Once you decide that your business needs to start accepting credit cards as part of an initiative to expand your customer base and improve your bottom line; it’s a good idea to learn about how payment processing works so you can choose the right merchant services to meet your needs. One of the important aspects of the payment acceptance process is the hardware, specifically the terminal. This is the essential tool for any retailer to complete a debit or credit card transaction. There are a number of different types of terminals available, but they all perform the same crucial function of capturing and transferring consumer payment data.

Credit Card Terminal Basics: 101

In order to complete any debit or credit card transaction, you need to access the account data stored in the magnetic strip or microchip on a customer’s card. That information has to be sent electronically to the bank or financial institution that issued the card to the consumer so they can verify and approve the payment transaction. The more information that is received and under what circumstance it is received can determine the amount the merchant is charged for a given payment processing transaction. Exactly how the terminal receives the data and what data is received depends on the type of transaction you’re processing:

  • Card Present (Swipe) – In a card-present transaction, a card is swiped or inserted to a terminal so that the magnetic strip or microchip in the card presented by the cardholder is physically read. The data contained within that card is then downloaded by the terminal and sent electronically to the issuing bank for approval. The additional security measures of matching the card holders ID and signature to the card being used typically make card-present transactions the cheapest and safest transactions yielding the lowest processing costs. However, external forces such as the product or service sold or the type of card being used by the consumer such as rewards or business cards can influence cost to the merchant on a per transaction basis. These factors are for the most part uncontrollable circumstances.

  • Manual Entry (Keyed) – Manual entry transactions or keyed transactions are typically recognized as retail transactions whereby the card is not swiped but data such as card number, CCV, and expiration date are keyed into the terminal. In most cases this occurs because the magnetic stripe on the back of the card is either worn or demagnetized. In any case, this type of transaction is considered to be forced as the least amount of data is collected and the transaction is pushed through the system. Many times the retailer is required to call the card brand in order to verify the transaction is legitimate. Keyed transactions are monitored closely as they are the majority of how fraudulent transactions occur within a retail location.

  • Card-Not-Present – Card not present or CNP transactions are considered to be the highest risk and many times can automatically classify your business as a high-risk business if this is how the majority of your payment transactions take place. The two most common types of card not present transactions are mail order / telephone order (MOTO) or e-commerce.

    • Mail Order/Telephone Order (MOTO) – Mo/To transactions are conducted in a manner where the consumers card information is taken over the phone, fax, or through the mail. These transactions are keyed into a virtual terminal (through the internet) and the keyed data is sent and approved electronically. For all of these transactions best practices are:

      • Have clear and concise terms and conditions and make sure the consumer has easy access to read and understand them prior to purchase

      • Have the consumer complete & sign a thorough authorization form.

      • Record consumer payment information capture for phone orders.

      • Obtain a clear and legible copy of the front and back of the card holders ID and card being used.

      • Have a return or refund policy that is favorable to the consumer.

      • Assure that the consumer can easily reach customer service or support teams.

    • E-Commerce – Internet transactions are typically purchases made through a website by the end user where they enter all of the required data into a shopping cart in order to make a purchase. These are usually recognized as the riskiest of transaction types because there is no way to verify the purchaser in the same manner retail, card-present transactions are verified. This is the setting for a playground of criminal activity in the form of fraudulent businesses and fraudulent purchases.

Regardless of the type of transaction being processed, once the terminal has captured the consumer’s payment information it is sent for approval where the issuing bank verifies the availability of funds and the card holder information before either accepting or declining it and relaying the decision back to the terminal. Although it sounds like an elongated process the entire transaction typically takes only seconds.

The Most Common Types of Terminals

Deciding on the right credit card terminal for your business and the type of transactions you plan to process isn’t difficult when you understand the different options available. In today’s market you need an EMV ready credit card terminal for retail locations as well as full PCI compliance regardless of the terminal used in order to protect you from fraud and  chargebacks as best as you possibly can. EMV ready terminals are capable of reading new cards equipped with microchip technology that card issuers are sending to consumers in order to better protect their personal information from hacking and data breaches. Some of the different types of terminals are:

  • Standard Plug-in Terminal – Made strictly for card present transactions, this terminal is the most widely-used terminal found in retail outlets throughout the world. In most cases, consumers simply swipe, show ID, and sign for their purchase. Debit card transactions may require following a series of prompts but it is a painless process.

  • Point-of-sale (POS) Systems– Retailers have the option to use a countertop or POS terminal. Most POS systems are all-encompassing with touch screen, printer, UPC scanner, card terminal, and more. POS systems allow you to monitor your business in real-time with everything from sales, employee performance, employee hours, inventory, and overall greater control to manage your business. You can also tailor most POS systems to provide customized functionality to meet the needs of your business. However, POS systems are more expensive than other types of terminals, although, there are ways for merchants to negotiate free equipment into their merchant account agreement.

  • Wireless Terminals– Wireless terminals function exactly like standard terminals except they give merchants the flexibility to accept payments from anywhere within their establishment as opposed to having to take card payments at the register. This is particularly good for service-based businesses such as night clubs or strip clubs were clients are spread out over an area for an elongated period of time. These terminals are battery-operated and communicate over a Wi-Fi connection.

  • Mobile Terminals– You can plug a card reader into just about any smart phone, download the appropriate app, and you can now process from anywhere your phone has an internet signal. However, the costs associated with mobile payment processing are generally higher as they are not usually classified under retail and the risk is considered to be greater.

  • Virtual Terminals— With this web-based version of a credit card terminal, you enter a customer’s payment information directly into your gateway. Virtual terminals are a good solution for distributors or manufacturers as well as Mo/To businesses that may take a heavier share of card-not-present transactions, although they are not limited to these types. They can be integrated with website shopping carts as well.  Because this is manual entry processing costs to the merchant are usually higher; however, merchants can mitigate those cost by obtaining and entering as much of the payment information as possible as it decreases risk of fraud. This is particularly efficient when merchants get an extra layer of protection with credit card authorization forms to accompany virtual terminal transactions.

If you would like to discuss which credit card terminal is ideal for your business and need expert advice, Painless Processing associates are readily available to assist with all questions. Contact us today!