Fewer people are carrying cash than ever before. Research shows Americans are shifting towards a cashless economy, with 34% of adults opting to use electronic payments for all purchases. While some adults do still carry cash, research shows most people carry less than $50 in their wallets, explains CNBC.
Debit and credit cards are the most popular form of paperless payment. Research shows that 75% of consumers have at least one credit card, says CreditCards.com.
The shift from paper to digital money is forcing businesses to react. To sell products in a digital world, business owners must be able to take debit cards and all major credit cards. To do so, businesses need a processing solution that gives them the power to charge cards and collect money.
To help, ChamberofCommerce.org has created a guide to make selecting a mobile credit card reader a simple, informed process. In this guide, we’ll provide the five best mobile credit card readers for businesses. In addition, we’ll answer these frequently asked questions:
- What is a mobile credit card reader?
- How does a mobile card reader work?
- What are the pros and cons of accepting credit cards?
- What costs are associated with mobile credit card readers?
- What should businesses look for in a mobile credit card reader?
- What are the best mobile credit card readers for businesses?
- What can businesses do to make credit card processing easier?
- When are credit cards declined?
A mobile card reader gives companies the ability to accept debit or credit cards. Typically, a “reader” is attached to a mobile device like a tablet or a smartphone, which enables a card to be charged. A reader can also be its own small device.
Using a card reader, credit cards can be swiped, dipped, or tapped.
A card with a magnetic strip (also known as a magstripe) on the back is “swiped” as it’s dragged across a reader.
A card with an EMV chip (the small square chip on a credit card) is slid into the reader, which is called “dipped.”
Some cards are stored in apps like Apple Pay. Cards that are inside digital wallets on a smartphone are “tapped” or waved in front of the reader for payment. These are “contactless payments,” but a mobile card reader is still required to process the payment.
There are many credit card processing companies out there. Each has its own hardware and software and offers a variety of functions. Most mobile credit card readers act as a mobile point of sale system, or POS system, and generate a receipt, calculate tax, or handle invoicing.
Check out our roundup of the Best Mobile Credit Card Processing Companies
How does a mobile card reader work?
In the simplest of terms, a mobile card reader transfers money from one account to another, digitally. A person paying for a bouquet of flowers, for example, has money transferred from his bank account to the florist’s bank account.
Technically, there are a few other behind-the-scenes actions that take place.
When a card is swiped, dipped, or tapped, the reader sends a signal to the customer’s bank to see if there are enough funds to withdraw to cover the cost of the purchase. If so, a hold is placed on the amount needed, which shows up as a pending purchase in a customer’s account.
During this communication, special anti-fraud software is used to protect all parties.
If a purchase is made with a credit card, the consumer’s credit card company makes the money requested available.
Funds are then transferred from one account to another. Essentially, the customer pays for the item purchased, meaning money is deposited into the company’s account. Typically, it takes several business days for the actual payment to arrive in the bank account.
What are the pros and cons of accepting credit cards?
A growing number of consumers are ditching cash, which puts businesses in a tough spot. To compete, many companies feel as though a credit card reader is a necessity to thrive in a digital world. However, there are still companies that work on a cash-only basis.
For those weighing their options, here’s a look at the pros and cons of accepting credit cards.
Benefits of accepting credit cards
- More customers – The biggest benefit of accepting cards is an increase in customers. If a customer walks in with the intent to make a purchase but doesn’t have cash, that’s a lost sale. By accepting credit cards, merchants won’t turn customers away. Research suggests 83% of small businesses that take credit cards see an increase in sales. Fifty-two percent of those surveyed said they made at least $1,000 more a month, and 18% said they made $20,000 more a month. Accepting credit cards can have a significant impact on a company’s bottom line.
- Increase impulse buys – Customers are more apt to add a few things to their cart when they’re paying with a credit card as well. Since there’s no physical money to pull out of their wallet, consumers tend to splurge a bit more on items they don’t necessarily need.
- Security – Businesses that accept credit cards don’t have cash reserves in-store. Companies that keep cash on hand can be more vulnerable to theft or burglary. Accepting credit cards often reduces trips to the bank.
- Fewer bank runs – Businesses dealing with cash are required to make change, which means frequent trips to the bank to ensure enough small bills are on hand.
Disadvantages of accepting credit cards
Of course, there are disadvantages to accepting credit cards as well. Here are a few disadvantages:
- Fraud – While companies are working hard to safeguard card transactions, there is still a potential for fraud. Credit card companies can be hacked and data can be leaked. There are some mobile card readers that put a strong emphasis on anti-fraud technology, but card payments will never be as safe as cash.
