Small business first steps: Accepting credit cards FAQ
The entrepreneur stands tall among heroes. When measured in importance to the common good, “small” business is anything but small. Individually they are mighty, forging the anchors that ground our communities. Collectively they provide the fuel that drives economic prosperity.
The SBA estimates that in 2017 almost half (47.8%) of U.S. jobs were scattered across 30 million remarkable small businesses. Individual entrepreneurs were responsible for those 58 million jobs. Look beyond the statistics to find the faces that weave the fabric of American life. When the entrepreneur succeeds, dreams are realized, heroes are made, and communities thrive.
Today our economy moves at warp speed, following the magnetic force of empowered consumers. Consumers today enjoy an infinite array of options. When it comes to payments, providing options means accepting credit and debit cards.
Even heroes need a little help sometimes. Thankfully we can learn from heroes that came before you. Let’s review some of their frequently asked questions about how to accept credit cards.
FAQ: How will accepting credit cards help me grow my business?
You may already know that accepting credit and debit payments is essential to business success. It’s true that virtually every other business accepts credit cards. But heroes are leaders who make their own decisions. So it’s worth taking a moment to refresh our thinking about why we accept credit cards in the first place.
- Credit and debit cards are more convenient for consumers than cash. The Federal Reserve estimated that in 2015, 48% of all retail payments in the U.S. were made by either credit (21%) or debit card (27%). Card use is on the rise and taking a bite out of cash: debit and credit cards gained a remarkable 6% share of all consumer spending between 2012 and 2015 alone.
- Credit and debit cards enable more spending by consumers. The psychology of credit card use tries to understand what make consumers spend more and be more prone to impulse purchases. It’s a phenomenon we all understand intuitively. Today electronic payments fuel spending across all channels. The desktop and smartphone are the new theaters of impulse purchasing.
- Electronic payments are much easier for merchants to process than cash. Cash may be easy to accept, but it can be a real pain to handle. Cash needs to be counted, stored securely, and transported to a bank. All by human hand, either yours or someone who you employ. Credit card processing settles funds directly in your account, safely and easily. Leaving you free to be a hero.
FAQ: What types of credit cards should I accept?
Put yourself in the shoes of the consumer and think of all the things you purchase. On any given day you may want to use cash, debit, or any of several credit cards issued by multiple banks. You want any merchant you frequent to accept any type of payment you want to use in that moment. You want to know how to accept credit cards because you know that as a consumer, you want options—the more, the better.
Your customers want options, too. When you set up a merchant services account to process credit card payments, give strong consideration to accepting all the different cards a customer could potentially use. This includes debit cards, prepaid cards, gift cards, as well as all major credit cards including at minimum Visa®, Mastercard®, American Express®, and Discover®.
By excluding certain cards, you could be excluding customers—and not just once. Sure, it’s possible that your customers love your business so much that they will pay the way you want them to. It’s possible that the product or service you want to sell is so great that your customers will keep coming back to you on your terms. But isn’t it more likely that your customers will simply find a competitor who allows them to pay with their preferred option?
FAQ: How many ways should I accept payment?
Back in the day, our heroes were simple. Accepting credit cards was simple, too. We used manual imprint machines, and we liked it!
Today, we experience commerce at warp speed. Paving the road to riches means that you’ll need to consider options not just in the type of cards you accept, but how you’ll accept them. Here are the four most popular ways to accept credit and debit cards:
Credit Card Terminal: Credit card terminals are a legacy of in-store retail acceptance. Credit card terminals are easy to use, require little training, and consumers generally understand them. These days “simple” credit card terminals are getting smarter all the time. Modern credit card terminals support the secure card-present transactions including EMV chip technology as well as contactless payments and mobile wallets such as Google Pay®, Apple Pay®, and Samsung Pay®.
Integrated Point-of-Sale (POS): Integrated POS systems are game-changers for many small businesses. POS systems offer sophisticated, interconnected systems once reserved for much larger businesses. An integrated POS system can seamlessly communicate with your inventory and accounting functions.
POS systems are feature-rich, cost more, and so may not be the most appropriate entry point for many businesses. For those ready to take the plunge, integrated systems can generate actionable business intelligence and boost your bottom-line.
Mobile Acceptance: Mobile payment solutions allow you to accept payments on smartphones and tablets, giving you the advantage of accepting sales anywhere: a flea market, a sidewalk café, while visiting a client, or simply lifting the anchor of a fixed point-of-sale terminal and letting your staff meet your customers where they are.
Mobile payment systems are great for independent sellers, craftspeople, service people who make house calls—any kind of business on the go. Mobile payments aren’t nearly for everyone, but they are quickly becoming a consumer expectation.
Web Payments: Web payment systems give you the option of taking payments online directly via your own website or via a gateway commonly known as a payment facilitator or PayFac. Payment facilitators are especially popular with new virtual small businesses, as they can offer services without the aid of a merchant account.
For those merchants that plan to transact online and off, merchant acquirers can offer comprehensive payment services that can help you gain insight on the back end while providing seamless experiences to customers on the front end. That’s a good day’s work, even for a hero!
FAQ: How much will accepting credit cards cost my business?
OK, you’re convinced. You know that your business needs to accept credit cards in order to compete for the modern consumer. You understand that you can’t be a hero without creating the infrastructure to get paid. You need to know: what is this going to cost me?
