A credit card terminal is a real or virtual business device that allows merchants to process cardholder payments. The terminal acts as a key point on the node of the typical credit card purchase process. It transmits data via a dedicated phone line, wireless device, or web data stream through a series of gateways to the cardholder’s bank to verify payment.
A standard terminal allows the merchant two ways to input a cardholder’s credit card information: via a numerical keypad or a magnetic stripe reader.
In addition to processing credit card payments, terminals can also verify checks and accept gift cards.
How Processing Works
The first step is the inputting of credit card data. The merchant or the customer may swipe the card through the reader or punch the numbers directly into the keypad. Once the data has been uploaded, the terminal generates a request for authorization. This directive proceeds through a series of virtual gates, including a “payment gateway,” “credit card interchange,” and “issuing bank rendezvous.” If the issuing bank approves the transaction (by verifying that the cardholder has sufficient funds in his or her “open to buy” account and then subtracting the purchase total from that account), information starts to flow back to the terminal.
The authorization request again takes a side trip, this time to the merchant’s bank, known as the “acquiring bank.” Money is then earmarked to be deposited in the acquiring bank.
The merchant almost never banks the full purchase price of an item. Every gateway along the process charges a small fee that gets subtracted out of the final amount the merchant gets. A credit purchase of $200.00, for instance, may be reduced by four dollars from the various fees, thus the merchant only ends up with $196.00.
Lastly, the authorization request reroutes back to the terminal, indicating that the transaction has been approved. Though the process is complex and multifaceted, it normally takes just a few seconds.
Safeguards and Triggers in the System
Not all credit card terminal transactions work smoothly. Dozens of safeguards and triggers can halt or alter the credit approval track. If, for instance, there’s not enough reserve in the cardholder’s “open to buy” account, authorization will be denied.
Other reasons a transaction may terminate early:
- Problems with phone lines (or wireless connections) which impede the smooth flow of data at any point along the process route
- Computer triggers pick up unusual patterns in cardholder purchasing behavior, potentially indicating some kind of fraud
- Credit card account is inactive or expired
- Mechanical/technical issues with the terminal device itself
Typical Features and Extras
Credit card terminals are designed for simplicity and efficiency. Basic and enhanced features include:
- Stripe reader: Reads magnetic data from credit card stripes and converts data into virtual information that can pass through the authorization process.
- Printing device: allows merchants to print out receipts of credit card purchases. Merchants who generate lots of sales may want to employ thermal imaging or laser printing devices. In general, slower (e.g. dot matrix) printers take longer to work but cost less to install.
- Memory card: stores critical cardholder data for a set period of time; extra RAM and memory also boosts software efficiency.
- Key and PIN pads: allows merchants (or customers) to enter their card info. Some basic pads offer just the basics: 9 digits, a cancel button, and a confirm button. Others offer programmable keys and other bells and whistles.
- Terminal display: displays can range from “bare bones” two-line text windows to complex monitors complete with backlights and graphic capabilities.
Types of Credit Card Terminals
There are three main types of terminals: stationary, wireless, and virtual.
- Stationary: The most common type of terminal and least expensive. This machine plugs into an outlet or other power source and connects to the PSTN (public switched telephone network) by some wired connection. Advanced stationary devices can also come with other “point of sale” features.
- Wireless: Often used by merchants on the go (e.g. limo drivers, delivery services, taxis, etc.). Most offer good memory capacity to store cardholder data in the event that the terminals can’t connect to a network at the exact time of purchase. Some devices come with powerful “signal finding” technology to ensure operation even in sparsely networked outdoor areas.
- Virtual: Ideal for merchants who do a significant amount of business on the Web. Virtual terminals often come with a bevy of safety features and data protection mechanisms to ensure that hackers, worms, and other virtual hazards don’t interfere with transactions and authorizations.
Tips for Choosing a Credit Card Terminal
It is best to choose a terminal that makes sense for your business’s needs. Those doing a lot of business on the move might want to look into wireless terminals. Businesses encountering many international shoppers will want to make sure that their terminal has software installed that allows them to route international authorizations easily.
Integrate your point of sale technology. If your credit card terminal, cashier system, and invoice processing systems are integrated to work together, you’ll have far fewer technical headaches down the line.
Poor credit and high risk businesses pay higher processing fees. Businesses tired of having eight percent lopped off their credit card sales could consider working with a counselor to raise their credit score, which can in turn allow them to reduce the costly processing fees. Similarly, if a business is deemed “high risk,” its fees may go up. Look for ways to lower your company’s risk profile to get fees down.