Finding the right card payment system: an acceptance method for every type of business
It’s an exciting time to be a business owner. With all the developments in consumer devices and card payment systems, merchants can conduct business just about anywhere. Mobile Las Vegas wedding? Desert Camel rides? Reservations for Heaven? There’s a payment device for that.
Card payment systems come in all shapes and sizes, work with various payment platforms, and speak a lot of different payment languages. Deciding how you will accept payments at your particular business isn’t hard, but requires a little bit of knowledge. We’re here to help by giving you a rundown of all the available credit card acceptance methods, how they work, and other important details that business operators like you need to know.
Credit card acceptance categories
Card acceptance methods vary depending on the platform being used to process transactions, and by the type of interaction between the buyer and seller.
Payments acceptance methods can be separated into two main categories.
- In-store—for card-present (CP) transactions involving an exchange between the merchant and cardholder
- Online—for card-not-present (CNP) transactions occurring on a website, or mobile app
Basic considerations for accepting card payments
The most basic premise of accepting payment cards is to facilitate payments by moving credit card data from the point of purchase through the authorization network and back.
Entering card data to an electronic payment system occurs in four main ways:
- By swiping the magnetic stripe on the back of a credit card through a credit card reader
- By dipping the embedded EMV chip on the front of a chip card into an EMV card-reader
- By tapping a mobile phone with activated mobile wallet, or a contactless card to a near-field communication (NFC) device
- By key-entering the number on the credit card into a data field on a computer or PIN pad
When you’re deciding which acceptance methods to use at your business, make sure you’re aware of how the mode of acceptance affects the type of merchant account you need and the interchange category your business is set up for. Depending on these factors, you could pay higher rates when manually entering card numbers over the phone or failing to use address verification software (AVS) for example. You can learn more about that here.
Acceptance methods for in-store payments
Taking payments in-store generally involves CP transactions where the cardholder is in possession of the card and uses it to make a payment in-person. The exception to this rule is when customers use a mobile wallet like Apple Pay or Android Pay. The physical card may not be present, but this in-store payment technically meets the definition of a card-present transaction according to the card brands that set interchange. We’ll refer to this acceptance method as “mobile” for the purposes of this article.
Businesses with a physical location require some type of acceptance method for CP transactions. Within the in-store category, the three major acceptance methods are:
- Integrated POS systems
- Unattended kiosk
Credit card terminals
Credit card terminals are perhaps the most common and familiar type of acceptance method. They come in many shapes and sizes, and with different levels of sophistication.
- Stand-alone terminals —typical counter-top hardware devices for swiping/dipping cards and may include a PIN pad, and have NFC and EMV capabilities.
- Smart terminals—tablet-like devices with a display screen and built-in software as well as the swipe/dip function of stand-alone terminals.
- Mobile dongles—small swipers that can plug into the audio jack or charging port on a mobile device to enable mobile payments.
Each of these devices is capable of performing basic transaction processing for credit and debit cards. Since some cardholders still use magnetic stripe cards, terminals are equipped with a magnetic stripe reader as well as an EMV chip card slot. Be sure to get an EMV-capable terminal since magnetic stripe readers will eventually become obsolete as EMV takes hold.
Smart terminals are a step above stand-alone terminals because they do more than just sending credit card data for approval. They have software that can perform other business tasks like employee scheduling, inventory management, and accounting. Some smart terminals are customizable so the merchant can select the particular functions they need and skip those they don’t.
Smart terminals are a good solution for merchants who want a bit more sophistication than a standard stand-alone terminal can offer, but aren’t interested in the functionality or investment of a fully integrated POS solution.
Integrated POS systems
An integrated point of sale (POS) system is much more than a basic card processing system. It takes the functionality of a robust terminal and combines it with larger business management technology solutions. And it has a direct integration with the payment platform it uses.
POS systems play a much larger role in the operation of a business, so they tend to be optimized for use in particular industries and are customizable even beyond the specific industry they’re designed for. The industries most commonly using specialized POS systems include:
- Restaurants—with built-in software to manage menus, kitchen orders, bar orders, delivery schedules, inventory, sales by operator, and more.
