Category: Payment Processing

Explained Simply: What is a Merchant Services Provider?

Your Merchant Services Provider is a vital partner that can help you operate and grow your business. They facilitate credit card processing and provide other important services for your business. Essential services offered by a merchant services provider include:

Accepting payments from your customers via credit, debit, and electronic payments allowing for seamless transactions.

Securely managing PCI compliance when processing and storing payment information for your business, making your customer data safe.

Providing your business with technology to track payments, understand business data, and collect outstanding invoices.

Let’s get back to basics to understand the definition of a merchant.

In This Article

TL;DR

  • Merchant services companies provide businesses and individuals with the tools and requirements to accept credit cards, debit cards, and other forms of electronic payment for transactions to take place. 
  • The products that merchant service providers offer to businesses in order for them to actually be able to accept and process payments in a way that works for them and their customers.
  • A Merchant Services Provider grants you the technology and information your business needs to optimize operations. You can learn a lot about your business from the payment data provided to you by your Merchant Services Provider. 

What Is a Merchant?

“Merchant” is a term used by payment processors to refer to their customers. Customers, or merchants, are businesses that accept credit card payments from their clients in-person, online, or over the phone. A Merchant Services Provider offers products and systems to help those businesses run smoothly.

These products and services often integrate with the business tools you already have. For instance, your payment provider may connect to a POS system for your retail store or to your QuickBooks Online for reconciliation. Merchant Service Providers can also provide customer management, inventory systems, and payment reporting.

Who Is Considered a Merchant?

A merchant represents a person or company that sells goods or services. Merchants can sell items in-person or online (sometimes called an eCommerce merchant). Most merchants today operate both in-store and online.

Different Types of Merchants:

  • eCommerce Merchant: A merchant who sells items online.
  • Retail Merchant: A merchant who sells items that they purchase from manufacturers.
  • Wholesale Merchant: Merchants/manufacturers who sell items to retail merchants. 
  • Affiliate Merchant: Merchants who use affiliate networks to sell goods.
  • Direct-to-consumer (DTC) Merchant: Merchants who sell items to consumers that they themselves create.

DTC merchants have become quite common in recent years, as selling goods on the internet has a very low barrier to entry. Most DTC companies are still wholesale merchants, selling their items to retailers who then sell the item to the consumer. 

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What Is a Merchant Account?

A merchant account is a bank account specifically established for business purposes where companies can make and accept payments. Note that a merchant account isn’t the typical bank account. This is a basic assumption that poses a lack of clarity for most business owners. Merchant services accounts allow businesses to accept credit and debit card transactions or other forms of electronic payment from customers, with the aid of a payment gateway.

Merchant account services often come with added fees, but also an array of services. Most often the merchant has to cover the transaction fees from payment processors, the credit card association, and the issuing bank for the merchant account. To that effect, it’s perhaps savvier for the merchant to look out for an option that’ll help cut down the cost per transaction.

On the other hand, a low processing fee doesn’t guarantee reliable service and support in the long run.

Merchant Account Provider vs. Merchant Services Provider

While the two entities overlap quite a bit, there are some distinctions between merchant services and merchant account providers.

The former is a much broader term that’s used to describe an organization that has various offerings for merchants—including payments, technology integrations, businesses services, etc.

Merchant account providers typically stick to helping businesses set up their merchant account—i.e., the type of bank account that enables you to accept credit and debit card payments.

In many cases, these terms are used interchangeably.

How Does Merchant Services Work?

Merchant services companies provide businesses and individuals with the tools and requirements to accept credit cards, debit cards, and other forms of electronic payment for transactions to take place.

There are thousands of merchant service providers in the U.S alone. From ISOs and third-party merchant services providers like Square, Stripe, Paypal, and Stax to big bank-operated merchant services (Bank of America, Wells Fargo, Chase Bank) each company offers its own tools, services, and fees. Depending on the size of your business, one model will be more expensive than another.

How Easy Is It To Open a Merchant Services Account?

A merchant services account establishes a business relationship between a merchant services provider and a business. Doing so provides the business with the ability to accept debit and credit cards, contactless payments such as Apple Pay, eCommerce transactions, and more. Some payment processing companies like Square don’t require a merchant services account in order to do business with them.

Not having a merchant services account can be a risky choice. Payment processing providers such as Square often accept higher-risk business clients that wouldn’t normally qualify for a merchant account. That increases the risk for the payment processor. If your business falls into that category, you’re more likely to experience an account hold for certain transactions. If the payment processor decides to no longer assume that higher risk, they can simply cancel your account leaving you unable to accept payments from customers.

Merchant Services Products

The next essential part of what makes up “merchant services,” is the different tools available for payment processing. The products that merchant service providers offer to businesses in order for them to actually be able to accept and process payments in a way that works for them and their customers.

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What are the Contactless Payments

Contactless payments include credit and debit cards, Apple Pay, Android Pay, Google Pay, Fitbit Pay, and other devices that use near field communication (NFC) or radio-frequency identification (RFID).

Pay on-the-go with Mobile Payments

Mobile payments are payments made for a product or service through a portable electronic device such as a tablet or cell phone. Mobile payment technology can also be used to send money to friends or family members with applications such as PayPal and Venmo.

Swipe, Dip, and Tap: Credit Card Terminals

A Credit Card Terminal also called an Electronic Data Capture Terminal or EDC Terminal is an electronic device that enables merchants to accept credit cards allowing customers to swipe, dip, or tap their credit or debit card to make a payment.

Online Shopping Made Easy: eCommerce Solutions

eCommerce is the activity of electronically buying or selling products on online services or over the Internet. From accepting credit cards and debit cards online to set up your customized web store, eCommerce solutions can bridge the gap when in-person payments are not an option.

Boost Sales with Virtual Terminals

A virtual terminal is a software application for merchants that allows them to accept payment with a payment card, specifically a credit card, without requiring the physical presence of the card.

Upgrade Your Business with POS Systems

A point of sale system, or POS, is the place where your customer makes a payment for products or services at your store. Simply put, every time a customer makes a purchase at your store, they’re completing a point of sale transaction.

Secure Payment Gateway

A payment gateway is a piece of software that works with your website or eCommerce store and allows you to take and process secure credit card payments online. The payment gateway serves in the place of a credit card terminal.

Secure Payment Processing with Merchant Services Provider

A Merchant Services Provider functions as the intermediary between banks, your business, and your customers. This allows you to confidently accept your customers’ preferred form of payment. With a Merchant Services Provider, you can depend on this payment arriving securely in your bank account.

When a customer swipes a card, the Merchant Services Provider moves the customer’s funds to your bank account. The funds will typically appear in your bank account within 48 hours. Many businesses do qualify for next-day funding and can get paid even faster.

Your Merchant Services Provider is where you will purchase or rent credit card terminals and mobile swipers. If you have an online business, they will seamlessly integrate with your eCommerce store. Virtual terminals let you accept payments online or key in payments over the phone. Your Merchant Services Provider will help you find the right payment processing services for your business.

Secure Payment Merchant Services Provider | Nfc Security

Secure Payments: Prioritize Payment Security

Payment Security is vital for businesses processing credit card transactions, online payments, and maintaining card number storage. There can potentially be a lot of risks involved when accepting payments today. According to one Nilson report, 2021 card fraud losses in the U.S. totaled $11.91 billion, an 18% increase over $10.09 billion in 2020. Through Payment Security, a Merchant Service Provider can help you and your clients conduct business transactions safely and securely.

Your Merchant Services Provider can help you ensure PCI compliance. This means that cardholder data stored by your business, including names and card numbers, is secure. Businesses can be proactive in protecting data by using strong passwords and updating their antivirus software regularly.

Meanwhile, your Merchant Services Provider will maintain PCI compliance on the payment end of your business. This includes tokenizing payment information and protecting your business by putting fraud prevention measures in place. Learn more about how Stax protects your payments.

Technology Provider

A Merchant Services Provider grants you the technology and information your business needs to optimize operations. You can learn a lot about your business from the payment data provided to you by your Merchant Services Provider.

  • Which customers are spending the most time and money with you?
  • What times of day, month, or year are you collecting the most payments?
  • Are there products or services on which you could increase your revenue?

Important Questions to Ask Your Merchant Services Provider:

  • How are your equipment costs structured?
  • What are your processing costs?
  • Are there any other costs or fees?
  • What kind of contract is required?
  • What kind of reporting and statements are offered?
  • Is all of your equipment PCI DSS compliant?

