As a small business owner, you are likely familiar with the importance of payment terminals. Gone are the days when people used to carry cash (they still do, but relatively they have a less bulky wallet) to retail and grocery stores for making a purchase. With the introduction of card and wireless payment systems, it has become more convenient for customers to shop hassle-free. However, for a business owner, understanding these payment terminals is exceptionally important, and it can play a vital role in maintaining the bottom line.
If you are a novice when it comes to payment terminals, and you are overwhelmed with so many options put in front of you, you will need to determine what factors are the most crucial for your business.
From deciding which credit card processor to go with to determining what card machine to use, it takes a lot of thinking and research. Since there is no one-size-fits-all solution to this dilemma, it is important that you gather as much knowledge about the subject as possible.
How do Payment Terminals Work?
For a retailer, it is vital to know a card machine’s functioning before picking the device. To start with, let’s understand some basic vocabulary of card transactions.
Once the card is swiped, inserted, or scanned, the machine will read the card information, which is then sent to the credit card processor over the internet for the next step. The card processor then sends the payment request to the appropriate card network – Mastercard, Visa, etc., which forwards the payment request to the issuing bank.
The bank will check to see if the cardholder has enough balance in his/her account (for debit card) or credits (for credit card), and whether the card registered is valid, before approving the purchase. Once approved, the merchant receives an approval message. All the process takes place in just a matter of seconds.
Once the payment is authorised, the merchant submits the transaction for actual payment. It can take a few days for the submission to take place, but in some cases, it is held instantly. The submission process works the same as authorisation – the request is sent to the processor, the processor sends the submission request to the card network, and then the card network sends the request to the issuing bank. The issuing bank will check the information and then pays the appropriate amount. In general, the whole process can take 1-2 days.
The settlement process is carried out using a standard inter-bank money transfer method until the amount reaches the merchant account. During the process, the card payment processor, card network, and the issuing bank will take their cut in the form of transaction fees. The transaction fee is a percentage of the total amount paid to the merchant. Once the transaction fee is settled, only then the merchant can take out the money from the merchant account.
The whole process from authorisation and settlement takes a few days.
Different Types of Card Machines and Terminals
As technology is evolving, you will see a selection of payment terminals machines available to the merchants. The following are the currently available hardware used by merchants for processing card transactions.
- Traditional Credit Card Terminals: These machines are connected to the internet via a wired connection, like a telephone line or ethernet.
- Wireless/Portable Machines: These machines run on Wi-Fi and communicate through wireless signals.
- Smart Terminals: Smart terminals are wireless machines with a built-in printer. Once the payment is made, it will print the details of the transaction. Some machines also feature a scanner.
As a merchant, it is important that you do your research on the best card machines service provider. The service provider you choose should come with simple pricing and no hidden cost, and provide you with different options like a portable, countertop, or mobile hardware.
Interesting related article: “What are the most common payment methods online?”