Get smart about small business credit card processing
Managing a small business requires wearing many hats. Company owners can’t be expert at everything, yet small business owners routinely face critical decisions impacting their bottom line. You need to get smart about complex subjects, fast.
Finding the right credit card processor for your small business is among the first and most important decisions any small business owner will face. You don’t need go become an expert in payments. But with any decision this important, you do need to become an educated consumer.
If you’re unconvinced, spend a few minutes to learn more about the major benefits of credit card acceptance for small businesses. If you’re convinced but need to dig deeper, this five-minute read will help anyone looking to get smart about small business credit card processing.
An evolution in payment options
Advances in technology including the mobile computing revolution have produced an explosion in payment options. Consumers demand options, and small business merchants need to deliver. And as consumers of credit card processing services, small business owners are also demanding in what they need. The result is an evolution in payment options offering new and innovative benefits to both consumers and merchants alike.
For those operating a brick-and-mortar store, payments are defined in 2018 by an explosion of features and options. If you are looking for the no-frills tools that accept credit cards safely and easily, point-of-sale (POS) terminals have you covered. For small businesses that need more, complete POS systems offer simple touch-interfaces and integrate with inventory tracking, sales, CRM, and other back office business operations.
More recent entrants to the payments landscape include digital wallets such as Apple Pay, Google Pay, and Samsung Pay. Digital wallets store credit card information on mobile devices so you can pay with the ease of holding a phone but with a level of security never possible with plastic. The latest advancement in credit card acceptance allows your customers’ smartphones to communicate with your POS device via a technology called near-field communications (NFC). Smart, fast, and secure, digital wallets are leading the charge into the future of payments.
If you have a business that’s mobile, you’ll likely be accepting mobile point-of-sale (mPOS) payments. By adapting a mobile device such as a tablet or smartphone with an adapter (a “dongle”), you can accept credit card payments everywhere. Cell phone credit card processing is a convenient way to accept payment anywhere—from on-location at house calls to pop-up stores to Saturday markets, mPOS devices open the possibilities to take your virtual cash register along anywhere and everywhere you do business.
Key players in credit card payment processing
There are a number of key players involved in a credit card transaction, from the initial swipe, dip or wave all the way through the deposit of funds into your business bank account.
1. A POS device or gateway. You’ll need hardware and software (and sometimes just the software). Most card-present purchases can be accepted with some manner of POS terminal, but that’s not the only option. In eCommerce, instead of a credit card terminal you need a payments gateway. Gateways can also be used in card-present or MO/TO (mail order/telephone order) situations in conjunction with a virtual terminal.
2. A payment processor manages credit card payments for merchants. Credit card processors coordinate and integrate much of the payments process and by routing transactions to the proper parties and networks––hence the term “processor.” Payment processors often offer small businesses other services beyond just payments processing that can help your business run more efficiently and keep more of your revenue. Vantiv, now Worldpay, is a leading global payment processor.
3) A merchant account. A merchant account is like a regular business bank account that is specifically dedicated to receiving funds from credit card transactions. Often, an acquiring bank also acts as your merchant account, and sometimes your merchant account is a part of a payments processing or a merchant services package. Merchant accounts aren’t for everyone, however, and many merchants turn to payment facilitators that integrate payments into part of a larger software and service package.
4) Card brands association networks such as Visa, MasterCard, American Express, and Discover make all the magic of credit card processing possible. The card brands, along with all other parties, give their stamp of approval on the credit card payment.
5) An issuing bank provides credit cards to consumers. Funds for approved transactions are removed from the issuing bank account, deposited into your merchant account before arriving at its final destination, your business banking account. The process that once always took several days to even weeks is getting shorter all the time, with the holy-grail of next-day or even same-day availability now within reach.
It’s common for groups of payment services to be bundled for efficiency, convenience, and cost savings. For example, Worldpay can offer a suite of payment services, set it up in your POS device, and then integrate it all with other business functions such as inventory tracking and analytics. Many small businesses prefer complete payment services so that they can focus on other elements of their business where they can add more value and focus on their customers.
An acquirer is a financial institution—typically a bank or credit union—that processes credit and debit card payments for a merchant. The acquirer allows merchants to accept credit and debit payments from issuing banks within an association network (such as Visa). An acquirer is also known as an “acquiring bank,” “merchant bank” or “merchant acquirer.”
Assessment fees are charges associated with each credit and debit card transaction paid to the respective card associations (Visa, Mastercard, American Express, etc.).
Card-Present (CP) transactions represent credit and debit card purchases that involve the presentation of a physical credit card by the customer to the merchant. Card-present transactions are significantly more secure now that more and more merchants have integrated EMV technology, significantly reducing the rates of in-store fraud.
Card-Not-Present (CNP) transactions in which a merchant honors the account number associated with a card account without the physical plastic card being present. All eCommerce transactions are CNP.
A digital wallet is an electronic device (usually a mobile phone) that allows an individual to make purchases via installed apps. Examples of a digital wallet include Android Pay and Apple Pay.
Integrated payments involve payment processing solutions are built into the point of sale solution and other business functions such as accounting, customer relationship management and inventory management systems.
The interchange rate is the amount paid by acquirers to issuers to compensate for the processing and maintenance of the transaction and cardholder.
An issuer is any association member financial institution, bank, credit union, or company that issues credit and debit cards to cardholders.
A merchant bank or account is a bank that has an agreement with a merchant to accept (acquire) deposits generated by card transactions.
A mobile point-of-sale (mPOS) is a smartphone, tablet or dedicated wireless device that functions as a mobile cash register terminal by accepting credit cards, either with an attached dongle to swipe/dip or via a virtual terminal.
Near-field communication (NFC) is a set of standards for smartphones and other devices to establish radio communication with each other by bringing them into close proximity.
A payment gateway is a hosted payment software service that connects merchants to their acquiring bank’s processing platform.
A payment processor processes payment transactions for merchant acquiring banks. A payment processor executes transactions between customers, merchants, issuers, and acquirers. Vantiv, now Worldpay, is among the world’s leading payment processors.
The point-of-sale (POS) refers to the location(s) where a transaction is consummated by payment for goods or services received. Once fixed, given the new mobility in credit card acceptance methods the point-of-sale is now a more fluid concept. Point-of-sale also refers to the actual device or integrated system performing the transaction.