Looking for a credit card machine? Here are answers to some commonly asked questions.
- You have many choices when selecting the best credit card machine for your business.
- Credit card machines should be equipped with the latest safety features to prevent fraud.
- Each credit card processing system has its own fee structure, features and benefits.
- This article is for business owners who want to learn more about credit card machines and decide which system is right for them.
Accepting credit cards doesn't have to be complicated for small businesses. The most common place to start is with a credit card machine. You'll also have to consider swipe rates, merchant accounts, hardware and security standards, but we've got you covered. Here are the answers to frequently asked questions about credit card machines for small businesses.
[If you already know about credit card machines and just want to find the best credit card processor for you, visit our best credit card processors page.]
How do credit card machines work?
Credit card machines are used to collect payments from customers who wish to pay by credit or debit card. They are typically connected to the internet or a phone line, to send data to the processor. For most credit card processors, funds are transferred from the customer's bank to the business's merchant account. In some cases, the credit card processor uses a merchant account and holds funds on your behalf, and then directly deposits them into your checking account at your discretion.
Key takeaway: Credit card machines charge a business's customers and transfer the funds to the business's merchant account.
What are some types of credit card machines?
There are various types of credit card machines, and each offers unique benefits. Here are some common types of credit card terminals:
Countertop terminal: These commonplace credit card machines require a wired connection to your phone line or internet network. Countertop terminals can process both credit cards and debit cards, and a keypad allows for PIN entry or swipeless transactions in which a merchant types in the customer's credit card number.
Mobile terminal: Mobile terminals rely on a wireless connection to process card payments. This means they can be moved from the checkout counter to other places in the store.
Virtual terminals: These terminals allow e-commerce businesses to process credit and debit cards. A customer's card does not need to be present to process these types of transactions.
- Integrated point-of-sale (POS) terminals: These terminals tie card processing hardware to a POS system. These setups allow a POS system and card processing system to work together seamlessly.
Key takeaway: Types of credit card machines include countertop terminals, mobile terminals, virtual terminals and integrated POS terminals.
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What is the difference between a credit card machine and a POS system?
A credit card machine is simply a credit card reader and PIN pad. A POS system, by contrast, is a complete checkout terminal that comes with a credit card machine, a monitor or tablet, a cash register, a printer and other peripherals. POS systems can also include additional software or apps that track inventory, monitor sales, generate discounts, create financial reports and help with marketing. [Looking for a POS system? Check out our roundup of the Best POS Systems for Small Businesses.]
Key takeaway: A credit card machine comprises a card reader and PIN pad, whereas a POS system is a complete checkout terminal.
How much do credit card machines cost?
Many vendors offer free credit card machines; others allow you to buy or lease your equipment. Pricing depends on the model and features, such as EMV (Europay, Mastercard and Visa) and NFC (near-field communication) capabilities. Costs also depend on whether you rent or purchase the machine, and whether you get it from the vendor or a third party. Generally, the most basic credit card machines cost less than $100, and more expensive models can cost several hundred.
Other costs to consider include credit card processing fees, monthly service fees, setup fees, gateway fees and compliance fees. These costs vary greatly by vendor, but many also waive some fees for new customers.
Key takeaway: The cost of a credit card machine generally ranges from about $50 to a few hundred dollars, depending on the model and features.
What are the different credit card processing fees?
There are three main pricing structures for credit card processing fees: interchange plus, tiered pricing and flat percentages.
This type of pricing – also known as wholesale pricing, true pricing and cost plus – is the preferred choice because it gives businesses the same low rates used by big-box stores. Interchange plus charges businesses a flat fee that consists of a small percentage plus some cents per transaction. Businesses can often negotiate lower rates based on high sales volumes.
By contrast, tiered pricing depends on the type of credit card being used. This pricing structure is less favorable because it works by bundling different types of credit cards into tiers with increasing swipe rates. These tiers are classified as qualified, midqualified and nonqualified cards. These include regular cards, debit cards, rewards cards, business cards and other types of credit and debit cards. Generally, credit card processing companies decide which types of cards are qualified, midqualified and nonqualified for their particular service, so tiers and pricing vary greatly.
To illustrate, Flagship Merchant Services, our pick for the best high-volume credit card processor, uses both interchange-plus pricing and tiered pricing. (Note that tiered pricing is the advertised cost, so you'll have to ask for interchange pricing.) Flagship's interchange-plus rate is 0.30% plus 10 cents per transaction and is negotiable for higher sales volumes. The company's tiered pricing starts at 0.38% for qualified debit cards and 1.58% for credit cards, plus 19 to 21 cents per transaction, and then increases for midqualified and nonqualified cards.