Which Merchant Service Is Best?

Every cent counts towards improving your business operations. This is why finding the best merchant service provider is so important. If you need to grow your business and serve your target market, then you need to have proper merchant services in place. There are over 1000 payment processing companies in the U.S. Here are a few things to consider while choosing payment processing platforms for your business.

With all the changes occurring in the economy, it’s imperative to provide a myriad of payment options to your customers. Payment processing solutions such as mobile payments, virtual terminals, and touch-free or contactless payment solutions expand revenue generation opportunities and give your customers a more seamless experience.

In some cases, it also makes sense to partner with a company that offers payment services beyond credit cards. Payments types like ACH and Text2Pay are quickly gaining steam, so it makes sense to use a provider that supports these modes of payment.

What Should You Look for in a Merchant Services Provider?

While looking for a merchant services provider, make sure to take note of their costs. Depending upon the kind of solutions you need, you will most likely have to keep the following charges in mind.

  • Setup Fee
  • Equipment Fee
  • Monthly Fee/Service Fee
  • Transaction Fee
  • Credit Card Processor Fee

Payment Processing Pricing

Flat Rate: Suitable for small retail businesses and startups with a low sales volume, the flat rate is a fixed percentage that’s based on a charge when processing payments. This pricing model is quick and easy to set up and has the best ease of use

Interchange-Plus Pricing: Each credit card issuer such as Mastercard and Visa has specific interchange rates for each card type whether it be CNP or Card present transactions. With the interchange-plus pricing structure, the processor adds a markup to the interchange and takes a cut out of each sale.

Direct Interchange: A direct interchange fee is one where the merchant charges a one-off monthly fee without any percentage rate. It’s not the best for small businesses that generate low volumes of sales.

Tiered Rates: Tiered rates are grouped in different structures that separate each card type(Visa, Mastercard, Discover). It’s not the most convenient for small to medium-sized businesses. Since the fees fluctuate this is not an ideal option for B2C transactions.

Additional Fees to Watch Out For:

  • Account fees
  • Minimum processing fee
  • Statement fee
  • Account setup fee
  • Cancellation fee
  • Chargeback fees
  • NSF fee
  • Early Termination fee

Don’t Forget About Customer Support

Be sure to vet the customer support offerings of a merchant services provider. Payment processing has several moving parts, and tech issues may arise. In these instances, you want a knowledgeable partner who has your back and can ensure that everything runs smoothly.

When selecting a provider, look into their customer service capabilities. Is support available 24/7? What platforms or channels can you use to access the info you need? What are other merchants saying?

The answers to these questions will help you gauge a provider’s reliability when it comes to customer support.

Final Words

Ranked one of the best merchant services companies of 2023, Stax has disrupted the payments industry with our subscription-based pricing model. Stax is a subscription-based merchant service provider with total transparency built into its model. All merchants have access to direct cost payment processing with 0% markups, no contracts, and no hidden fees.

We believe that all of this useful data should be placed in the hands of business owners like you. You can increase your knowledge and make strategic decisions that will positively impact your business. That’s why we built Stax, our all-in-one payment platform. With Stax, you can track payments, create payment links, and collect invoices in one place. Plus, you can also view detailed reports about the state of your business at any time.

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Quick FAQs about Merchant Services Provider

Q: What are the essential services provided by a Merchant Services Provider?

  • Accepting credit, debit, and electronic payments
  • Securely managing PCI compliance
  • Providing technology for payment tracking, business data interpretation, and invoice collection

Q: What is a Merchant Account?

A merchant account is a specialized bank account created for business purposes, allowing companies to make and accept electronic payments, including credit and debit card transactions, with the assistance of a payment gateway.

Q: What’s the difference between a Merchant Account Provider and a Merchant Services Provider?

Merchant Account Provider solely helps businesses set up their merchant account, while a Merchant Services Provider offers a broader range of services, including payments, technology integrations, and business services.

Q: How do Merchant Services work?

Merchant Services Providers supply businesses and individuals with the tools and requirements necessary to accept credit cards, debit cards, and other electronic payment forms for transactions to occur.

Q: What types of payment processing products do Merchant Services Providers offer?

  • Contactless Payments (NFC/RFID)
  • Mobile Payments
  • Credit Card Terminals
  • eCommerce Solutions
  • Virtual Terminals
  • POS Systems
  • Payment Gateway

Q: How do Merchant Services Providers ensure payment security?

Merchant Services Providers use measures such as PCI compliance, tokenizing payment information, and fraud prevention to create a secure payment environment.

Q: How can a Merchant Services Provider help optimize business operations?

By providing valuable payment data insights, Merchant Services Providers can help businesses understand customer spending habits, peak payment periods, and potential areas of revenue growth.

Q: What should a business consider when choosing a Merchant Services Provider?

  • Costs (setup fee, equipment fee, monthly fee, transaction fee, processor fee)
  • Support for various payment types (credit cards, ACH, Text2Pay)
  • Customer support availability and quality
  • Payment processing pricing models (Flat Rate, Interchange-Plus, Direct Interchange, Tiered Rates)
  • Additional fees (account fees, minimum processing fees, statement fees, contract cancellation fees, etc.)

Top 7 Payment Trends to Watch in 2024 and Beyond

Payment processing has never been more complex than it is today. This is, in part due to the abundance of options, and the continual advancement of technology.

The payments industry is constantly adapting to meet the needs of businesses and consumers alike, and staying informed about the latest trends is crucial for success in this evolving landscape.

The payment processing ecosystem continues to evolve with new capabilities, and businesses must stay up to date on trends to provide the best customer experience possible.

Financial institutions play a vital role in facilitating digital payments. They serve as intermediaries between merchants, consumers, and payment processors, ensuring seamless and secure transactions. As the payments industry continues to evolve, financial institutions are adapting their services to meet the changing needs of businesses and consumers.

They are investing in advanced fraud detection and prevention technologies, enhancing transaction security, and exploring partnerships with fintech companies to provide innovative payment solutions. This collaboration between traditional financial institutions and fintech startups is driving the industry forward and fostering a culture of innovation.

As we look to the future, the payments industry will continue to witness the rise of mobile payments. With the widespread adoption of smartphones and the increasing availability of internet access, consumers are relying on their mobile devices for various activities, including payments. Mobile payment apps, such as Stax Pay, PayPal, Venmo, and Alipay, are gaining popularity worldwide, offering a convenient and secure way to make transactions on the go. Businesses that embrace mobile payments can tap into a growing customer base and provide a seamless shopping experience across multiple channels.

With multiple payment channels available to merchants, deciding which to accept can be a daunting task. Digital payments are leading the way in the payment industry with continuous innovation and security measures that modernize the shopping experience, both in-person and online.

To help you make sense of the payments landscape, this post sheds light on 7 payment trends for businesses to watch.

In an era marked by technological advancements and changing consumer preferences, digital payments have emerged as a cornerstone of the modern economy. The convenience, speed, and security offered by digital payment methods have revolutionized the way we transact and interact with money. We will explore the transformative potential of digital payments within the ever-evolving landscape of payment trends.

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Background on the Payments Industry

The payments industry stands at the forefront of financial innovation, reshaping the way we transact and exchange value. As financial services organizations seek to meet evolving consumer demands, technological advancements and changing market dynamics are propelling the industry forward.

The rise of e-commerce and digital marketplaces has given birth to a surge in online payments. Consumers now expect seamless, secure, and frictionless experiences when making digital purchases. As a result, financial services organizations are adopting innovative payment solutions to meet these demands. From mobile wallets and digital payment gateways to instant payment systems, the industry is witnessing a remarkable shift towards online payments.

The global cashless payment volumes have been on a steady rise, driven by convenience, security, and speed. Consumers are embracing digital payment methods such as credit cards, mobile payment apps, and contactless technologies. This cashless revolution has prompted traditional payments providers to reevaluate their strategies and adapt to the changing landscape. To remain competitive, they are enhancing their digital capabilities, fostering collaborations, and embracing new technologies.

The payments industry continues to undergo a remarkable transformation, driven by technological innovation, evolving consumer behaviors, and the need for enhanced digital experiences. Financial services organizations must navigate these changes, embracing online payments, collaborating with fintech firms, and prioritizing security to stay competitive. As the industry adapts and evolves, it holds the potential to revolutionize financial transactions, promote financial inclusion, and shape the future of commerce.

