For decades, entrepreneurs and small businesses refused to allow card-based purchases due to the monumental expense. However, in recent years, cards have become the primary mode of payment in nearly every sector, from paying rent to buying clothes to picking up dinner on the way home from work. Now that the American buying force has gone plastic-crazy, most merchants must wise up and accept card payments or else lose sales (and eventually, their entire business) to their competitors who do.
Fortunately, the card payments are slightly more approachable than they were in the past. Now that digital devices have gone mobile, point of sale systems have followed suit. Small businesses looking to increase profits by accepting credit, debit, and prepaid cards now have three processing options to choose from, and their pros and cons are outlined below:
1. Old: Merchant Account Services
During the time before the World Wide Web but just as plastic payment began its meteoric rise, banks started offering businesses all-inclusive services that made card verification a snap. These so-called merchant account services provide businesses with nearly everything they need to collect and manage their profits, including special bank accounts and point of sale (POS) terminals. Today, merchant account services remain the most popular way for businesses to collect payment.
Of course, there are obvious benefits to using bank-supplied merchant services. Banks can provide special merchant accounts in which credit and debit profits can sit while the institution verifies the payments. After approval has been achieved, the bank can transfer the money directly into savings and checking accounts without the business’s intervention. Merchant services grant businesses access to all sorts of essential payment equipment, like POS terminals, PIN pads, credit card machines, and more. Plus, large financial institutions can provide more security to a business’s funds.
However, some merchant account services can be expensive. Simply to use the services, banks can charge a handful of monthly subscription and processing fees. Plus, credit and debit verification requires transaction payments, which can include an exorbitant flat fee of between 20 and 30 cents per purchase or a cut of any transaction, between 0.5 and 5 percent of every purchase. It is important for every small business to review a bank’s terms of use before signing on with a merchant services account.
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2. New: Mobile Card Processing
Now that the Internet connects individuals and large financial institutions without the need of a middle man, many small vendors are turning to cheaper payment processing options to do business. The most popular alternative payment service is undoubtedly mobile card processing, which allows a merchant to transform her mobile device — be it a smartphone, tablet computer, or laptop — into a tried-and-true POS terminal.
Generally, the system mimics the traditional merchant account services: The business must set up an account to receive the payments and must pay a handful of fees that allow providers to verify customers’ information and funds. However, with mobile card processing, vendors aren’t wired into a specific location, which means they can follow their customers anywhere and everywhere. As a result, the profits from markets, fairs, and trucks have increased over recent years.
Unfortunately, that freedom often comes with significant risk. Though there exists a national standard that enforces security measures on any card payment collection device, mobile card readers aren’t always as safe as a consumer and vendor hopes. It is difficult to safeguard data over wireless connections, and the possibility of data theft could be high with different processing providers. Vendors should compare different mobile services before opting for potentially flimsy payment processing.
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3. New: Online Card Processing
Even more flexible than mobile merchants, online businesses can make sales anywhere, anytime. Third-party providers make it easy for entrepreneurs to begin selling products and services over the Web. Plus, merchants don’t need any programming knowledge to create an online store; by using an established online card processing firm, a small business can have a website shop with just a few mouse clicks.
Usually, online payment processors are the easiest and cheapest to set up. Unlike merchant services and mobile processing, retailers don’t usually need credit approval to use a third-party processor, which makes it an excellent option for entrepreneurs with bad or no credit. Additionally, many third-party processors offer brick-and-mortar services as well, making the transition from online significantly simpler. However, online card processing isn’t as inexpensive to maintain; online transaction fees are usually much greater than those levied by banks and mobile providers. Unless a small business is just starting out, online processing may not be the best choice.
