Credit card readers are an essential component of your point-of-sale (POS) system in today’s society, which is moving more and more toward a cashless culture. Retail store owners require safe and reliable methods to obtain banking information from a customer’s credit or debit card and then process it.
According to a recent survey, eighty percent of customers would rather use their credit or debit card than cash. If you haven’t already made the transition to accepting credit cards at your retail location, investing in a card reader is definitely something you should consider doing.
On the other hand, you might already use a card reader on a daily basis; however, are you familiar with the operation of credit card readers? The moment your customer swipes or dips their card, information is sent to the payment processor, then to the bank of the customer, and finally, it is sent back to your credit card reader. This process continues until the transaction is complete. All of this takes place in a digital format in a very short amount of time.
In this section, we will examine the various types of credit card readers, discuss how credit card readers function, and discuss the ways in which utilizing credit card readers can benefit your company.
How exactly do credit card readers function?
Credit card readers obtain information from the credit or debit card of a customer, send that information to the payment processor, and then collect information from the customer’s bank in exchange. The transaction will be authorized if the card reader finds that there are sufficient funds available.
Credit card readers, in a nutshell, collect the payment information from your customers, securely communicate the transaction data, and flow the data from the card to the cardholder’s bank and back to you so that you can complete the sale.
Let’s take a look at the path that the data travels through a card processor on its way from the customer’s card to the completed transaction.
The processing of credit card payments in detail
The following is a description of what takes place behind the scenes when a customer wants to make a purchase from your company and scans or dips their credit card, uses their smartphone, or pays with a contactless card.
- Authorization of the payment. The information from the customer’s payment card is sent to the payment gateway whenever the customer swipes, dips, or scans their method of payment. The encrypted data is transferred between the customer’s bank and the merchant’s bank in a safe and secure manner by the payment gateway. The customer’s bank is the one that checks to make sure the customer has sufficient funds to finish the transaction. In the event that the client has sufficient funds in their account, the financial institution will place a hold on those funds and designate the transaction as pending.
- Capture. The funds are transferred to the merchant’s bank account by the credit card company. Batching is the practice of sending multiple payments at the same time, and it happens quite frequently.
- Settlement. After the funds have been completely processed, they will be able to be deposited into the account of the merchant. Depending on the bank that you use and the payment gateway that you go with, this procedure could take several days to complete.
Readers for various types of credit cards
In this section, we will examine the various kinds of credit card readers as well as their methods of operation.
Magstripe
The magnetic stripe on credit cards can be read by using a device called a magstripe reader. The magnetic stripe-only credit cards that have been in use up until this point are being phased out by credit card companies in favor of EMV chip cards or contactless payments.
Magnetic stripe cards are being phased out because of the increased risk of credit card fraud associated with using them. (If a con artist gets their hands on a card number, they can easily make a copy of that card.) Chip cards and contactless payments are difficult to counterfeit for obvious reasons.
Readers for chips or EMV devices
Customers will be able to use their EMV chip cards in a safe manner thanks to these readers.
What’s EMV? EMV (Europay, MasterCard, and Visa) is an international standard that was developed and is managed by major credit card companies. The EMV standard makes it possible to make safe transactions in both in-person and online settings.
When using EMV, a card is either inserted into a slot or dipped into a reader. These cards offer a higher level of protection than the standard magstripe cards. When using this type of card, your customer has the option of either entering their PIN or signing for the transaction.
Readers for contactless cards
There are RFID chips embedded in some credit cards. Customers are able to make contactless payments by simply waving their card in front of the reader thanks to these chips. Let’s take a look at the technology behind how these different types of payments are processed.
- NFC. “Near field communication” is what “NFC” stands for in the industry. This technology can be found in contactless card readers and is responsible for the transmission of data over a short distance from an RFID chip card.
- RFID. Radio frequency identification is what is meant by the acronym RFID. For the transmission of data over shorter distances, this technology makes use of radio waves. Customers who have this type of chip card can quickly finish their purchase by waving or tapping the card on or near your card reader. Alternatively, they can insert the card into the reader.
- Tokenization. Before processing a payment, payment tokenization safeguards the transaction by exchanging personally identifiable information (such as a credit card number) that is associated with the transaction for information that is not personally identifiable. Tokenization prevents criminals who gain access to payment details from reading the data by preventing them from reading the encryption key.
- Digital wallets. As a form of contactless payment, third-party digital wallets are quickly becoming increasingly popular. Some examples of these wallets include Apple Pay, Google Pay, and Amazon Pay. Using one of these wallets, you will be able to digitally store a variety of payments in a safe environment, and then either use a card reader or a web portal to transmit the payments.
Customers can just wave their smartwatches or phones at the POS system, which makes these apps more convenient and reduces the amount of time they have to wait in line.
According to the findings of a recent study conducted by Mastercard, nearly eight out of ten customers reported using contactless payment options during the COVID-19 pandemic. Your company can maintain its competitive edge by providing customers with the option to check out in a way that is safe and does not compromise their health.
credit card readers’ advantages for business owners
A credit card reader is required in your retail location if you want to accept payments made with credit cards, debit cards, or digital wallets from customers.
Let’s take a look at the various ways in which a credit card reader can help your retail company.
POS software communicates with card readers.
Credit card readers that are compatible with point-of-sale applications are very simple to operate. If you have the appropriate point-of-sale system, you will be able to process payments using your computer, tablet, and even your smartphone.
Card readers are not required to have WiFi.
The payments made by your customers will be processed through the internet, but the card reader does not require WiFi in order to function properly. When using a card reader, you have the option of connecting via a wired internet connection, a mobile network, or WiFi.
Security
The vast majority of customers now favor cashless payment methods, which means that your company can carry significantly less cash. When it comes to instances of theft or robbery, having less cash on hand makes your company more secure. You won’t need to go to the bank to make cash deposits or get change, so that’s another time saver.
Credit card readers not only protect your company offline but also online. They prevent online criminals and hackers from accessing sensitive payment information by securing the network and keeping them at bay.
Prevent fraud
Card readers of today move customer data across the internet in a secure manner using encrypted protocols.
Tokenization of financial transactions is used by card readers. Before the data is sent over the internet to be processed, it is first transformed into a cryptographic representation, also known as a token. Because of this procedure, it will be extremely difficult for anyone to hack your transactions. In the event that someone was successful in breaking into the system, the information that they obtained would be useless. Chip card readers safeguard your company against the risk of accepting a fraudulent payment method.
Convenience
Cash transactions and making changes require a lot of time. The desire for instant gratification is common among consumers.
It is possible to provide a frictionless experience for customers by giving them the option to scan or swipe their credit card or use another form of contactless payment. Customers are enticed to return to your shop as a result of the high level of convenience it offers.
Maintain a ledger of all transactions.
All of the cards that are swiped through your credit card reader will be recorded by the point of sale software that you use.
This will help you save time in the event that you need to research a transaction for your bookkeeping, for instance in the event that a customer issues a chargeback. To further simplify the process of rewarding your staff, you can set up Shopify’s point-of-sale software to handle the processing of gratuities automatically.
Develop a sense of confidence.
Your company’s reputation will be affected positively or negatively depending on how carefully you handle the money of your customers. Credit card readers encrypt information to protect sensitive payment data from being stolen or viewed by unauthorized parties. Establish credibility among your customers by protecting the information they provide about their payment methods.
Maintain your position of competitiveness with credit card readers.
It is essential, in order to maintain your standing in the market if you operate a traditional storefront, to make the investment in a credit card reader.
Customers are more likely to remain loyal if they are provided with multiple payment options that are easy to use, don’t take up much time, and are protected from fraud.