Some credit card processors also charge a flat percentage per transaction. This is typically the case with mobile credit card processors, such as Square and PayPal, which charge 2.75% and 2.7% per swipe, respectively.
Key takeaway: Interchange plus, tiered pricing and flat percentages are three common credit card processing fee structures.
What is a merchant account?
A merchant account lets businesses accept credit cards. It transmits payment data from a customer's bank to the business's bank and authorizes credit card transactions. Merchant accounts are offered by the credit card processor or directly by a financial institution, typically a bank. Usually, businesses have to apply and get approved for a merchant account. However, not all credit card processors require a merchant account.
Key takeaway: Merchant accounts allow businesses to authorize credit card transactions.
Can I use an iPhone, iPad, Android and other mobile devices with a credit card machine?
Some credit card machines are compatible with tablets, but the most common way to accept credit cards with an iPhone, iPad, Android or other mobile device is by using a credit card swiper. This small dongle attaches to the headphone or auxiliary plug on a mobile phone or tablet, and processes credit cards using the processor's mobile app. Another way to accept credit cards using a mobile device is by using a virtual terminal, a feature that lets you manually input credit cards into the app.
For more information on mobile credit card processing, check out our full review of Square: Best Mobile Credit Card Processing Solution and Lightspeed: Best Mobile POS System for iPad.
Key takeaway: Some credit card terminals can connect directly to a smartphone or tablet through the charge port or the headphone jack.
What is NFC?
NFC technology lets businesses accept credit cards without swiping them. To accept mobile payments, you'll need an NFC-enabled credit card machine, such as Apple Pay, Android Pay or Samsung Pay.
What are EMV/chip cards?
EMV technology aims to defend consumers and businesses from credit card fraud and cyberattacks. It also protects businesses from liability in the event of a credit-card-related security breach. Traditional credit card swipers read the magnetic stripe on the back of credit cards. For better security, EMV reads a chip embedded in new credit cards instead. Most new credit card machines are equipped with both an EMV chip reader and a traditional credit card swiper.
For more information on EMV readers and chip cards, check out our full coverage: Still Not Accepting EMV Chip Cards? Why You Need to Switch.
Key takeaway: EMV cards contain a chip that helps protect consumer credit cards from fraud and cyberattacks.
What security features should I look for?
The two main security features to look for in a credit card machine and credit card processor are Payment Card Industry Data Security Standard (PCI-DSS) compliance and EMV capabilities. PCI-DSS is the industry standard for credit card processing and consists of several security measures, such as point-to-point data encryption. Although credit card processors have PCI-DSS as a part of their service, it is businesses' responsibility to make sure they are compliant in order to avoid hefty fees and protect sensitive information. [Read related article: Accepting Credit Cards? PCI Compliance a Concern for Small Businesses]
Key takeaway: Make sure your chosen credit card machine is PCI-DSS compliant and has EMV capabilities.
How soon are funds transferred to my bank account?
As with most banking transactions, credit card funds go through an automated clearing house (ACH), and transactions are typically completed within two business days. There may be delays in some cases, usually due to holds by banks or charge-backs by customers disputing their charges. Each credit card processor and bank has its own policies, so be sure to read the fine print regarding holds on funds.
Key takeaway: Most credit card transactions are completed within two business days, but the time can vary depending on your bank and other factors.
Can I still get a credit card machine if I have low or bad credit?
Generally, yes, you can still get a credit card machine if you have bad credit. However, many (but not all) credit card processors consider the business owner's personal credit when processing merchant account applications. If you want to obtain a credit card machine and you have low or bad credit, look for a credit card processor that doesn't require a merchant account or specializes in high-risk merchants.
Key takeaway: Yes, you can usually get a credit card machine if you have bad credit.
What are some types of credit cards?
There's certainly no shortage of options for people and businesses that are looking to open an account with a major credit agency, a preferred brand or a favorite store. Here are just a few of the card types your customers may use to make purchases from you:
Consumer credit cards: These are the most common credit cards issued. Consumers can obtain these credit cards from a number of preferred brands and services, such as an airline or online shopping platform. Oftentimes, these cards offer points or special offers on select products and services.
Business credit cards: These credit cards cater to the needs of businesses, offering higher lines of credit and the ability to add company employees as authorized users. They often include special offers tailored to the business community's needs.
- Student credit cards: These credit cards allow young people in school to build up their credit history. Student credit cards typically come with offers specific to young people, have lower credit limits and are generally unsecured, which means they don't require a deposit to be opened.
Key takeaway: Credit cards are offered by a wide range of financial institutions and retailers. Three types of credit cards are those targeted at consumers, businesses and students.
Stella Morrison contributed to the writing and research in this article.