Get smart about small business credit card processing
Credit card processing for small business can sometimes feel like a big complex world. And it is. There’s a lot to consider. But what most small business owners really want to know are a few salient points: What do they need for their particular small business? How does credit card processing work? How can credit card acceptance help their business? And how can they process credit card payments affordably?
The different ways you can accept credit cards
Depending on your type of business, there are myriad ways to take credit cards. If you have a physical store location, you’ll either have a point-of-sale (POS) terminal or a complete POS system that could be integrated with inventory tracking, sales, customer analytics, and other back office business operations. In this case, your transactions will be “card present,” meaning you’ll swipe, key in numbers from a card, or insert a chip card in order to take payments.
If you need credit card processing for eCommerce, you’ll be accepting “card-not-present” payments online. In this case, your customers will key in their own credit card information, usually including a CVV code for verification.
If you have a business that’s mobile, you’ll likely be accepting mobile point-of-sale (mPOS) payments. In this case, you’d likely adapt a mobile device, such as a tablet or smartphone, with a dongle to be able to accept credit card payments. Cell phone credit card processing is a convenient way to accept credit cards if you’re a massage therapist, for instance, or have a booth at a farmer’s market. However, many brick-and-mortar stores, restaurants, and other location-type businesses are now using mPOS devices to bring the sale to the customer or to bust lines.
The latest advancement in credit card acceptance is digital wallets, such as Apple Pay, Google Android Pay, Samsung Pay, and others, that allow your customers to wave their smartphones within about an inch of your near field communication (NFC) POS device and instantly make a purchase. All of their credit card information is safely stored in their mobile devices for quick, convenient buying.
The benefit of accepting credit cards? Choice, of course. Allowing your customers to pay by credit and debit cards, and now with digital wallets, gives them more reasons to say “yes!” to a purchase at your business.
The key players that make credit card payment processing work
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. And, by the way, many of these players charge fees to facilitate their part of the transaction.
1) A POS device or gateway
In order to transact a payment, you will need certain hardware and software. This could include a POS system, a standalone terminal, a mobile payments attachment, and a payments gateway. Your device needs will vary depending on whether you are accepting card present or card-not-present payments.
2) Payment processors
A payment processor basically manages credit card payments for merchants by helping to coordinate and integrate much of the payments process and by routing credit card transactions to the proper parties and networks––hence the term “processor.” Payment processors often offer small businesses other services beyond just payments processing.
3) Merchant account
If you’re going to accept credit cards, you’ll need a merchant account. Often, an acquiring bank (aka acquirer) also acts as your merchant account, and sometimes your merchant account is a part of a payments processing or a merchant services package.
It’s not unusual for a group of payment services to be bundled for efficiency, convenience, and cost savings. And it’s a smart choice for small businesses to have all of these functions consolidated as much as possible. For example, Vantiv can offer a suite of payment services, set it up in your POS device, then integrate it all with other business functions such as inventory tracking and analytics. Many small businesses prefer full integration. “Vantiv has taken out the complexity of having to deal with credit cards,” says Dr. Petra Sullwold D.C., owner of Atlas Specific.
4) Card brands
Simply, this is the name for association networks, such as Visa, MasterCard, American Express, Discover, etc. The card brands, along with all other parties, give their stamp of approval on the credit card payment.
5) Issuing bank
This is the financial institution that has issued the credit card to your customer. If every player along the way has approved the credit card purchase, the funds will be removed from the issuing bank account, deposited into your merchant account, and eventually will end up in your business banking account. As fast as technology works, the entire process could take a few days from start to finish.
How a small business can save money on credit card processing
Large businesses have numerous ways to save money when processing credit cards, because they can negotiate the best rates due to their high number of transactions. However, smart small business owners have a variety of ways to make processing credit cards more affordable.
1) Ask about fees
Ask for upfront, straightforward, clear answers to this question: what’s it going to cost me? You may be offered a flat monthly rate for a lower number of transactions, interchange fees, processing fees per transactions, fees based on percentage of sale, etc. There are all sorts of fees for completing a credit card transaction. The more services you can bundle, the more likely you’ll save.
2) Avoid duplicate fees
Be sure that you’re not being charged twice for the same service; sometimes services can overlap in the credit card transaction process. If you’re not aware, every transaction can eat away at your profits.
3) Consider an aggregated merchant account
If you’re a small business or a new business, you may want to start out with an aggregated account. In this case, your account is bundled with other accounts, and it makes life simple with one provider. You can’t negotiate rates, but you can be sure you’re not being charged too many fees from many different vendors.
4) Consider a dedicated merchant account
If you have a medium-sized or growing business, consider a dedicated merchant account, which allows you to negotiate rates and fees.
5) Be aware of termination fees
Some companies charge exorbitant fees if you close your merchant account. Be sure to read the fine print and ask questions. You don’t want to get stuck with a big bill if you elect to switch to another merchant service company or need to close your doors.
6) Tiered payments
Merchant accounts may offer you tiered payments that are based upon the risks you allow your customers. For instance, if you accept a credit card without a zip code or a CVV code as verification, you will be charged a higher fee. The fewer risks you take when accepting cards, the fewer fees you’ll pay.
Important credit card terms for the smart small business owner
Bank or financial institution that processes credit and/or debit card payments for a merchant.
Transaction in which a merchant honors the account number associated with a card account and does not swipe a physical card or obtain the account holder’s signature.
An electronic device (e.g., mobile phone) that allows an individual to make eCommerce transactions. Examples of a digital wallet include Android Pay, Apple Pay and Samsung Pay.
When 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.
Amount paid by acquirers to issuers to compensate for the processing and maintenance of the transaction and cardholder.
Any association member financial institution, bank, credit union, or company that issues (or causes to be issued) plastic cards to cardholders.
Merchant bank or account
Bank that has an agreement with a merchant to accept (acquire) deposits generated by card transactions.
Mobile point-of-sale (mPOS)
Smartphone, tablet or dedicated wireless device that performs the functions of a cash register or electronic point-of-sale terminal.
Near Field Communication (NFC)
Set of standards for smartphones and similar devices to establish radio communication with each other by touching them together or bringing them into proximity (usually no more than a few inches).
A third party hosted payment software service that connects merchants to their acquiring bank’s processing platform.
Company appointed by merchants to handle card transactions for merchant acquiring banks.
Location in a merchant establishment at which the sale is consummated by payment for goods or services received. Also sometimes used to refer to the actual device at the point-of-sale location.