Accept Credit Card

How to accept credit card payments? Before the how comes the why. A little context is in order.

In 2007, a survey indicated that 97% of consumers in the US had used a credit card in the past year. With the financial crisis, this number dropped to about 70% in 2008 but has been creeping back up with debit cards becoming more popular for credit card processing companies. Contrast this with checks which have steadily lost ground in the last decade. Currently (2011), fully three quarters of non-cash transactions are handled by debit or credit card.  For many types of businesses, the percentage of credit card sales is much higher. Phone, internet and other remote sales use a credit card in 88% of transactions.

Why accept credit cards?

• The first reason to accept credit card transactions is also the best reason: increased sales. Accepting payment by credit card is not only more likely to generate a sale, but the amount is likely to be larger. That important point deserves restating – customers are more likely to buy and more likely to spend more when they do.

• Credit cards expand a business’s reach. Remote sales and online processing become possible. Without credit cards, international sales are a nightmare of currency conversions and wire transfers. Even business to business transactions are now more commonly handled with an electronic payment than a check. A credit card can be verified without regard for time zone and it allows for automated, hands-off sales.

• Accounting accuracy and security go up dramatically. Credit card transactions are easily tracked and recorded. The risks of dealing in cash are eliminated. The advantages over checks are even greater.

One final reason is legitimacy. A business that doesn’t accept credit cards is suspicious. Questions immediately arise: “Were they unable to get a merchant account for some reason?” “Are they serious about being in business?”

How to accept credit card payments

There are two basic structural elements when accepting merchant credit cards. The first is setting up a credit card merchant account. The second is deciding how you will enter information for credit card transactions. One way to think about this is that the business merchant account is your interface with the bank, and the way you process credit cards is your interface with your customers.  Each part of this structure should be customized to your business needs.

Merchant card processing is then a two step affair – getting data from the customer and getting money through the credit card processing company. Credit card data is entered in a variety of ways with more options being offered all the time. The most common is still the Point of Sale (POS) terminal with either the customer or an employee entering the card information. POS transactions can be customized to your business model.

Some examples of different POS setups are:

• Stand alone module – sits on the counter for customer use

• POS built into register – popular for in-house accounting with multiple, linked cash registers

• Pay-at-the-pump – one type of POS built into a delivery on demand device. No employee supervision required. This is akin to a self serve checkout setup.

• POS for vending – set up to take credit cards for tickets, food or anything else that can be put into a vending machine.

The difference between POS and other forms of credit card transaction is whether or not the card is physically present where the sale occurs. Greater security (and lower cost) comes from this method. Electronic signature capture is also available.

Other types of data entry come over the phone, through the Internet or in various remote connections. Even hotdog vendors on the streets of New York can run credit cards if they wish by using a mobile phone connection to the Internet. The critical factor is to match up your data capture to the type of situation where your customers are most likely to use a credit card.

Ecommerce accept credit card payments

All of your credit card transaction processing will flow through a merchant account whether your focus is online or offline. The only real difference is how data is handled. For online merchant accounts, most vendors just plug in a bit of software on their site – the transactions are handled automatically. For those whose business is primarily online, it makes sense to accept credit card payments online.

Obtaining a merchant account online is also streamlined. You will be asked to provide detailed financial information and prove you are who you claim. Once you are accepted and agree to terms, your internet merchant account will be up and running. There are some pitfalls to be aware of however.

The free merchant account

Many new vendors fall into a trap by not doing their homework on fees and charges. Anyone advertising a free merchant account is trying to mislead you.  One aspect of a merchant account may be free of charge (i.e. monthly fee, application fee, ect), but as you now know there are many fees involved.   The type and variety of fees associated with merchant account processing make the issue complex and confusing.

To avoid paying more than you should, you will need to give accurate information to the provider you are considering. Your sales volume, type of transactions and number of credit card sales you expect will all figure into the calculation to get you the best rate.

Key questions to ask:

• What is the fee structure? – Rate per transaction, minimum monthly volume (and penalty), application fee, annual fee, discount rate, any other fees. Merchant payment comes at the end of this string of fees.

• What credit cards will I be able to accept? Online, the most accepted credit card is Visa, followed closely by Mastercard.  Other popular choices are American Express, Discover and various “specialty” cards.

• How are disputes handled? – You may be penalized if you have too many chargebacks or complaints.

• What is my liability and is insurance available? – Because fraud is a real concern, you need to find out how this is handled and what your exposure is.

• What types of data entry are allowed? – For POS, there may be equipment charges. Online and international sales may also have different charges. Rates are often different depending on how you collect information from your customers.

As a separate issue, investigate the company you intend to deal with. This is no different than any other due diligence you would perform. Remember, the credit card processing company is administering your money. Service and reputation are a real consideration – it is often worth paying more to avoid headaches later.

Your responsibilities

A merchants credit card account is not a tremendous undertaking, but you will need to carry out some basic tasks. This might mean processing a series of daily transactions in a timely manner if you are accepting credit card payments, responding to queries and maintaining certain standards. Slip ups will almost always cost you money in penalties or fees.

Will your business accept credit card payments?  You are the only one that can answer that question, but as always, a little education goes a long way.