Financial Services

The financial services industry has long been a pillar of the global economy, providing individuals and businesses with essential services such as banking, investment, insurance, and more. In recent years, this industry has experienced significant transformations driven by technological advancements, changing customer expectations, and evolving regulatory landscapes. We will explore the latest developments and trends reshaping the financial services industry, and the opportunities they bring for both financial institutions and consumers.

Digital Transformation and Customer-Centricity

The advent of digital technologies has propelled the financial services industry into a new era of convenience and accessibility. Financial institutions are leveraging digital platforms to streamline processes, enhance customer experiences, and expand their reach beyond traditional brick-and-mortar establishments. Online and mobile banking services enable customers to access their accounts, make transactions, and manage their finances conveniently from anywhere, anytime. The focus has shifted towards customer-centricity, with personalized offerings, tailored recommendations, and intuitive user interfaces becoming standard practices.

Fintech Disruption and Collaboration

The rise of fintech startups has disrupted traditional financial services, challenging established players to adapt or risk falling behind. Fintech companies leverage innovative technologies to offer specialized financial solutions such as peer-to-peer lending, robo-advisory services, digital wallets, and blockchain-based payments. To stay competitive, traditional financial institutions are embracing collaboration with fintech firms through partnerships, investments, and incubator programs. This collaboration brings together the expertise and infrastructure of traditional institutions with the agility and innovation of fintech, fostering a dynamic ecosystem of financial services.

Rise of Mobile Wallets and Contactless Payments

One of the prominent payment trends in recent years is the widespread adoption of mobile wallets and contactless payments. Mobile wallet applications, such as Apple Pay, Google Pay, and Samsung Pay, allow users to securely store their payment information and make transactions with a simple tap or touch of their smartphones. The convenience and contactless nature of these payments have gained significant traction, particularly in the wake of the COVID-19 pandemic, where hygiene and contactless interactions have become paramount.

Peer-to-Peer (P2P) Payment Solutions

P2P payment solutions have transformed the way we exchange money among friends, family, and colleagues. Platforms like Stax, Venmo, PayPal, and Cash App have made it incredibly easy to split bills, repay debts, and send money instantly. P2P payments have become an integral part of our daily lives, simplifying transactions between individuals and enabling seamless digital transfers.

Integration of Digital Payments in E-commerce

The e-commerce sector has experienced tremendous growth, fueled in part by the increasing popularity of digital payments. Online shopping platforms, from global marketplaces to small-scale businesses, have embraced digital payment methods as a means to enhance customer experience and drive sales. The integration of secure checkout options, such as credit cards, digital wallets, and even cryptocurrencies, has expanded consumer choices and facilitated frictionless transactions in the digital marketplace.

Biometric Authentication and Enhanced Security Measures

As the digital payments landscape evolves, so do the security measures to protect user information and transactions. Biometric authentication methods, including fingerprint recognition and facial identification, have become more prevalent in ensuring secure digital transactions. These advancements in security technology add an extra layer of protection, making digital payments not only convenient but also highly secure.

Financial institutions are investing heavily in robust security measures to safeguard customer data and protect against cyber threats. Additionally, evolving regulatory frameworks, such as PSD2 in Europe and open banking initiatives, promote greater transparency, competition, and data sharing among financial institutions. Compliance with these regulations is crucial to ensure trust, maintain integrity, and protect consumer interests in the financial ecosystem.

Internet of Things (IoT) and Connected Devices

The proliferation of connected devices and the Internet of Things (IoT) has opened up new possibilities for digital payments. With IoT-enabled devices, such as smartwatches, fitness trackers, and voice-activated assistants, users can make payments seamlessly without the need for physical interaction. For example, a smart fridge could reorder groceries and make payments automatically when supplies run low. The integration of digital payments with IoT technology simplifies transactions, making them a natural part of our connected lives.

1. Going Cashless Leads the Way for Digital Payment Trends

Common cashless transaction types include credit and debit, mobile wallets, ACH transfers, and any eCommerce transaction. Cashless transactions are expected to increase tremendously in the coming years, and businesses need to be prepared.

Going cashless is part of a larger revolution in the payments industry where processing companies and businesses seek to evolve their practices. Customer demand for digital transactions and the expectations for payment options to suit their needs is a driving force for the evolution of payment processing.

2. Mobile Wallets Become Table Stakes

Mobile wallets were already commonly used in recent years thanks to their convenient, contactless, and secure nature. The use of digital wallets is popular for in-person transactions through the near-field communication (NFC) technology, and eCommerce transactions.

Users can store their debit and credit cards with an end-to-end encrypted digital wallet and make secure transactions easily. Gone are the days where retailers can simply accept cash, and digital wallets provide a safe, secure, and seamless customer experience at the point of sale.

Though mobile wallets may not be universally used like traditional payment options, more and more people are leaving their residence without their analog wallets.

Providing multiple payment options is now table stakes for any business accepting secure payment from customers, and digital wallets will continue to grow as a payment trend.

Digital Wallets | Payment Trends

3. Tap-to-Pay with Contactless Credit Cards

Another trend that’s showing rapid growth and popularity? Contactless credit card usage.

More retailers are offering this as a safer payment solution and providing information about how contactless payments work is important to educate wary customers. Contactless card transactions typically process faster than inserting the chip, and also incur less wear and tear on the card. Additionally, contactless cards are more secure than swiping a card’s magnetic strip and are processed with end-to-end encryption.

Though not all banks issue cards with contactless capabilities, there are currently over 190 million contactless Visa credit cards, with 300 million total expected to be in circulation by the end of 2021. Additionally, most major card issuers are now sending these out by default and replacement cards are frequently getting this upgrade.

American Express states that most of its products have contactless technology, and many other financial institutions such as Bank of America, Capital One, and Chase have several options available.

Combined with mobile wallet tap-to-pay adoption, businesses should consider accepting contactless payments, as this payment trend continues to be widely adopted by consumers.

4. Paving the Way for More P2P Payments

Peer-to-peer payments (P2P) are more commonly known by their app names. Venmo, Cash App, PayPal, Google Pay, Apple Pay, and Zelle are popular apps that allow users to transfer money from linked bank accounts or credit and debit cards to another user.

While this is often used by consumers to transfer money between individuals, some businesses can easily implement this payment method to provide a more seamless experience for their customers.

Although P2P payments are not suitable for many businesses, some do offer pay-to-merchant (P2M) options, with PayPal leading in this space and accepted by many retailers. However, there are some drawbacks for businesses seeking to offer P2M.

These payments may take longer to process, incur larger transaction fees, and may be less secure than other payment methods. This method may not be suitable for all businesses, but for some, the streamlined payment experience for the customer could be a deciding factor.

P2P Payments

5. Buy-Now-Pay Later is Gaining Popularity

Buy-now-pay-later (BNPL) is a payment option that allows customers to spread out their purchase payments in a way that resembles a personal loan. The terms of these loans vary, with some including interest, and others dividing the purchase into multiple interest-free automatic withdrawals.

Other differentiators of BNPL payment services include whether there is a hard or soft pull on the customer’s credit, late fees, and payment cadence, and loan duration. One example of a BNPL merchant partnership is Amazon’s partnership with Affirm, which allows customers to use this service on purchases of $50 or more without a credit check or interest on the purchase.

These transactions are different from typical credit card transactions and can sway customers who are on the fence to make a purchase. According to McKinsey, BNPL was used as a payment option for 30% of respondents, and 29% of people report that they would have made smaller purchases or not purchased at all without BNPL.

Depending on the average price point and shopping habits of your customers, adding a buy-now-pay-later option could lead to significant increases in business, especially around prime shopping seasons. While it may not be suitable for every business, this payment method is certainly making waves and has several providers available for merchants to consider.

6. Cryptocurrency and Cross-Border Digital Payments

The use of cryptocurrency for payments has increased in recent years, with about 21% of survey respondents citing this as their primary reason for entering the cryptocurrency market. Cryptocurrencies are known to be volatile in their value, but the investment potential is the leading reason for ownership, with 43% of survey respondents citing this as their motivation for holding cryptocurrency. Major companies such as Microsoft, Tesla, Expedia, and WeWork now accept cryptocurrency payments. This digital payment trend is one to keep an eye on, as the usage has evolved to be more mainstream.

The digital payments landscape is evolving rapidly, driven by technological advancements and changing consumer expectations. Businesses must stay informed about the latest payment trends to navigate this complex ecosystem successfully. Embracing digital payments, leveraging emerging technologies, and collaborating with financial institutions are key strategies for businesses to thrive in the ever-changing payments industry. By staying ahead of the curve, businesses can deliver exceptional customer experiences and drive growth in the digital economy.

