One thing holds true for the vast majority of businesses in today’s economic environment: you are going to have to accept electronic payments. For those cash only businesses, being the last bastion of an outdated business model likely won’t last long. So what does this mean in practical terms? It likely means that your small business will need to process both credit cards and debit cards for purchases.
Today, we will be reviewing the differences and similarities between accepting payments from credit cards and debit cards, the associated costs and risks to businesses, and how merchant service providers work to process electronic payments.
Debit Card Processing 101
Despite a perceived shift towards credit card usage, debit card usage has actually spiked from 8.3 billion transactions in 2000 all the way to 27 billion in 2012. Debit cards allow for the convenience of a card without incurring any sort of debt. Debit cards are more akin to writing a digital check than they are to using a credit card.
For small businesses, debit cards accounted for approximately 27% of all transactions in 2017. Merchants will likely be charged transaction fees for processing debit cards, but the amount of those fees is dependent on a number of factors, including:
Your merchant service agreement: each merchant service provider will offer distinct services and likely a number of options for merchant account pricing models. Shop around and find the right fit for your business.
Debit card networks: additionally, the debit card company may impact the fees incurred by the merchant for processing payments.
Issuing bank: Banks may also charge fees for processing debit cards. It is important to understand that as per the Durbin Amendment passed in 2011, there are limits placed on bank fees for debit card transactions.
Types of debit card transactions: there are two basic types of debit card transactions: PIN transactions and signature transactions. If your system requires a PIN, that goes through a verification process to ensure money exists in the bank account, but may come with a higher flat fixed rate. If your system requires a signature, that may come with a lower rate but a higher risk of overdraft and potential issues down the road.
Credit Card Processing for Small Businesses
Unlike debit card transactions, credit card transactions are anything but “digital checks”. They rely on a network of banks, cardholder institutions, card associations, payment processors, and so forth. This can feel hopelessly complex for merchants, but it is not entirely necessary to know the nuts and bolts of the process from end to end. Here is a high level review.
A customer (cardholder) may use his or her credit card to make a purchase. This credit card is accepted by the merchant (business). The merchant then processes the card using a credit card machine, mostly likely in conjunction with a merchant service provider.
At this point, the details of the transaction are sent to the bank which is backing the credit card, also known as an acquiring bank, or a processor. This information is then transmitted to the issuing bank for approval.
Once approved, the issuer will transmit this information through the credit card issuer network back to the acquiring bank. And after all of this, the merchant will receive the response that the transaction has been approved. Even then, the transaction will wait for settlement.
Merchant Services to Process Debit and Credit Card Transactions
If your head is spinning — not to worry. From a business owner’s standpoint, processing debit cards and credit cards should be as simple as following your terminal’s instructions. The key is finding and working with a high quality merchant services provider who will provide secure, affordable, and transparent transactions for you and your small business.
At the end of the day, most businesses will need to process both debit card and credit cards. Rather than worry about the minutiae of each transaction, consider these steps to successfully accept digital payments:
Find a merchant service provider. Again, this is probably the most important decision in the process. A professional and qualified merchant service provider can handle most of these headaches for you.
Choose your Point of Sale (POS) System. POS systems are the terminals with which you will accept debit and credit cards. Many merchant service providers carry these as well, so check in with your provider for more information.
Choose your payment gateway: This is essentially your way of encrypting and processing credit card information. Again, check with your merchant account to see if they offer a payment gateway services like CardSecure.
Consider any other necessary equipment: POS systems, mobile payment solutions, wireless credit card machines, and more all might help your business grow.
True Merchant Offers Fair, Transparent Pricing for Credit and Debit Card Processing
True Merchant is a Better Business Bureau accredited merchant services company which focuses on helping small businesses. We understand that the details of processing debit card and credit card payments is often the last thing on business owners’ minds. That is why we offer transparent, fair pricing models for our top notch services including CardSecure, NFC payments, online payment solutions, and much more!
To learn more about how True Merchant can help your small business, please contact us today by calling or filling out an online form. One of our qualified merchant services professionals will be happy to get you started.