- Fees – Companies that aren’t accepting credit cards probably aren’t doing so because they’ve heard about the fees associated with it. It’s true, accepting credit cards does come at a cost. Mobile processing companies have a list of fees, most of which are fairly small, but they add up quickly.
- Adding more tech – For some companies, the idea of adding more (or any) technology to their business process is daunting. Generally, these concerns come from older business owners, but there are some tech-savvy owners that aren’t keen on adding yet another piece of software to integrate and navigate.
Accepting credit cards does have its advantages and disadvantages, but ultimately, an owner must decide if accepting credit cards is necessary to remain competitive in the market.
What costs are associated with mobile credit card readers?
There is a cost to collecting card payments via card readers. Most mobile payment processing companies take a small percentage of each transaction. Some companies tack on additional fees outside of the per-transaction fee as well. As merchants research options, here are some of the costs and fees to investigate to make sure the solution works within a set budget.
Set up fees
In some cases, companies have to pay a one-time setup fee to get hardware and software installed.
One of the biggest fees companies will incur when accepting credit card payments is interchange fees. Mobile card readers, or merchant services that sell mobile card readers, charge a fee for each transaction. Typically, this fee is 2-3% of each transaction.
Monthly minimum fees
In some cases, the company using the card reader must have a certain number of transactions per month. If a company falls short, a fee hovering around $10-$15 is charged.
Monthly statement fee
A company that wants a printed statement of transactions each month will likely pay for this service. However, most processing solutions offer a digital statement, which is free to access through the company account.
Keyed transaction fee
If a company has to key-in a credit card, as opposed to swiping, dipping, or tapping, there’s a fee for this process.
Early termination fees
Most mobile readers are set up with a contract. If a company plans to break the contract, there’s often an early termination fee.
What should businesses look for in a mobile credit card reader?
There are a number of mobile credit card readers out there. Business owners have likely heard of some of the most popular options like Square, but rather than picking a company based on name recognition, research the features needed instead. Here are some features to consider:
Ease of set up
Some readers are ready to go in minutes, while others are a bit more complicated. For companies looking for simplicity, find readers that involve simple out-of-the-box solutions with a plug-in card swiper and downloadable software to process payments.
Acceptance of all payment methods
Right now, credit and debit cards are slowly shifting away from magnetic strips to more secure chips. In the future, chip cards could give way to contactless payments. To stay ahead of the curve, and keep from switching card readers in the future, look for a reader that can already handle all three (magnetic strip, chip, and contactless) forms of payment.
Speed of payment
There are some processing solutions that deposit payments on a daily basis while others are more sluggish. Some merchant services require small business owners to set up an account that works as a reserve. Money is held in that account for several days before it’s released. Be aware of how long it takes to get money after a card is charged.
Many merchant services sell readers that integrate with commonly-used accounting software. Many readers work directly with QuickBooks, FreshBooks, and Xero.
Processing credit cards come with a list of charges and processing fees. As businesses research options, look for simple fee structures. Unfortunately, there aren’t any companies that just charge a flat fee, but some have more complex fee structures than others.
What are the best mobile credit card readers for businesses?
Businesses have dozens of choices when it comes to credit card readers. Conducting research on each option can be cumbersome. To help, we’ve compiled a list of the five best mobile credit card readers.
Square Contactless and Chip Reader
Best for Small Businesses
- Biggest advantage: Ease of use
- Biggest disadvantage: High transaction fees
Square was one of the first mobile card readers on the market, and it remains a popular choice among merchants. Its name describes the small square that’s plugged into the audio jack of an iPhone or Android phone to accept credit cards.
Square has several different options. Depending on which option is selected, the hardware and mobile app may be free or there could be a small equipment fee.
Square Contactless and Chip Reader, for example, is $49 for the equipment. This reader is geared toward the future, as it focuses on contactless payments and chip readers. Merchants can still accept strip cards with a separate piece of equipment that’s included.
Best for Medium-sized companies that use Quickbooks
- Biggest advantage: Integration with Quickbooks
- Biggest disadvantage: PCI-compliance fee
Quickbooks has its own card processing equipment that integrates seamlessly with its accounting software. Everything entered into GoPayment is captured in Quickbooks, a company owned by Intuit, which could significantly cut down on administrative tasks.
However, using Quickbooks isn’t a necessity to use the card reader. Quickbooks GoPayment, like others, comes with an app and a plug-in to charge cards.
This payment processor gives businesses two payment options. Companies can pay as they go or opt for a monthly fee that lowers the percentage charged per transaction.
The company does charge a PCI compliance fee depending on the number of transactions made each month, which is something to consider.
