new fraud chargeback liability is concerned with the identity of the cardholder. Proving that the “customer” made a transaction won’t help since the customer is a fraud.
Merchants with high ticket items can be particularly hurt by the liability shift. One high dollar transaction chargeback can do significant damage to a small business. Let’s say that a sporting goods retailer only sells an average of two expensive mountain bikes per month. If one of those sales is made with a fraudulent chip card on a swipe terminal, the merchant’s losses will include:
- The loss of the high ticket merchandise itself which includes cost of goods sold (COGS) and potential profit
- The cost of refunding the entire sale amount to the legitimate cardholder
- Plus additional fees and penalties from the card brand, issuing bank, and payment processor
Now, the profit from the other legitimate mountain bike sale is essentially canceled out and the month’s sales now show a loss. The unfortunate reality for many retailers is that a single month of negative profits can put a business in serious jeopardy.
And this doesn’t account for the less tangible, but no less damaging impact of fraud on customer trust and word of mouth referrals. Fighting a reputation for fraud, no matter the validity of the claim, can be an uphill battle. After all, it costs nearly double to get a new customer than it does to keep an existing one.
Fortunately there are many affordable EMV terminals on the market. And they come in the same basic configurations as traditional terminals: stand-alone terminals, integrated POS terminals, mobile phone attachments, and PC plug-ins.
Tap: Contactless payments via NFC
Paying for a purchase via a “tap” refers to contactless payment technologies, such as NFC (near-field communications), which enables acceptance of many of the popular mobile wallets, including Android Pay and Apple Pay.
To make a payment using contactless technology, a consumer must have a smartphone or device with digital wallet technology, the appropriate application downloaded (where applicable), and their credit card information loaded into the application.
If a business accepts contactless payments via NFC terminal, a shopper will simply “tap” their device against the contactless terminal to exchange transaction data and complete a purchase.
NFC payments are substantially growing in popularity among shoppers of almost all demographics today. An online survey of 500 consumers by Vantiv and Socratic Technologies found that 30 percent of consumers have used mobile payments within the past three months. And though Millennial consumers show a significantly higher rate of usage at 62 percent, even 15 percent of Baby Boomers have used them as well.
Perhaps the biggest appeal of NFC technology, is that it’s also used in EMV processing. So upgrading to an EMV terminal will most likely enable businesses to also accept NFC mobile payments via “tap.”
Accepting payments via tap benefits your business in three main ways:
- Mobile payments are more secure than swiped payments
- Tapping enhances the customer checkout experience (fast, convenient transactions)
- An NFC terminal enables two new payment types: chip cards and mobile payments
Merchants interested in capturing the widest group of potential customers should consider investing in a POS system that accepts all credit card payment methods—swipe, dip and tap—to honor their customers’ payment preferences.
Payment technologies for your business
Whatever your business needs are, there is a great credit card acceptance solution out there for you. Hopefully, this information will help you narrow down your priorities. And when you’re ready to look at specific solutions, be sure to give us a call. We have the latest card acceptance technologies and work with merchants of all sizes and industries.
Download this checklist to get started accepting credit cards