Retail Credit Card Processing

Retail credit card processing refers to someone using a terminal at a fixed business location. This distinguishes it from online or mobile credit card transactions. Taking credit cards as a brick-and-mortar business uses the familiar, “swipe card here” type unit common in retail settings. There are different terminal types available, and we’ll look at some options below.

Differences Between Retail and Other Types of Processing

For a particular business type, retail processing should have the lowest possible fees. The reason for this is higher security (less chance of fraud) and standard software/equipment.

  • Security – Swiping a card at a retail outlet is called a “card present” transaction. This means the physical credit card is scanned through a reader and the cashier can check the signature on the back against the signature obtained from the customer. Some systems require the customer sign a paper receipt, others capture an electronic signature on a touch screen. Compared to a transaction over the Internet or by phone, having the card is much more secure. Fraud could only come with a stolen or counterfeit card – much more difficult for thieves than typing into an online form.
  • Software – Unlike online processing, the software needed to run cards will be built into the terminal itself. This means that the processing company has control over encryption and the electronic format used to send information to them. Both of these features increase security.
  • Equipment – The data terminal is provided by the processing company as well. Unless you need a customized credit card solution – eg. one that merges with your accounting software –  the terminal comes pre-programmed and has a reader and signature capture capability that meet your credit card processor company’s needs.

Everything in the above list reduces costs to the credit card company and this should be reflected in lower costs to you. The downside is that you will only be able to run cards at a fixed location – wherever you have the terminal installed. In most retail settings, this isn’t a problem.

Variations are available from credit card processors. You may opt for a unit that prints a receipt to sign or one that uses an electronic signature pad. Some units can be married with an existing cash register so that the sale is automatically matched up to what the cash register shows. There are also a variety of terminal styles offered from each processing company. Some stores want the smallest size possible, while others want something with larger buttons or a bigger screen.

Whichever you choose, inquire about any leasing fees and find out how replacement and repairs are handled. Some entrepreneurs want an extra terminal in service as a backup, should something untoward happen to the primary terminal.

Keep in mind you do have other processing options.  You could use a virtual terminal, wireless or mobile processing.  That way you can run your cards at your retail location and remote locations, but you would be charged more for the options that don’t accept swiped cards because they are considered card not-present.

Other Functions Available

Because the variety of payments will partially determine who is able (and willing) to shop with you, it is worthwhile to consider payment options other than Visa or MasterCard. American Express, Discover and the Diners Club are just a few cards you may add. Other types are ATM cards (debit card), check cashing cards and gift/promotional cards. To accept these types, you will have to make sure your credit card processor and terminal will recognize and bill them correctly.

You should also know that different payment types generate different fees. In general, a standard credit card costs you more to accept than a debit card. This is why, when a combination debit/credit card is presented, customers are encouraged to use their card as a debit card and punch in a pin number.

Modern terminals may be wireless and run off a Wi-Fi connection, or may be connected to a phone line or connected by cable to an Internet connection. In remote areas, even satellite data handling has been used. The speed at which any particular transaction is processed (how long the customer and you have to wait for approval) at can depend on how fast the data is transferred.

Batch processing is a system where the terminal only verifies whether the credit card is valid or not and issues an authorization code. The actual transactions are not processed until a “batch file” is sent at the end of the business day. This saves some money at the processors end, since all the data they need comes in one chunk instead of over the course of a day. Transactions are authorized immediately, but you don’t get money credited to your account until the batch processing is complete.

What is Required to Get a Merchant Account?

The forms you fill out will vary slightly, depending on who you deal with, but they all capture the same essential information. It parallels what you would submit to get a bank loan. They will want to establish who you are, your creditworthiness, what type of business you run and how much you expect to generate in credit card sales. Personal information will be collected as well as company information.

If you have a previous relationship with a credit card service, this will weigh heavily. A good past relationship counts for you and, conversely, a poor previous relationship may count against you.

The volume of business you do will affect the rates you are charged in slices, or tiers. Imagine Walmart as the top tier and you can see how companies might compete to get their huge volume of business. The type of product or service you provide also matters.

Because credit card companies are making short term loans, they have identified businesses that generate more fraud claims and chargebacks than others. An example would be the adult products industry. If you are selling adult themed materials, it is likely you will be charged a higher rate than a business doing an equivalent dollar volume in a less-risky area.

If you have an established business, getting a merchant account isn’t a real problem. You should focus instead on who you are dealing with and what they offer in terms of lower fees and equipment. Watch out for long term leases on equipment or long term contracts. Some retailers go so far as to buy their own terminals outright, only because they want the freedom of not having an equipment leasing arrangement with their credit card processor.