There is also a rising trend in cross-border payments using cryptocurrency. These transactions often process faster and automatically convert to local currency, creating a seamless customer experience. PayPal has one of the most notable offerings for cross-border transactions, allowing customers to buy, hold, transfer, and use multiple cryptocurrencies in transactions around the world.

Another emerging trend is the use of blockchain technology in the payments industry. Blockchain, a decentralized and immutable ledger, offers enhanced transparency, security, and efficiency in transactions. It enables peer-to-peer payments without the need for intermediaries, reducing costs and settlement times. Financial institutions are exploring the integration of blockchain into their payment infrastructure to streamline cross-border transactions, improve remittance services, and simplify compliance procedures.

Digital payments have emerged as a driving force in the payments industry, transforming the way we conduct transactions. With the rise of digital wallets, consumers can securely store their payment information and make purchases with just a few clicks. Digital wallets, such as Apple Pay, Google Pay, and Samsung Pay, provide a convenient and streamlined checkout experience, both in-store and online. As more consumers embrace this technology, businesses must ensure they are equipped to accept digital payments to meet customer expectations and stay competitive in the market.

In recent years, the concept of Central Bank Digital Currencies (CBDCs) has gained significant attention and sparked intriguing discussions in the world of finance and technology. CBDCs represent a new form of digital money issued and regulated by central banks, aiming to combine the benefits of traditional fiat currencies with the efficiency and security of modern digital payment systems. In this blog post, we will delve into the world of CBDCs, exploring their potential impact, benefits, and considerations as central banks around the world explore their adoption.

Understanding Central Bank Digital Currencies (CBDCs)

Central Bank Digital Currencies (CBDCs) are digital representations of a country’s official currency issued and backed by a central bank. Unlike decentralized cryptocurrencies like Bitcoin, CBDCs maintain a centralized control structure, with the central bank overseeing their issuance, regulation, and redemption.

CBDCs leverage advanced digital technologies, such as blockchain or distributed ledger technology (DLT), to provide a secure and efficient means of transferring value. This technology ensures transparency, traceability, and integrity of transactions while maintaining central bank authority and regulatory oversight.

Benefits of Central Bank Digital Currencies (CBDCs)

Enhanced Financial Inclusion: CBDCs have the potential to extend financial services to unbanked or underbanked populations. With CBDCs, individuals without traditional bank accounts can access digital wallets directly provided by central banks, enabling them to participate in the digital economy and gain access to essential financial services.

Efficient Cross-Border Transactions:

CBDCs can streamline cross-border transactions by reducing intermediaries and associated costs. With the instantaneous nature of digital transactions, CBDCs have the potential to enhance the speed, transparency, and efficiency of international money transfers, benefiting businesses and individuals alike.

Improved Monetary Policy Implementation:

CBDCs provide central banks with greater control and visibility over the monetary system. The digital nature of CBDCs enables real-time data analysis, facilitating more effective policy implementation and economic decision-making. Central banks can respond swiftly to changing economic conditions, making monetary policy more agile and targeted.

Strengthened Security and Financial Integrity:

CBDCs offer enhanced security features that help combat illicit activities such as money laundering and fraud. The use of advanced cryptographic techniques and immutable transaction records on a distributed ledger ensures the integrity of CBDC transactions, reducing the risk of counterfeiting and unauthorized access.

Considerations and Challenges

While CBDCs hold great promise, their implementation presents certain considerations and challenges that require careful evaluation:

Technological Infrastructure:

Deploying CBDCs requires robust technological infrastructure to handle large-scale transactions securely and efficiently. Central banks must ensure that the underlying technology is scalable, resilient, and capable of accommodating the needs of a digital payment ecosystem.

Privacy and Data Protection

Balancing privacy and security is a crucial aspect of CBDC implementation. Central banks must establish robust data protection frameworks to safeguard individuals’ financial information while complying with regulatory requirements and preventing illicit activities.

Interoperability

Achieving interoperability between different CBDC systems and existing payment infrastructures is crucial for seamless cross-border transactions. Collaboration among central banks and international regulatory bodies is essential to establish interoperability standards and protocols.

User Adoption and Education

The successful introduction of CBDCs relies on user adoption and acceptance. Educating the public about the benefits, functionality, and security features of CBDCs will be essential to build trust and encourage widespread adoption.

7. Security Through AI and Machine Learning

Given the amount and variety of fraud retailers face, businesses must rely on AI and machine learning to enhance their security measures. AI and machine learning monitor for real-time fraud indicators and decline transactions as appropriate, and provide insights into trends in fraudulent transactions.

Payment processing companies are advancing to include real-time analysis of transactions to look for fraud and provide valuable insights to retailers. For businesses of any size, using machine learning to evaluate the massive quantities of data from transactions helps to optimize operations and work proactively against fraud.

One of the key payment trends to watch in 2023 and beyond is the integration of digital payments with emerging technologies. For example, the adoption of artificial intelligence (AI) and machine learning in payment processing is revolutionizing fraud detection and prevention.

AI algorithms can analyze vast amounts of data in real-time, identifying patterns and anomalies that may indicate fraudulent activities. By leveraging AI-powered solutions, businesses can enhance security measures and protect both themselves and their customers from potential threats.

Final Words

In the era of speed and convenience, innovations in payment processing are foundational to the customer experience. The adoption of an integrated payment platform, such as Stax, provides a secure and scalable way to serve customers. Helpful analytics and 24/7 support mean your business can rest assured that you and your customers receive best-in-class service.

Just as there are many options available to customers for their shopping needs, there are options in choosing your payment processor. Stax operates without hidden fees, contracts, or markups. Our integrated payment system has solutions for every business and works with existing software applications seamlessly – saving your business time and money.

From small businesses to large enterprises, choosing the right provider for your payment processing needs is critical, as is the need to prioritize the customer experience.

With Stax, your business and your customers experience innovative and scalable payment solutions with award-winning service. Get in touch with us to learn more.

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FAQs About Payment Trends

Q: What are payment trends, and why are they important?

Payment trends refer to the evolving methods, technologies, and consumer behaviors that shape how transactions are conducted and processed. Staying informed about payment trends is crucial for businesses to adapt, enhance customer experiences, and remain competitive in the ever-changing landscape of the payments industry.

Q: What are the top payment trends to watch?

The top payment trends to watch include:

  1. Rise of digital wallets and mobile payments
  2. Expansion of contactless and biometric payments
  3. Growth of peer-to-peer (P2P) and instant payments
  4. Integration of blockchain and cryptocurrencies in mainstream transactions
  5. Adoption of Central Bank Digital Currencies (CBDCs)
  6. Advancements in voice-activated and Internet of Things (IoT) payments
  7. Increased focus on security and fraud prevention measures

Q: How will digital wallets and mobile payments shape the future of transactions?

Digital wallets and mobile payments offer convenient, secure, and contactless options for consumers to make purchases and transfers. These methods eliminate the need for physical cards or cash and provide seamless integration with smartphones, making transactions quick and easy. They are expected to become increasingly popular, driving the shift towards a cashless society.

Q: What are contactless and biometric payments, and why are they gaining traction?

Contactless payments involve using cards, smartphones, or wearables near a contactless-enabled terminal to make a payment. Biometric payments use unique physical attributes, such as fingerprints or facial recognition, to authorize transactions. These methods enhance convenience, speed, and security, reducing the need for physical contact and improving the overall payment experience.

Q: How do peer-to-peer (P2P) and instant payments revolutionize money transfers?

P2P and instant payments enable individuals to send money directly to others quickly and effortlessly, often in real-time. These payment methods are reshaping the remittance industry, simplifying bill splitting, and facilitating transactions between friends, family, and businesses. They eliminate the need for traditional intermediaries and offer immediate access to funds, enhancing financial inclusion and transaction efficiency.

Q: What role do cryptocurrencies and blockchain play in future payments?

Cryptocurrencies and blockchain technology provide secure, decentralized, and transparent transactions. With growing acceptance, cryptocurrencies like Bitcoin and Ethereum are being integrated into mainstream payment systems, enabling faster cross-border transactions and reducing costs. Blockchain, the underlying technology, ensures trust, immutability, and accountability in financial transactions.

Q: How will Central Bank Digital Currencies (CBDCs) impact the future of payments?

