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With more Americans choosing to use plastic and even their smartphones to conduct their purchases and make online payments, small business owners and entrepreneurs should pay close attention to this trend. Accepting credit and debit card payments has become a vital necessity for businesses that offer products and services, and the benefits of these payment methods are undeniable.

According to the United States Small Business Administration, companies that accept payments by means of credit and debit cards enjoy the following advantages:

  • Impulse purchases and larger checkout transactions are more likely to happen when shoppers are given the benefit of paying with their cards.
  • Companies that have credit card terminals are more likely to enjoy returning shoppers than those that only accept cash.
  • Credit card acceptance is similar to a marketing tool in the sense that customers actively look for the stickers that indicate the payment networks offered.

Understanding Merchant Accounts

Unlike commercial bank accounts that hold business transactions usually tied to a line of credit, merchant service accounts provide the connections needed to payment networks and processors. In some cases, commercial bank accounts also offer merchant services to accept credit cards as value-added services.

As a means to competing against banks, many merchant processors offer lower fees and convenient tools to small business owners. Merchant processor tend to offer modern terminals that can be set up to interact with point-of-sale (POS) systems and can also be upgraded to accept payments from digital wallets such as Google Pay.

Merchant processors often work with preferred banks that offer business accounts, which need to be established for the purpose of depositing payments made with credit and debit cards.

Understanding Terminals and Online Payment Portals

There was a time when merchant processors applied stringent criteria in terms of accepting new accounts. That started to change with the advent of companies such as PayPal and Square, which offer online payment solutions that are easy for small business owners to obtain.

When the Square credit card reader for the iPhone was introduced a few years ago, the company started a revolution in terms of credit card acceptance. The device itself was not as revolutionary as the business model behind it: Square offered the reader for free to just about any small business owner without having to complete long application forms, background checks and accounting reviews. The Square reader empowered entrepreneurs such as hot dog cart operators to start accepting credit and debit cards; this was a small business segment that had largely been ignored by the merchant processing industry.

PayPal followed Square with a method to accept card payments online by means of a few lines of code that could be embedded on a website or with invoices. Square and PayPal lowered the barriers to entry for small business owners; however, this ease comes at a higher cost. Square swipes or manual entry of card numbers are charged 2.75 percent while most merchant processors will charge 2 percent.

Square and PayPal are more adequate for micro companies and self-employed professionals. Proprietors of brick-and-mortar retail stores are better off with a merchant processor that provides card reading devices. Modern terminals accept traditional cards with the old stripe system as well as the new EVM chip and PIN cards that considerably reduce the likelihood of fraud. The lowest processing fees can be achieved by means of physically swiping or dipping credit and debit cards.

Another advantage of new credit card terminals is that merchant processors always have the most advanced models. This means that they can be integrated into POS systems; in fact, many processors offer free subscriptions to powerful, cloud-based POS solutions that feature employee scheduling, marketing and even accounting functions. Some terminals even include features to start accepting digital wallet payments directly from smartphones.

The bottom line of accepting credit and debit cards these days is that company owners should not ignore the numerous benefits from this business process. The merchant processing industry is highly competitive, which means that it pays to shop around for processors that can offer better rates and value-added services.