- Retail stores—with built-in software to check inventory in real-time across multiple locations, scan items, manage global pricing updates, and more.
- Hotels—with built-in folio management software to handle reservations and third-party bookings, room service charges, cancellation fees, dining, and more.
- Service providers—with built-in software to manage booth rentals, client scheduling for multiple providers or vendors, product add-ons, co-pays, billing, subscriptions, and more.
Businesses within the same category, performing the same functions often want to perform them differently, which is one of the major benefits of POS systems. They’re highly customizable, and can evolve as the business grows and changes.
What does “integration” mean?
The term “integration” refers to two different but related concepts:
1. The way a cash register and credit card processing system work together.
2. The way the card processing system and the payment processing company work together.
Integration in the first context means that the cash register or sales software program and the credit card system communicate with one another. They are part of a larger whole rather than being disconnected elements. Integration eliminates the need to total cash register receipts separately from the credit card receipts and reconcile the two totals at the end of the day. When you take a credit card payment on a stand-alone terminal it literally “stands-alone” from the cash register and must be balanced manually with the cash in the drawer. Integration solves that problem and also helps eliminate certain human errors like incorrectly entering the sales total, since the total to be charged on a card is generated within the system rather than being hand-entered on a separate terminal.
System integration also allows separate POS “stations” to be unified in one system. Take a table service restaurant for example. This type of restaurant will almost always have more than one station where servers can enter orders and take payments. With an integrated solution, the terminals at each station will operate together instead of independently. The bartender can take a drink order from a customer waiting at the bar, the server can add a food order to the check on the front station, and can settle the ticket at the customer’s table on a hand-held terminal without causing system chaos and a manual reconciliation nightmare.
Built-in payment processing
Integration in the second context means that the payment processor’s software is directly built into the POS system. The developer of the POS system worked with the payment processor to ensure perfect compatibility. This is akin to buying a cellphone from your cellphone carrier and being able to activate it with one step, as opposed to buying a phone from a third-party, and then trying to activate it on a different carrier’s network. Depending on brand compatibility, it may be impossible, or require extra steps and may result in limited functionality.
Being integrated directly to the payment platform generally results in greater functionality. For example, a merchant services provider might offer free gift card processing, but a stand-alone terminal may not have the technology required to operate the gift program. Automated batch closure (which can translate to better interchange rates for fully qualified transactions), and authorization network outage protection (to eliminate processing down-time), are additional examples of services that may not be available without a direct integration. Plus, since non-integrated systems require a gateway to access payment processing platforms, a direct integration can eliminate the need for a payment gateway and the related fees.
This type of payments acceptance is a growing trend for in-store CP payments. The card is present, but the sales clerk may not be, or is only nearby for troubleshooting problems. These self-serve kiosks are becoming common in grocery stores, movie theaters, and quick serve restaurants. Customers can scan items and/or select items from a touch screen and pay with a credit or debit card, all in one place.
Some table service restaurants like Chili’s Grill and Bar are using unattended table-top terminals that are a sort of hybrid cross between an unattended kiosk, a smart terminal, and a pay-at-table solution. Some, like this one by Ziosk, look like a tablet and offer online menu functions to allow customers to order more drinks and request additional service. Customers can also checkout without assistance from the server.
Acceptance methods for online payments
Taking a payment online means the card is not present, and therefore the card number must be keyed into a field on a website or mobile app. Businesses selling online or via a mobile app need an online payment processor. Terminals are not used in this industry as all the card information is entered and processed online with no card swiping or dipping hardware component.
Whereas in-person transactions have hardware components at the core, online payments rely on a collection of essential software functions working together to process transactions. These software components are delivered as part of a package included in the eCommerce provider’s payment solution.
The main acceptance methods for online payments include:
- eCommerce platform
- eCommerce gateway
- Hosted checkout shopping cart
- In app purchasing
Security considerations for eCommerce
Online transactions are highly vulnerable to fraud because the cardholder isn’t present, making it more difficult to verify an online purchaser’s identity. Since business owners are responsible for keeping cardholders’ data secure and are liable for certain types of fraud, choosing an acceptance method for online transactions is primarily about balancing card data security with the customer’s check out experience.
