As a business owner, you don't only have to think about the types of payments to accept — you also have to figure out how you'll accept them.
There are a two primary ways for small businesses to accept payments. The traditional method is a full-fledged point-of-sale (POS) system, complete with a touch screen, barcode scanner, cash register, credit card terminal and receipt printer. In recent years, however, mobile payments — processing payments using a mobile app and credit card reader attached to a smartphone or tablet; digital wallets that process payments online like PayPal and Square Wallet; and mobile wallets that store credit card information in mobile phones — have proved a worthy contender.
Like any other technology, each method has its pros and cons. For one, small businesses are more familiar with traditional POS systems. These have been around for decades and are the most universally accepted way to process cash, check and credit card payments. Nonetheless, they lack the convenience that mobile payments have to offer. Mobile payments enable businesses to accept credit card payments anytime, anywhere, while also giving customers even more ways to pay using their preferred methods. But because mobile payments are relatively new, some businesses have been slow to adopt mobile checkout systems. [Credit Card Processing Services for Small Business]
Traditional POS vs. mobile payments
Business owners trying to decide whether to stay with traditional POS systems or replace them with mobile payments have a tough choice to make. For many businesses, though, experts say traditional POS systems are still the best choice because they offer consumers a sense of security and familiarity.
"Mobile systems are being developed to both augment and replace traditional POS systems," said Rick Caldarella, vice president of product management at Veracity Payment Solutions, a merchant acquirer and payment transaction processor. "However, they will likely not totally replace the traditional POS systems, at least for several years."
POS systems will continue to stick around because they still serve a critical purpose for merchants, Caldarella said. In addition to processing payments, these systems include reporting capabilities, such as inventory control and accounting. They also store databases of customer information, making security a top concern.
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"Security and liability concerns are critical to the types of businesses who utilize POS systems to run their shops," Caldarella said. Therefore, businesses should choose an infrastructure that will protect them and their customers' private information.
A report by the Federal Reserve found that security concerns are the primary reason why consumers are not using mobile POS payments. And, according to the Identity Theft Resource Center, identity theft has been the No. 1 complaint on the Federal Trade Commission's list of complaints for 13 years in a row, and even increased 32 percent between 2011 and 2012. This means that when consumers are handing over their credit cards, they have more trust in POS systems than in mobile systems.
Traditional POS systems trump mobile
When it comes to security and reliability, traditional POS systems have set the bar, said Jared Isaacman, CEO of POS systems provider Harbortouch.
First, given the security risks of wireless networks, traditional POS systems are on much safer networks than mobile devices, Isaacman said.
"Mobile-based systems rely completely on the signal strength from your wireless provider or a Wi-Fi connection, which isn't nearly as secure or reliable as a hardwired connection," he said.
Second, mobile payment solutions are still in their infancy. Although they meet certain security requirements, they typically are not compliant with the highest security standards.
"Most mobile solutions do not have the security to protect cardholder data and leave the merchant exposed to potential liability," said Sam Zietz, CEO of TouchSuite, an all-in-one POS systems provider.
"PADSS certification is currently the highest level of PCI security," Zietz said. "Most mobile solutions are not PCI compliant or have a lesser level of security."
Moreover, mobile devices are prone to physical theft, which further increases the risk that confidential company data and sensitive customer information could get lost or end up in the wrong hands.
"The mobile aspect allows for the physical removal of the device compared to a larger stationary system," Zietz said. "It is far easier to steal or misplace a phone or tablet than a touch-screen point-of-sale system."
The compromising of customer information can have costly consequences for businesses and consumers. Stolen data can cost companies an estimated $150 to $250 per credit card number, which they pass on to consumers by increasing credit card fees.
When choosing between a traditional and a mobile POS system, it's imperative that businesses consider data security, Isaacman said. "With data security becoming an increasing concern, it is critical to deliver the safest way for your customers to pay in order to protect both you and them," he said.
You don't have to choose
Although traditional POS systems are still the best choice for many businesses, this doesn't mean they can't give mobile solutions a try. Instead of looking at traditional POS systems and mobile credit card processors as two mutually exclusive options, businesses can combine the two methods to provide better service and enhance the customer experience.
Michael Ni, chief marketing officer and senior vice president of products at e-commerce solutions provider Avangate, said one type of technology doesn't necessarily have to replace the other.
"The key for retailers here is to supplement the experience, not supplant [it] with technology," Ni said. For instance, Apple and Wal-Mart offer a "buy online, pick up in store" option, where consumers can use mobile devices to order items and then physically pay for them using a traditional POS system at the store, he said.
By combining both systems, businesses of any size can get the best of both worlds: the familiarity and security of traditional POS systems, and the added benefits of mobile checkout.
"Mobile applications — including payment processing, product discounting, social marketing and the like — can certainly be beneficial to a business," Caldarella said. "Integrating mobile functionality into traditional POS systems and merchant operations is a value-added benefit that makes sense in many merchant environments."