CBDCs are digital representations of traditional fiat currencies issued and regulated by central banks. These digital currencies have the potential to streamline payments, enhance financial inclusion, and improve monetary policy implementation. CBDCs aim to combine the benefits of digital payments with the stability and oversight provided by central banks, revolutionizing the way we transact and exchange value.

 

What are the Different PCI Compliance Levels and What Do They Mean?

Small or large, tech company or not, gathering customers’ payment card data is a standard part of conducting business today. Almost everyone pays by debit, prepaid, or credit card, and every card transaction uses the customer’s credit card information to process the purchase. Like it or not, the onus is on merchants to comply with the standards that keep this information safe.

That’s where the Payment Card Industry Data Security Standard (PCI DSS) comes in. However, not all PCI compliance levels are created equal. It’s essential to educate yourself on these levels so you can make an informed decision on which payment provider to choose. 

TL;DR

  • PCI DSS compliance is not optional. The onus is on merchants to comply with the standards that keep this information safe.
  • The PCI Security Standards Council recognizes four levels of compliance based on the number of transactions an organization processes in a year.
  • The consequences of non-compliance with PCI DSS can be severe. If you experience multiple data breaches, you could be facing multiple fines. Thankfully, credit card transactions require merchant services to be processed. The right payment processing partner is the simplest way to meet the requirements.

A Brief Background on PCI DSS Compliance

The PCI DSS is a set of requirements that organizations must follow to ensure the safety of stored cardholder data. This standard is managed by the PCI Security Standards Council (PCI SSC), which was founded in 2006 by American Express, Discover Financial Services, JCB International, MasterCard, and Visa Inc.

The requirements are divided into six categories, each designed to protect a different area of customer data:

  1. Build and Maintain a Secure Network: This category includes requirements for firewalls and other security measures to protect cardholder data from cyberattacks.
  2. Protect Cardholder Data: This category includes requirements for encrypting sensitive information and creating policies and procedures to prevent the misuse of data.
  3. Maintain a Vulnerability Management Program: This category includes requirements for identifying and addressing security vulnerabilities.
  4. Implement Strong Access Control Measures: This category includes requirements for restricting access to cardholder data and tracking user activity.
  5. Regularly Monitor and Test Networks: This category includes requirements for monitoring networks for suspicious activity and regularly testing security systems and processes.
  6. Maintain an Information Security Policy: This category includes requirements for developing and distributing a written information security policy.

Although the credit card companies jointly founded the PCI SSC, it’s important to know that each credit card company has its own program for ensuring compliance with the PCI DSS. MasterCard, for example, brands its program as “Site Data Protection” (SDP). All small business owners should review the individual credit card brand programs to meet their standards.

Regardless of the differences, one thing is universal: PCI DSS compliance is not optional.

Any organization that processes, transmits, or stores credit card data must comply with the standard. This includes eCommerce transactions and in-person brick-and-mortar businesses, and any organization that uses a third-party service to process credit card data on its behalf.

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Understanding the 4 PCI DSS Compliance Levels

The PCI Security Standards Council recognizes four levels of compliance based on the number of transactions an organization processes in a year:

Level 1: >6 million transactions per year

Level 2: 1-6 million transactions per year

Level 3: 20,000-1 million transactions per year

Level 4: Fewer than 20,000 transactions per year

The requirements for each level are almost the same. The main difference is the number of requirements that must be met and the level of detail required in the documentation.

PCI Compliance Level 1:

Level 1 businesses must complete an annual Report on Compliance (ROC) documenting their compliance with all 12 PCI DSS requirements. The 12 requirements are:

  • Implement the right firewall configurations to protect data
  • Replace vendor-provided passwords
  • Safeguard stored data
  • Ensure that cardholder data is encrypted when transmitted across open, public networks
  • Keep anti-virus software or programs updated regularly
  • Develop and maintain secure systems and applications
  • Restrict access to data by business need-to-know
  • Ensure each person with computer access has a unique ID
  • Restrict physical access to data
  • Monitor access to network resources and cardholder data 
  • Regularly test security systems and processes
  • Develop a policy for employees and contractors on how to protect data

In addition, Level 1 businesses must:

  • Undergo an annual on-site assessment by a Qualified Security Assessor (QSA)
  • Submit their ROC to the credit card brand they use for processing
  • Complete annual penetration testing
  • Be prepared to provide documentation of their PCI DSS compliance upon request.

PCI Compliance Level 2:

Level 2 businesses must complete an annual Self-Assessment Questionnaire (SAQ) documenting their compliance with all 12 PCI DSS requirements. The 12 requirements are the same as those for Level 1 businesses.

In addition, Level 2 businesses must:

  • Undergo an annual on-site assessment by a Qualified Security Assessor (QSA), Internal Security Assessor (ISA), or Internal Auditor to be submitted to the acquiring bank
  • Submit their SAQ to the payment brand they use for processing
  • Be prepared to provide documentation of their PCI DSS compliance upon request.

PCI Compliance Level 3:

Level 3 businesses must complete an annual Self-Assessment Questionnaire (SAQ) documenting their compliance with 10 of the 12 PCI DSS requirements. The 10 requirements are:

  • Implement the right firewall configurations to protect data
  • Replace vendor-provided passwords
  • Safeguard stored data
  • Ensure that cardholder data is encrypted when transmitted across open, public networks
  • Use and regularly update anti-virus software or programs
  • Develop and maintain secure systems and applications
  • Restrict access to data by business need-to-know
  • Ensure each person with computer access has a unique ID
  • Restrict physical access to data
  • Track and monitor all access to network resources and cardholder data.

In addition, Level 3 businesses must:

  • Undergo an annual network vulnerability scan by an Approved Scanning Vendor (ASV)
  • Submit their SAQ to the credit card brand they use for processing
  • Be prepared to provide documentation of their PCI DSS compliance upon request to the acquirer.

PCI Compliance Level 4:

Level 4 businesses must complete an annual Self-Assessment Questionnaire (SAQ) documenting their compliance with all 12 PCI DSS requirements. The validation requirements are the same as those for Level 1 businesses.

In addition, Level 4 businesses must:

  • Submit their SAQ to the credit card brand they use for processing
  • Be prepared to provide documentation of their PCI DSS compliance upon request.

The table below summarizes the main differences between the PCI compliance levels:

PCI Compliance Level Documentation requirements On-site assessment?
Level 1  Detailed  Yes
Level 2  Detailed  Yes
Level 3  Less detailed  No
Level 4  Less detailed  No

As you can see, the main difference between the levels is the documentation requirements and whether or not an annual on-site assessment is required. Level 1 businesses have to meet all 12 PCI DSS requirements and provide detailed documentation, while Level 4 businesses only have to provide documentation for their compliance with all 12 PCI DSS requirements.

Regarding the Self-Assessment Questionnaire, there are a number of different types, from SAQ A to SAQ D, and various in between. These differ depending on the types of transactions most commonly accepted. For example, eCommerce businesses would have a different questionnaire for merchants who process mostly card-present in-person payments. The PCI SSC has a detailed document defining these differences.

What Happens if You Don’t Comply with PCI DSS?

The consequences of non-compliance with PCI DSS can be severe. If you are a Level 1 merchant and you experience a data breach, you could be fined up to $500,000 by the credit card brands. You may also lose your ability to process credit card payments, which could put you out of business.

If you are a Level 2-4 merchant and you experience a data breach, you could be fined up to $50,000 by the credit card brands. You may also lose your ability to process credit card payments, which could put you out of business.

It’s important to note that the fines are per incident, so if you experience multiple data breaches, you could be facing multiple fines.

How To Determine the Appropriate Merchant Level

To figure out the appropriate PCI DSS compliance level for your business, you will need to answer the following questions:

  • Do you store credit card data?
  • Do you transmit credit card data over public networks?
  • Do you have more than 6 million credit card transactions per year?

If you answer “yes” to any of these questions, you must comply with PCI DSS. This means completing a Self-Assessment Questionnaire (SAQ), Attestation of Compliance Form (AOC), and quarterly network scan.

The Self-Assessment Questionnaire (SAQ) will help you determine the appropriate compliance level. But this is also easily answered by reviewing your credit card transactions. You need to know your transaction volume. How many credit card transactions does your business process in a year?

More than 6 million transactions is Level 1. Between 1-6 million transactions is Level 2. 20,000-1 million transactions per year is Level 3. And fewer than 20,000 transactions will make you Level 1.