Shopify Complete iPad Kit
Best for eCommerce and brick-and-mortar merchants
- Biggest advantage: Easy to adopt for eCommerce businesses
- Biggest disadvantage: Only works with iOS
For online merchants that also have a brick-and-mortar shop, Shopify offers a great solution. The kit offers all of the necessary equipment to process cards and print receipts. The iPad is not included in the kit, and the cost for the equipment is fairly high, hovering around $600.
For online merchants familiar with Shopify, transitioning to this software is simple and intuitive.
PayAnywhere PAR-1 Mobile Card Reader
Best for Small, mobile vendors
- Biggest advantage: Cost
- Biggest disadvantage: Poor customer ratings
PayAnywhere is making a name for itself as the most affordable mobile credit card reader. The equipment fee is about $30 and the transaction fees are fairly low, which is why it’s a favorite among small businesses – especially those just starting to process credit cards.
It’s quite popular among pop-up vendors like food truck owners or businesses that typically sell goods at outdoor markets, festivals, or fairs.
This particular tool only allows merchants to swipe cards. Merchants that want to accept more kinds of cards will have to upgrade their equipment.
Verifone VX520 Credit Card Machine
Best for Businesses with limited tech knowledge
- Biggest advantage: Security
- Biggest disadvantage: Less mobile than others
For those who don’t want to use a smart device as a credit card reader, the Verifone VX520 is an excellent choice. The card reader is its own machine; about the size of a small calculator. The machine processes credit cards while it’s plugged in, which makes it a little less mobile than other options, but merchants can run it off batteries.
One of the biggest advantages of this option is its security. Verifone has an end-to-end encryption service that offers protection against fraud. While other readers do offer anti-fraud software, Verifone has put extra emphasis on security features.
What can businesses do to make credit card processing easier?
Besides doing research to find the best mobile credit card processing, there are a few things businesses can do to make credit card acceptance as easy as possible. Here are a few tips:
Add credit card signage to the store
Once credit cards are accepted, advertise it. Add signage to the store that instantly tells customers that they can charge their purchase. The owner should also add the logos of accepted credit cards like Visa, Mastercard, Discover, and American Express.
Create and post a clear refund policy
When a customer returns an item, his or her credit card will be refunded. While that process sounds simple enough, it’s important to clearly state a company’s return policy. The policy should include the verification needed, the timeframe in which returns are accepted, and how long it will take to refund money back to a credit card.
Create clear payment descriptors
When a credit card processor is set up, the business sets up a payment descriptor. The descriptor is what shows up on a customer’s bank account statement. It’s important for the descriptor to very clear. It should include the company name and any other description that’s necessary.
A detailed descriptor helps the customer remember the purchase they made. If the customer doesn’t remember the purchase and can’t recognize the purchase from the descriptor, the customer could refute the charges. When that happens, the customer calls his or her bank, disputes the charges, and asks for a refund. This process, known as chargebacks, can be a costly problem for merchants, so keeping descriptors as clear as possible to help avoid this headache is ideal.
Never accept a transaction that isn’t authorized
A transaction that isn’t authorized is typically a sign of fraud or means the merchant won’t get paid. Either way, merchants shouldn’t accept any charge that’s not authorized.
Learn the signs of fraud
Fraud is a real problem in today’s society. Merchants should educate themselves on fraud and how to spot the signs. For example, if a credit card isn’t signed on the back, asking the customer to show an ID is a good safeguard. If anything seems amiss, it’s best to call the credit card company.
When are credit cards declined?
As a business owner, it’s important to understand why credit cards are declined. Most people assume that if a credit card is declined it’s because there isn’t sufficient money in the account, but that’s not the only reason.
When a card is declined the mobile card reader will display an error code. The error code can provide a more specific reason for the decline, but in general, here are some reasons cards get declined:
Sometimes consumers simply forget to renew their card and it expires. When a card has expired, the bank often closes the account. As a result, the card will be declined when it’s put through a card reader.
For a credit card to be processed, there’s a lot of communication that happens within seconds. There are probably a dozen connections that must be made for a transaction to go through, and if any of those messages are interrupted, the card is declined.
As a merchant, you can run the card again to see if it’s a one-time problem. If it happens again, there may be a technical problem that will affect more than just one customer.
When consumers rack up a lot of charges in a short amount of time, credit card companies get a little nervous and assume that the activity is fraudulent. As a safeguard, the card is temporarily shut down until the cardholder talks with the company to confirm recent purchases.
If a consumer is using an international credit card it can cause processing issues. The international fees that are associated with a transaction are what typically cause the card’s decline.
Sometimes, a customer doesn’t have the money in their account to make the transaction. When that happens, the card is declined.
Credit cards are a growing form of payment. Businesses that can’t accept credit cards can be at a real disadvantage, but fortunately, there are many credit card processing solutions that give companies the ability to collect payments digitally. The information above should serve as a guide to help business owners find the right mobile credit card reader.