American consumers spend tens of billions of dollars every year using credit and debit cards alone. From swiping a card for a daily cup of coffee to booking a costly vacation, your customers count on debit and credit to fuel their lifestyles. If you’re thinking about accepting cards for payment and are wondering about the advantages for your business, here’s what you need to know.
How Debit and Credit Card Transactions Work
You already know that debit transactions take cash from available funds in a checking or savings account, while credit transactions are a loan against available credit. You also know that debit and credit cards look almost exactly the same. In many cases, a debit card with a certain logo (Mastercard, for example) can be used wherever that logo is accepted.
When your customer swipes his debit card at your payment terminal, the magnetic strip sends his unique account data to a card-processing network. The network verifies electronically with the bank that the card hasn’t been stolen and that there is enough money in the customer’s account to approve the purchase. The bank approves or denies the purchase through the processing network and alerts your business. At the end of the day, the network coordinates payment settlement from your customers’ banks, and transmits those funds into your account.
Credit works almost exactly the same, with two important differences. The first is that debit customers frequently enter a PIN, while credit customers sometimes enter a zip code. Most importantly, in a credit transaction, the money your business receives represents funds loaned to your customer against his available credit.
What You Need to Know About Accepting Credit and Debit Cards
Every time your customer swipes a card at your payment terminal — or virtually on your website or through a mobile payment app — your business pays a fee to the processor and to the bank. These fees vary based on multiple factors, which includes whether or not the transaction took place in a brick-and-mortar store or online. Online transactions, where the card is not presented to you or your staff, are more expensive.
Processing fees also vary between credit and debit cards. The biggest debit card advantage for business is the lower processing rate. That’s because debit transactions are essentially cash transactions, and the bank assumes almost no risk. In a credit transaction, the bank is loaning funds it might not get back. That’s why it charges more per transaction for credit cards than for debit cards.
You’ll also need to consider the number of transactions you process. More transactions equal more transaction fees, so high volume businesses pay more for processing even if overall revenue is the same. That’s why many businesses insist on cash for low-cost purchases.
Native Merchant Services guarantees the lowest debit and credit card processing rates in the industry. For more information, complete our online form today.