How Service Providers Help Merchants Comply

Credit card transactions require merchant services to be processed. No merchant can do this without a payment processing partner. Thankfully, that means much of those compliance requirements are taken care of by your processor. Not you directly.

Your responsibility is to ensure the processor you’re working with is PCI compliant. The most efficient way to do that is by asking for documentation to confirm that they are. Once you have a PCI-compliant provider in place, you should have a contract that outlines their responsibilities to remain that way.

It’s also advisable to perform due diligence on your service providers to make sure they are actually complying. This includes things like reviewing their security policies and procedures, as well as their network security infrastructure.

Bringing Your Business Up to Standard

The bottom line is that PCI compliance is important for any business that processes credit card payments. By understanding the different levels of PCI compliance and how they work, you can ensure your business is compliant and avoid any negative consequences of non-compliance.

The right payment processing partner is the simplest way to meet the requirements, remain compliant, and focus instead on running your business. Small and medium businesses don’t have the luxury of large departments to oversee these checks and balances.

Selecting a credit card processing partner you trust is essential. You want to look for:

  • A provider that uses the latest security technologies to protect your data.
  • A provider who continually monitors their systems for vulnerabilities and takes action to fix them.
  • A provider who is transparent about their compliance status and provides documentation to support their claims.

PCI compliance is a complex and ever-changing landscape. Your payment processor should be able to provide documentation at any time and answer any questions you have about their compliance status. If they can’t, it’s time to look elsewhere.

Stax is a PCI-compliant payment processing company offering merchants simple, transparent pricing, no contracts, and no hidden fees. Let us help you deliver first-class credit card payment solutions that save you money and keep you PCI-compliant. Contact our team today.

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What’s the Difference Between Authorize and Capture? A Guide For Merchants

It’s no secret that credit card processing can be quite complex to understand. It involves everything from the need to maintain compliance with PCI standards and keep updated hardware and software, to staying up-to-date with payment trends and basic knowledge of the ins and outs of the transaction lifecycle. 

At Stax, we’re here to help merchants understand what they need to know about payment processing so you can get to business faster and focus on what matters most—your customers. One aspect of payment processing that creates confusion for many is the difference between authorization and capturing payments. While many merchants choose to process transactions instantly in a single step, there is another way to process transactions, called authorize and capture. 

TL;DR

This article explores the basics of authorization and capture—which are, at a glance:

  • Authorization and capture is a two-step process for completing credit card payments. Authorization ensures the account has sufficient funds and is in good standing by holding funds as pending without charging the card. Capture is the process of transferring funds from the customer account to the merchant account, moving it from pending to complete.
  • Many transactions transfer the charged amount from the customer’s account to the merchant account in one step. Authorize and capture payments work differently and can hold funds as pending before submitting the request to capture funds.
  • Businesses that use authorization and capture to hold funds in excess of the amount charged, or have a longer time for transaction processing, should disclose the terms clearly to their customers to avoid confusion and poor customer service experiences.

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Authorize and Capture Defined

Once a transaction is initiated, there are two additional steps for authorize and capture transactions to take place—and you probably guessed them: authorize and capture.

Authorization occurs when the merchant initiates a charge to a customer’s card at checkout, either online or in person. During this process, the payment processor checks with the cardholder’s bank to ensure the account has sufficient funds and is in good standing. If the account meets the criteria, the transaction amount is held pending. Pre-authorizing a card before completing the transaction verifies the payment method is valid without charging the account and helps to prevent chargebacks which can be costly.

Capture is the process by which the transaction is completed, and funds are withdrawn from the customer account, processed and transferred to the merchant account—moving the transaction status from pending to complete.

In sum, authorization and capture are two distinct parts of a transaction that first verify funds and then charge the customer for the transaction amount. Both are needed to process a transaction, and authorization is always the first step. However, there are some circumstances where the time between authorization and capture is extended—keep reading for examples of this process in action

Steps Needed in the Authorization and Capture Process

Many transactions appear to transfer the charged amount from the customer account to the merchant accounts in one step (though there is still a lot happening behind the scenes). Authorize and capture payments work a little differently since the authorization step holds the funds as pending before the capture request is made to finalize the transaction. There are essentially three steps for authorize and capture transactions.

Step 1: Create the payment

The first step is to initiate a transaction using the payment application programming interface (API). If your business has the functionality to process authorize and capture transactions, this will be a seamless function at the point of sale. With Stax Pay, we make it easy by allowing you to simply check a box that enables preauthorization and go back later to capture and settle the transactions.

Step 2: Request for authorization

Once the transaction is initiated, the merchant’s payment gateway will contact the issuing bank of the customer’s payment method to hold the funds. The amount of time a transaction can spend in the authorization stage will also depend on your payment processor as well, so be sure to check with your processor for additional details. The maximum amount of time funds can be held is 30 days, after which the request for authorization will expire, and a new authorization will be needed. At Stax, merchants have up to 10 days to request the capture and finalize the transaction.

Step 3: Capture funds

Once the card is authorized, and the transaction is ready to be completed, the capture request is issued to transfer funds from the customer’s bank to the merchant account. After the funds are captured, the transaction is complete.

Examples of Authorization and Capture in Action

There are a few ways authorize and capture work in action that can apply to different types of business. While many transactions authorize and capture in one fell swoop at checkout, especially with brick-and-mortar merchants, there are several transaction types where the capture process takes place days or weeks after the authorization. 

One example of this is an eCommerce order where the merchant does not have the merchandise available to ship immediately, but will in a short amount of time, such as a pre-order. In this case, the pre-authorization is initiated at the time of the transaction. Once the goods are available to ship, the capture request is issued, and the credit card is charged. 

Another example of authorize and capture in action that many people have experienced is checking into a hotel. Upon check-in, an authorization-only request is used to verify the customer’s credit card, and usually, the amount of the authorization is greater than the final total because it includes charges for incidentals or damages. That amount is held until checkout when the customer settles any charges—meaning that pre-auth and capture take place several days apart depending on the length of the stay.

In any case of authorization and capture, it is important to make sure the customer is aware of the pending charge, whether for the full amount or in excess of the transaction amount as described in the hotel example. Clearly communicating with your customers on what to expect will mitigate service issues and inquiries before they arise and is always a best practice.

Final Thoughts

Accepting debit and credit card payments is just one of many ways Stax can support your business’ payment processing needs, which includes the ability to pre-authorize transactions.

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FAQs about Authorize and Capture

Q: What is the difference between authorization and capturing in payment processing?

Authorization and capture are two key aspects of payment processing. Authorization is the process of verifying the availability of funds and the good standing of a customer’s account. This is done by holding the transaction amount as pending in the account without actually charging the card. Capture, on the other hand, is the step where the transaction is finalized, and funds are withdrawn from the customer’s account and transferred to the merchant’s account. The transaction status changes from pending to complete during this process.

Q: Can authorization and capture take place at different times?

Yes, there can be a time difference between authorization and capture. For instance, in an e-commerce order scenario where the product is not immediately available for shipment or in a hotel where check-in is completed in advance, the authorization can be initiated, and the actual capture can take place later when the goods are ready to ship or after hotel checkout.

Q: What are the benefits of using authorization and capture in payment processing?

One significant benefit of using the authorization and capture method in payment processing is that it provides an additional layer of protection to all parties involved. Merchants can verify the validity of payment methods without charging them, helping to prevent expensive chargebacks. Additionally, customers are protected as their cards are not charged until the transaction is ready to be completed.

Q: What is the process of authorization and capture?

The authorization and capture process involves three key steps: initiation of the transaction using a payment application programming interface (API), request for authorization from the customer’s bank that holds the funds, and finally, the capture of funds wherein the transaction moves from pending to complete as the funds are transferred from the customer’s bank to the merchant’s account.

Q: Is it necessary to inform customers about the authorization and capture process?

Yes, it’s crucial to communicate transparently with customers about the authorize and capture mechanism to avoid confusion and potential customer service issues. This is especially important if a transaction involves holding funds in excess of the actual amount charged, as seen in hotel check-in scenarios.

Q: Can the time period between authorization and capture be extended?

While the exact timeframe can vary depending on your payment processor, the maximum amount of time funds can be held is typically 30 days. After this period, the authorization request expires and a new one is needed.

Q: What is the role of the payment gateway in the authorize and capture process?

