It is now even more important than ever that small businesses think about taking card payments and understanding card payment terminology is a crucial element to that.
In 2018 card payments surpassed cash as the way to make payments for customers in the UK. In that year debit card payments accounted for 15.1 billion in transactions, whereas cash only 11.0 billion.
Last year, in 2020, the coronavirus pandemic accelerated this trend year with many stores switching to card payments because they are more much hygienic than cash.
All this means only one thing. If you are thinking of starting a business, or have done so and are only taking cash, you need to start taking card payments if you want to maximise sales opportunities. It is not just a case of asking for cash inconveniencing your customers a little, many customers choose not to make a purchase if they can’t use a card. There are also a host of other benefits including increased sales and payment tracking efficiency!
If you decide to start taking card payments, the next thing to understand is how to choose the right payment solution. This is an important decision and so a basic understanding of the key terminology and tools needed will help you make the right decision. Read on to arm yourself with that knowledge.
Key Terminology and Components
In order to take card payments, you need to get a merchant account. It is different from a normal bank account because you don’t have any control over it. Its purpose is to hold the money transferred from your customers, before the acquiring bank decides to then moves it to your bank account.
A merchant account exists because there is a significant risk for the acquiring bank and the credit card company. Why?: It is very possible for someone to sell thousands of pounds of fake goods before they are found out. If this happens the customer is going to want their money back, and, if that money went straight to your bank account, you could spend it before anyone finds out. In order that the customer can get their money back if things do wrong, and faith in the credit card system can be maintained, someone has to manage that risk.
An unfortunate consequence of that is that the acquiring banks that issue those merchant accounts insist on a lot of paperwork to get approval. They also have their algorithms on when they can release funds to ensure they can pay back customers if there is a problem.
Card Payment Terminal
A card payment terminal is the device you swipe your card on in a shop. We are all extremely familiar with these devices as we have all paid for something in a shop. The card payment terminal’s job is to authenticate cards either through contactless, chip and pin, or from wallets like Google Pay.
The type of card payment terminal you need again depends on the nature of your business, for example, do you need to take payments in the field and therefore need it to be mobile. We will explore this later.
A payment gateway is the online equivalent of a card terminal and used specifically to take payments online. It not only authenticates the cards making a purchase on your website, but also uses encryption to protect credit card details. When a customer enters credit card details on your website, they are actually entering it into the payment gateway. The payment gateway encrypts it before sending it to the card issuing bank to approve for card authenticity and availability of funds. It then reports that back to your website and the acquiring bank that the payment is approved or not.
The role of the payment processor is to take over once the payment has been approved. If the difference between the payment processor and payment gateway seems hard to understand, then perhaps think about it like this. When you go to get a loan at a physical bank, you will first talk to someone who decides if you are qualified to get the loan. Once you are approved someone else then has to do the paperwork that moves the money to your account. The payment processing software does that part. It talks to all the parties and manages the movement of the money, and documents and records all of your payments so you can get a statement of account. In other words, it is doing all the background work of managing the payment process.
A virtual terminal allows a merchant to take credit card details over the phone. It is different from a payment gateway in that a payment gateway is designed to take online payments in which the buyer enters their credit card details. With a virtual terminal the buyer reads out their credit card details and the merchant inputs them into the secure terminal. Most commonly, mail order businesses use it to take phone payments. However, other businesses could use it to take payments in any circumstance as long as that is the preferred method agreed between the buyer and merchant.
If you are selling online you will need shopping cart software on your website that links up with your payment gateway.
If you have already opened a business, then you will have a point of sale (PoS) solution. Its function is not payment processing first, but to make it easy for you to calculate your customer’s bill. However, a better solution will enable you to print reports, and sync your inventory. It will also send payment information to your card reader. In the latter case, so that it the card and the bill are matched up and you don’t have to spend time doing that later.
Point of sale systems come in the form of standalone terminals for a counter and smartphone apps.
How Do You Need to Take Card Payments?
Once you know the terminology you need to think about the way you do business to help you determine what equipment you need. There are several different to take card payments that are broadly classified as follows:
Do you run a coffee shop, market stall, or even a hairdressing or cleaning business? Do you need to take payments directly from your customers either for a product sold or service completed? If so, you will need a kind of card reading machine to accompany your merchant account, payment processor and PoS system.
As we mentioned above, the kind of card reader and PoS system you need will depend on how you where you take payments.
If you are visiting customers in the field, you will need your card reader to be mobile and lightweight. A small Bluetooth card reader, and an app on your phone, from which you push the payment to the card reader is more suitable.
If you work in a busy restaurant you need a card reader with mobility. But you also need a robust keypad and the ability to easily split the bill.
Remote payments, as the name suggests, means taking card payments from a customer who isn’t in front of you. If you sell something through your website then you will need to do that, but it is not the only way. For example, when you provide services like cleaning or handyman, and invoice your customers. In this case, you may want to take a card direct from the invoice instead of a waiting for a slow bank transfer.
With remote payments you don’t need a card machine. You will need a payment gateway as well as your merchant account, payment processor, shopping cart and invoice software. You will also need software that makes it easy to take and manage payments from invoices.
In addition, if you take orders over the phone, then you will need a virtual terminal.
Choosing the Right Solution Provider
Once you have decided if you need a card reader or payment gateway – or both if you are selling online and offline – the next step is to evaluate solution providers. There are a multitude of solutions tailored to price and the size of your business, among others.
Hoof offers a complete payment solution that provides all the tools necessary to take both remote and in person payments. It includes powerful software that makes it easy for service businesses to win contracts through quote creation and acceptance online.