The answer may ring unsatisfying: “it depends.” The good news is that you don’t have to be an accounting whiz to understand exactly how it depends.
There are fixed costs that are the same for each class of transaction that everyone pays, like a rate structure for a utility. These fees are called the “interchange rates” and the rates are set by the credit card networks such as Visa® or Mastercard®. Accepting debit, gift, and pre-paid cards also carry fixed costs.
There are also variable costs that depend on your type of business, the average dollar amount per transaction, and the volume of transactions you expect to run. Costs are in part based on risk factors specific to your business, much like how each of us pays a different interest rate for auto or home loans based on our personal risk factors.
So the cost of accepting credit cards for small businesses can vary considerably. When all the expenses are added up, a good ballpark reference is that the cost of acceptance will be between 2% and 3.5% of credit and debit card sales.
FAQ: How can I contain the costs of accepting credit cards?
Woah, that sounds… expensive! Entrepreneurs are unlikely to ever become heroes unless they can effectively manage business expenses. As we’ve seen, some costs associated with credit card acceptance are fixed. Yet merchants can take a number of steps to help manage the overall costs of accepting credit cards.
- Shop around. There are many options when it comes to credit card processors. Like most things that matter, the least expensive service may end up costing more in the long run. Leading merchant servicers will provide you with a spectrum of card acceptance options including security and fraud protection, detailed reporting, and superior customer service. Heroes understand that assessing price and assessing value are far from the same thing.
- Conduct regular system checkups. Managing the costs associated with accepting credit and debit cards is not a one-time event. As your business grows and evolves, you may be able to negotiate better rates with payment processors based on increased transaction volume and/or average size. Periodic checkups of your business’ payment processing system is as important as getting an annual physical for yourself.
- Understand your risk tolerances. Work with your processing partner to establish a risk tolerance that is right for you. Sometimes there are tradeoffs. You want to create easy checkout experiences for your customers, but everyone needs the transaction to be safe. Your processor can help you dial in the right balance.
When selecting a credit card processor, be sure to evaluate each based on the entire package including price, service, and reputation. A little due diligence can go a long way to make sure you are getting the best protection at the best price.
FAQ: What are the risks and costs of credit card fraud?
Our modern age is one where cybersecurity provides a seemingly endless stream of headlines—on a scale of bad to worse. Your business faces enough challenges, and you definitely do not have the time or energy to worry about reputation-ruining data breaches. Just on principle, heroes can’t have criminals reaching into their back pocket.
Unfortunately there are risks associated with accepting credit cards, just like there are risks when connecting to any complex system. There are two primary risks you need to face head-on: risk that the credit card data of others is stolen while it’s in your possession, and risk from stolen credit cards being fraudulently used in your business. In each case you can minimize these risks by selecting a partner who has experience fighting criminal fraudsters head-on.
We have a good idea of what fraud costs the U.S. economy, and the numbers are simply staggering. A 2016 LexisNexis study pegged the cost of fraud as a percentage of retail revenues at 1.47%. One-and-a-half percent of retail revenues may not sound like a lot, until you consider that is a percentage that for many businesses would represent a healthy, even celebratory profit margin.
Those losses are not nearly spread equally across all businesses. Future heroes understand this. Heroes leap to action to defend themselves and their customers, demonstrating strong common sense, stronger business sense, and financial smarts.
FAQ: What can I do to protect my business from credit card fraud?
Fortunately, there are knights who are ready to help protect the round table. New solutions that improve security and frustrate would-be thieves are introduced almost every day. There are established best practices to protect your business from fraud, at the systems level and at the human level.
At the systems level, data security is critical. Not so long ago, routine maintenance of credit card information was a serious concern for merchants because that personally-identifying information was held in full, unencrypted. Human error could and often would often leave a virtual door open for criminals, who were all too eager to swoop in. Compliance with the latest security requirements such as the PCI DSS can not only help you keep customer data safe from cyberattacks.
Encryption and tokenization are two methods that can minimize the exposure of personal data and reduce your risk as a merchant. You don’t need to understand the intricacies of tokenization and encryption to know that these measures save you money because it reduces your exposure to the costs of fraud.
At the human level, train your staff on how to avoid credit card fraud. The introduction of EMV chip technology has significantly reduced the amount of in-store fraud. While great progress has been made in thwarting counterfeiters, fraudulent in-store purchases are a drag on our heroes and our communities. Keep up with best practices for avoiding credit card fraud, and share what you learn with any and all staff who handles the point of sale.
Embrace your inner hero
For humans, the essentials for sustaining life are food, water, oxygen, and shelter. For businesses, sustaining life means developing a healthy revenue stream. Accepting credit cards is simply the smart choice for the hero looking to breathe life into his or her business. Merchants that choose not to accept credit and debit cards for payment are pushing customers into the hands of the competition.
We get into business to follow our dreams and become heroes—not to understand the intricacies of accepting payments. Yet payments are the lifeblood of your business. You’ll need to get them set up correctly out of the gate. What will that partner will do to help keep your business safe?
This is a critical juncture for our hero, as she approaches the selection of a credit card processing partner. Now that you understand the basics of how to accept credit cards, make sure to ask tough and demanding questions. Take the time to understand who you are locking arms with in the fight against fraud. Make it a decision worthy of your aspirations, a decision that adds another brick in the wall of your hero story.