In the authorize and capture process, the payment gateway plays a crucial role. After the transaction is initiated, the payment gateway contacts the customer’s issuing bank to hold the pending funds. Later, a capture request is issued to transfer the funds from the customer’s bank to the merchant’s account.

Q: Is it possible to have authorization and capture in a one-step payment process?

Many transactions appear to conduct the authorization and capture in one step, but in reality, the same processes still happen behind the scenes. The difference with using authorize and capture explicitly is that the authorization step can hold the funds as pending for a certain period before the capture request is made to finalize the transaction.

 

NFC Security: How to Safeguard Near Field Communication Payments

Contactless payments are gaining popularity as consumers continue to seek convenient and secure payment methods. The technology behind contactless payments is near-field communication, a two-way encrypted way of transmitting payment information at the point of sale. This post explains how NFC contactless payments work and how retailers can ensure POS systems that process NFC transactions are secure from threats and compromises.

TL;DR

  • Near-field communication technology allows two devices in close proximity to each other—the card reader/POS and the NFC-enabled card or mobile device—to transmit payment information and process transactions.
  • To minimize security risks, you must choose a PCI-compliant payment processing system and keep your NFC payment infrastructure up-to-date.
  • All payment devices should be equipped with user authentication and access control to ensure sensitive information doesn’t fall into the wrong hands.

How do NFC Payments Work?

Near-field communication technology allows two devices in close proximity to each other—the card reader/POS and the NFC-enabled card or mobile device—to transmit payment information and process transactions.

There are two ways that NFC payments work: with mobile wallet apps, and with NFC-enabled contactless cards. With mobile wallets, such as Apple Pay, Google Pay and Samsung Pay, the user connects their card to the mobile wallet and uses their device at the payment terminal instead of their credit or debit card. NFC technology is also available with tap-to-pay card payments that work with the same technology as a mobile wallet at a payment terminal.

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What is the difference between EMV credit card payments and NFC card/mobile payments?

The EMV chip was introduced to credit and debit cards as a measure to improve payment security over the magnetic stripe, which was a frequent target of fraudsters. EMV chip card payments require the customer to insert their chipped card into the payment terminal for authentication during the transaction. EMV card readers only process payment information while the card is inserted. Nowadays, very few payment systems operate without the secure element of an EMV chip reader.

NFC technology is faster and simply requires customers to tap their NFC-enabled card or mobile wallet to the payment terminal, taking a fraction of the time for the payment processing to complete. The difference between the two is frequently explained as “tapping” for contactless cards and “dipping” for EMV chip payments.

NFC security: How Secure are NFC Payments?

NFC payments are even more secure than traditional EMV card transactions. And consumer awareness of the security of NFC payments is growing—in fact, a recent Harris Poll reported that 42% of consumers view tap-to-pay as the safest payment method.

One key reason is during the NFC debit or credit card processing period, the customer must be within inches of the payment terminal, and the actual transaction takes seconds to process. This means there is very little time or opportunity for interception.

Further, PCI-compliant and up-to-date software in NFC terminals transmit payment information that is two-way encrypted. Meaning that even if fraudsters attempt to intercept the information, the card information would be shielded.

There are a couple of additional security measures specific to mobile wallets, the first is card number tokenization. This means the credit card number in a mobile wallet is different than the physical card, making mobile wallet NFC payments even more secure for the customer.

Additionally, with mobile wallet payments, the customer must initiate the transaction on their payment device and provide multi-factor authentication, either with biometrics or a passcode. Because of these additional measures, a mobile wallet used for a tap-to-pay transaction is very secure; the main threats to this transaction type are compromises to the mobile device itself.

Security Threats to NFC Payments

The biggest threat to NFC payments is vulnerable hardware and software that fraudsters could target. Business owners should ensure the hardware and software used for payment processing are updated regularly and PCI compliant. Another related NFC security threat is an unsecured wireless network that can be accessed and used to collect payment and other sensitive information.

5 Tips to Prevent Security Risks when Accepting NFC Payments

There are several ways to prevent your payment systems from being compromised. Below are five tips to prevent security risks to your payment processing system.

Choose a PCI-compliant payment processing system that provides ongoing support  

Though the payment information is encrypted, NFC transactions transmit sensitive information that must be safeguarded. Choosing a payment processor that maintains PCI compliance for hardware and software is the foundation of thwarting fraudsters. Additionally, since hardware and software sometimes need maintenance and support, it must happen quickly to avoid downtime.

Stax offers the payment solutions your business needs, including PCI-compliant hardware and software and payment terminals enabled with NFC technology. Our solutions are scalable as your business grows and integrates between in-store and eCommerce transactions.

Should you need assistance at any time, we’re available 24/7 for customer support—and with a 95% customer satisfaction score, you can feel confident you will always have the support your business needs.

Keep your NFC payment infrastructure up-to-date

As mentioned earlier, out-of-date hardware and software and unsecured wireless networks are the biggest threats to payment security. Keeping your NFC payment infrastructure current means the payment terminals and software are updated and PCI compliant.

With Stax, you can rest assured that we will keep your technology compliant with the Payment Card Industry Data Security Standards (PCI DSS), an essential standard for preventing breaches and protecting sensitive information.

Enable authentication and access control with NFC payment gateways

Payment terminals, especially mobile POS systems, are a weak point if not protected. All payment devices should be equipped with user authentication and access control to ensure sensitive information doesn’t fall into the wrong hands. This includes the devices’ physical security, training employees to keep mobile POS systems secure, and enabling access controls to all payment terminals.

Make sure your NFC payments are encrypted

The transmission of payment information during an NFC transaction must be encrypted to most securely protect that data. Business owners should only choose a PCI DSS compliant payment processor that encrypts transaction information.

Develop a plan of action for a potential breach

It’s widely said that those who fail to plan, plan to fail. Though there are a number of best practices to protect your business, breaches still happen, and customer data can be compromised. When a breach happens, how a business responds can immediately affect revenue and customer trust. In such an event, it’s important to have a plan in place to mitigate any damage and communicate with affected people.

Developing a plan before something happens helps businesses respond faster, resulting in less downtime and financial loss. Communication and mitigation plans that are well developed also help to show customers that you value their trust and act in their best interest.

Final Words

There are many benefits to adopting NFC payments in your business. As NFC technology continues to gain traction in the marketplace, business owners should consider expanding their payment offerings to keep up with demand—and experience the benefits of accepting more payment types. Our integrated payment system has solutions for every business and integrations with the most popular software applications.

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FAQs about Near-Field Communication

Q: What is Near-Field Communication (NFC), and how does it work in payments?

NFC is a two-way encrypted technology that enables two devices in close proximity, like a card reader and an NFC-enabled card or mobile device, to transmit payment information and process transactions quickly. It forms the backbone of contactless payments.

Q: What are the different ways NFC payments can be made?

There are primarily two ways to make NFC payments: through mobile wallets such as Apple Pay, Google Pay, and Samsung Pay and through NFC-enabled contactless cards. Both these methods use NFC to transmit payment information to the payment terminal.

Q: How does NFC compare to EMV in terms of security and convenience?

NFC payments are faster and require simple tapping of the NFC-enabled card or mobile wallet to the payment terminal. While EMV cards improved the security of payments over magnetic stripes, NFC has further improved the speed and security. NFC is often deemed more secure due to the limited time and proximity required for the transactions.

Q: How secure are NFC payments?

NFC payments are typically more secure than traditional EMV card transactions. NFC payments need the customer to be within inches of the payment terminal, and the actual transaction takes seconds, limiting the opportunity for interception. All information is two-way encrypted, shielding it even if fraudsters attempt to intercept it.

Q: What are the additional securities in mobile wallets?

Mobile wallets add another layer of security to NFC payments through card number tokenization and multi-factor authentication, either through biometrics or a passcode. These features make mobile wallet NFC payments more secure for customers.

Q: What threats does NFC payment face?

NFC payments could potentially be compromised through vulnerable hardware and software or an unsecured wireless network. Business owners should ensure regular updates and PCI compliance of their payment processing systems to mitigate these risks.

Q: How can business owners ensure the security of their NFC payment system?

Business owners can ensure the security of their NFC payment systems by choosing a PCI-compliant payment processing system, regularly updating their payment infrastructure, enabling user authentication and access control, encrypting their NFC payments, and having a solid action plan in case of a potential breach.

Q: What plan of action should businesses have in case of a security breach?

Businesses should have a plan in place that can be quickly implemented to mitigate damage and initiate communication with affected parties in case of a security breach. Such a plan can help the business respond faster, reduce downtime, and maintain customer trust.