The most seamless checkout experience from a customer’s perspective also requires the most robust security, and vice versa. Business operators need to be knowledgeable about the security requirements associated with the various acceptance methods to make an informed decision.
eCommerce direct platforms
Large online businesses often connect directly to eCommerce platforms to process credit and debit card payments. This type of full service, large-scale platform has all the bells and whistles needed to operate an eCommerce enterprise. It puts the burden of PCI compliance on the merchant requiring additional security protocols and extensive technology solutions. Since this strategy has a lot of associated costs, it’s not typically used by SMBs, but is preferred by multi-million dollar operations with the resources and need to control all aspects of online transaction processing.
Customers purchasing online via direct platform enter their payment information directly on the website, which handles address verification, shipping details, and fraud detection services like device fingerprinting, IP proxy piercing and geolocation. Payments are routed through the merchant’s own web server, subjecting it to the rigorous security protocols set forth by the PCI council.
Smaller online businesses and merchants who offer some online sales in addition to in-store sales often use an eCommerce gateway to handle online payments. With this method, the merchant has fewer security considerations, but the system remains in-scope for PCI compliance since the customer enters card data on their website. The transaction does not pass through the merchant’s web server however. Instead, it is passed through a gateway connecting to a larger back-end processor.
For merchants doing some online business in addition to their in-store business, it is possible to have a merchant account with a traditional payment processor for in-store transactions, and an ecommerce gateway account to connect the website to the authorization network.
It’s also common to have more than one gateway. PayPal, for example, is a payment gateway that facilitates exchange between the website and the customer’s bank account. Many eCommerce businesses have a PayPal gateway in addition to another gateway for other payment types.
Hosted checkout and iFrame shopping carts
A hosted shopping cart protects the merchant’s website from handling any part of the sensitive card data involved in a transaction. The main website is operated and hosted by the merchant, but customers enter their payment information on a third-party page, or iFrame form, hosted by the processor. This online acceptance method is the most secure and simple to implement and is considered “out of scope” of PCI requirements since the payment data never touches the merchant’s server or website. It’s an excellent choice for SMBs who only offer online transactions as a small part of their overall business and don’t want to dedicate additional resources to maintaining rigorous eCommerce security.
The main drawback with a hosted solution is that it doesn’t deliver one seamless website experience for the customer. Since the shopping cart is a plug-in technology, it essentially takes the customer to a separate page that may not match the business’ website perfectly. Although many providers allow a degree of customization to the design of the page to reflect branding colors and logo, a hosted solution nevertheless falls short of the description “seamless.”
Not to be confused with mobile payments (paying via mobile wallet) or buying online (by using a mobile browser), in-app purchasing refers to a customer using a mobile application and purchasing items/services without leaving the app.
Apple’s iTunes app is a perfect example of the in-app use case. Customers can use the app to browse or organize music, and purchase additional songs without leaving the app or opening a mobile browser. It’s also a popular payment solution for gaming apps that offer add-ons like power-ups, in-game currency, and bonus content.
All together now: the rise of omnicommerce
The beauty of modern commerce is that most of these payment acceptance methods can be combined to allow merchants to capture sales wherever their customers are shopping—in-store, online, and in app.
Giving customers the ability to get coupons and offers in app, browse and purchase inventory online, exchange it in-store, and share their positive shopping experience on social media is the wave of the future.
The level of sophistication of an omnicommerce solution is variable, so every unique merchant can mix and match the services they need to provide the customer experience they want to deliver. Even better, is the ability to mix and match acceptance methods, without having to use a hodgepodge of service providers. Many full-service payment processors like Vantiv offer a variety of payment acceptance methods so your business can use one provider for multiple acceptance methods.
And when you select a provider capable of meeting your business’ changing needs, you can grow without dealing with compatibility and scaling headaches. Having one provider simplifies support issues since there is one player to turn to instead of several. And you’ll only have one billing statement to deal with which simplifies accounting and taxes.