Equipment for Credit Card Processing

Because most people in modern times pay for goods and services with their credit cards, being able to process credit card transactions is essential to the success of many businesses. To complete purchases made with credit, merchants will need to secure a variety of factors, including merchant services and equipment. However, to understand the type of equipment you will need, you will first need to have a basic concept of how institutions process credit card transactions.

How Credit Card Processing Works

At least five parties are involved in every credit card transaction. Along with the cardholder who is making the purchase and the merchant who is selling to the cardholder, the other entities needed to complete a credit transaction include the:
  • Acquirer, any organization (namely financial institutions) that processes the card for the merchant

  • Card Association, the institution that authorizes and funds the cardholder's transactions (e.g., Discover®, VISA®, etc.)

  • Issuer, any organization (typically a financial institution) that originally authorized the cardholder to use the credit card.

Whenever a cardholder makes a transaction, each of the above parties has to exchange information and/or money. This process, referred to as the interchange, generally takes anywhere from one to three days. Here is the four-step process of the interchange:

  1. Authorization: When the cardholder is ready to buy something, the merchant interacts with the acquirer and the issuer to verify that the card

  2. Batching: After authorization, each transaction is batched (or grouped) with every other transaction of that day. At the end of the business day, the merchant sends the batched transactions to the acquirer for payment.
  3. Settlement: The acquirer sends the batch to the issuers, who give the acquirer money for the transactions.

  4. Funding: The acquirer pays the merchant the batch total minus the card-processing fee.

Types of Card-Processing Equipment

To carry out this interchange, merchants need credit card processing equipment that not only records the cardholder's information but that also can transmit it to the acquirer so that the merchant can be paid. After setting up a merchant bank account and securing a card processing service (an acquirer that is usually a bank), the merchant will need to set up a point of sale (POS) system.

The type of POS equipment you need will depend on the type of business you have, the amount of credit card transactions you process and the way in which you want to submit batches of transactions to your chosen acquirer. Here is a list of the types of credit card processing equipment you can choose from:

  • Credit Card Machine: These machines have a magnetic strip reader and a numbered keypad. When a customer is making a purchase, merchants swipe the card through the terminal and the magnetic strip reader picks up and records all of the customer's information. Alternately, the merchant can key in the customer's credit card number if the card's magnetic strip is de-magnetized.

    Merchants can batch these transactions at the end of the day through the machine itself, typing in the amount (plus the given tip, if applicable) of each purchase. Popular among many businesses, credit card machines are useful to any business that has a large volume of credit card sales. These machines are available as standard plug-in units or as wireless, portable machines.

    In general, these machines start as low as $200. Paper to print out the customer's receipt will cost about $20 per roll.

  • Imprinters: With this piece of credit card equipment, merchants place a card in a tray, put a piece of imprinter paper over it and then slide a wedge over the imprinter plate. The paper will then have an exact imprint of the customer's card. At the end of the day, the merchant submits his batched transaction via phone (i.e., calling the acquirer and reading off each credit card number and transaction amount)

    Imprinters are good for small businesses that have a low volume of credit card sales. Similarly, they are useful when a credit card terminal is temporarily down. While imprinters start as low as $15, imprinter paper costs about $20 per roll. Imprinters are the cheapest credit card processing equipment merchants can get.

  • PC Software: Merchants who transact business online will need credit card processing software on their computers. This software generally does more than simply process credit cards. In many cases, credit card processing software also keeps inventories, processes checks and monitors recurring bills.

    When processing credit card transactions at the end of the day, merchants simply send the batch via e-mail to the acquirer. Card processing software tends to start at about $200.Depending on the software you choose, you may also have to pay a minimal monthly fee (roughly $20) for included merchant services.
  • PIN Pads: PIN pads, which look like smaller versions of credit card machines, are necessary when a customer is making a purchase with his debit card. While many customers use their credit cards when shopping, in 2007, debit cards actually surpassed credit cards as the preferred payment method.

    As a result, merchants should get a PIN pad so they can process debit cards, as well as credit cards. PIN pads typically start at around $150.

Before making any purchase of POS equipment, first think about your business and your clientele. Estimate the volume of credit transactions you plan to process. Then shop around to find the best deals on credit card processing equipment.

Resources

Bank of America (2006). Card Processing Basics. Retrieved September 12, 2007 from the Bank of America Web site: http://www.bankofamerica.com/small_business/merchant_
card_processing/index.cfm?template=card_processing_basics.

Merchant Solutions (2007). Credit Card Machines and Point of Sale Equipment. Retrieved September 13, 2007 from the Merchant Solutions Web site: http://www.usamerchantsolutions.com/.