Q: What are the benefits of adopting NFC payments for businesses?

NFC payments are fast, secure, and convenient, making them highly attractive to consumers. By offering this payment option, businesses can keep up with payment technology trends, meet customer demands, and benefit from accepting a wider range of payment types.

 

A Guide to NFC Terminals: Overview, Security, and Our Top Picks

Gone are the days of “cash is king.” Studies show consumers now use credit cards for 57% of their purchases, up from 54% two years earlier. And due to the pandemic, cash accounted for 20% of payments in 2021, down from 26% in 2019, with 28% of people completely giving up on using cash.

But businesses aren’t only seeing a rise in debit or credit card payments. Recently, contactless payments using NFC technology have become increasingly popular. In fact, more than 80% of consumers have used NFC contactless payments, and 67% of retailers have provided at least one form of contactless payment in 2021, up from 40% two years prior.

While NFC payments are undoubtedly the latest evolution in accepting payment methods, many retailers and business owners may be unfamiliar with what exactly NFC transactions are and how they work. That’s why we’ve created this guide on what you should know about NFC terminals, including how they work, their advantages, and the top ones on the market.

TL;DR

  • NFC stands for “near field communication”; it’s a type of technology that lets two devices in close proximity to exchange data and communicate with each other.
  • In order for NFC payments to work, merchants need NFC-enabled point of sales/POS system (with wifi) and the consumer’s smartphone or card.
  • NFC payments are just as secure, if not more so, than paying using an EMV card.  

What are NFC Terminals and How Do NFC Payments Work?

NFC stands for “near field communication”; it’s a type of technology that lets two devices in close proximity to exchange data and communicate with each other. For NFC payments, the devices are the NFC point of sales/POS system (which must have wifi) and the consumer’s smartphone or card.

With a phone, the customer needs to start the payment process (usually by selecting the card from their digital wallet or holding their phone close to the NFC POS) and then authenticate the transaction. For example, on an iPhone using Apple Pay, this can be done using Touch ID or Face ID. The NFC technology then exchanges (encrypted) information between the phone and payment system to complete the transaction.

The process is similar when using a smart card: the customer simply needs to wave or tap their card on the NFC terminal, and the transaction will be completed. In some cases, the customer may need to confirm the transaction on the terminal, or enter their PIN code if it’s over a certain amount, but both methods take far less time than traditional payment methods.

It’s common for merchants or retailers to confuse NFC-enabled cards for EMV cards or RFID technology. While there is some overlap, it’s good to know the differences between them.

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EMV credit cards and payments vs. NFC cards and payments

  • EMV cards, which stands for Europay, Mastercard, and Visa, are chip-enabled credit cards (note that they’re not chip-and-signature cards). They allow users to dip their cards into a card reader and make payments, and are more secure than the older magnetic stripe cards.
  • Meanwhile, NFC payments allow customers to pay by simply tapping or hovering their card or smartphone near a payment terminal, using a form of RFID tech, and generally takes less time to complete a purchase.

RFID technology vs NFC technology

  • RFID stands for radio frequency identification and is a contact-free technology using radio waves to transfer data via tags or cards.

RFID tags typically communicate one-way only, usually from the tag to the reader, and cannot transmit large amounts of or complex data. That said, it has a range of a few hundred feet and is mostly used for access cards or in warehouse inventory and asset tracking.

  • NFC technology uses a subset of RFID technology, operating on one of the same frequencies RFID tags use. It allows for two-way communication and can transmit more complex information, making it ideal for NFC payments, but has a very limited range, or proximity, of under four inches.

Why Businesses Should Use NFC Mobile Payments

Retailers that don’t keep up with evolving consumer demand may find themselves losing customers and revenue, so it’s imperative to stay ahead of the curve, especially with studies projecting that 87% of debit cards will be contactless by the end of 2022.

In fact, industry data shows that over half of Americans use at least one kind of contactless payment, and 51% of consumers either use cash less or not at all.

Another factor to consider is speed: all the buyer needs to do is wave or tap their card, significantly streamlining up the purchasing process, which improves the buyer’s experience. Plus, it can help make your business’ operations more efficient, particularly if you have a high amount of transactions.

There’s also a major advantage we haven’t spoken about yet that we’ll get into in the next section: security.

How Secure Are NFC Terminals?

Good news: NFC payments are just as secure, if not more so, than paying using an EMV card. In fact, there are three key features in particular where NFC terminal security shines.

Proximity

As mentioned earlier, NFC cards only work in a range of under 4 inches. This makes it hard for hackers or fraudulent users to intercept your transmission, as they would need to be in that range to do so.

User initiation

To complete an NFC transaction, the buyer needs to start the process by bringing their card close to the NFC terminal, or opening their mobile wallet app (like Samsung Pay). This means a hacker can’t trigger a fraudulent transaction remotely. Additionally, most phones require an additional form of authentication, such as a fingerprint, PIN code, or facial recognition.

Secure element validation

Just like EMV cards are validated each time a transaction is made through the chip, NFC payments have a similar process. The smart card will validate the transaction and cardholder’s identity after establishing a connection using the Secure Element chip, while digital wallets use tokenization for extra security.

What Are the Best NFC Terminals On the Market?

There’s no shortage of available NFC POS systems available on the market, all with different features, selling points, and advantages. No idea where to start? Here’s our pick of the top 5 NFC terminal providers available today.

Stax

If you’re looking for an all-in-one payment processing platform, look no further than the contactless payment solutions at Stax. Whether you’re a medium- or large-sized business that needs NFC terminals, we provide the hardware and software to streamline your checkout process and payments reporting, all while providing world-class security.

And since Stax Pay comes with transparent, straightforward pricing, you’ll never be hit with unexpected fees when you let us help you modernize your business.

Square

Square is a popular credit card processing alternative for smaller businesses, as they offer low rates, a free POS app, and flat-rate pricing models for their Square Credit Card Reader. However, there are no discounts for higher-volume businesses, so it might not be the best choice in the long run as your business grows, and there have also been some complaints of users having their funds placed on hold.

SumUp

SumUp offers easy-to-use NFC card readers at extremely low prices and no ongoing costs. It’s one of the most popular options for contactless payments for micro-businesses, especially in international markets. However, in exchange for their low prices, they offer limited customer service, and their overall ranking online from reviewers is rated “poor.”

PayPal

PayPal also offers an NFC card reader through PayPal Zettle, targeted at early-stage businesses with low fees and quick setup times. There’s no long-term contract, but they charge substantial transaction fees, and don’t offer 24/7 live support, which could be a deal breaker for some businesses.

PayAnywhere

Offering a wide range of POS features for online or in-person payments, PayAnywhere is a popular option for low-volume businesses with low fees and a free reader. Their focus is on contactless and EMV payments, but they charge fairly high transaction fees and aren’t the best option for higher-volume merchants. Plus, they have fairly low online reviews, so that’s something to take into consideration.

Wrapping Up

It’s undeniable that allowing your customers to make NFC payments when checking out offers a more seamless purchase experience, all while futureproofing your organization. By finding the best NFC card reader and payments provider tailored for you, you’ll be able to grow and scale your business for the long run.

Stax’ contactless payment solutions help businesses of all sizes modernize their business in no time. With Stax Pay, you get an all-in-one online and touch-free payments solution provider with upfront and transparent pricing. To get an NFC reader contact us today and we’ll walk you through your options.

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How to Get a Credit Card Machine for Small Business

Are you looking to accept credit or debit card payments for your business? While the process may appear difficult, small business credit card processing is easier than it sounds.

Credit card usage has been on the rise, and this trend isn’t showing signs of slowing down. As of 2020, 79% of American consumers had at least one credit card or charge card, and experts are expecting that number to continue to grow.

Needless to say, small business owners that don’t accept credit cards are leaving a lot of money on the table. If you want to keep up with modern consumers, you need to ensure that you have the systems in place to accommodate their payment needs.

Doing that starts with evaluating different credit card processing services and selecting the right solution for your business.

Credit Card Payments and Your Business

One of the first steps to getting started with credit card processing for businesses is determining your specific needs. Ironing out your requirements will make it easy to evaluate credit card processing companies and figure out the best option for your business.

To that end, below are some helpful questions that can surface your business needs.

What Types of Credit Card Brands Do You Want to Accept?

Understanding what debit card and credit card brands to accept is very important for your business and customers. Credit cards contain their own unique set of rates and interchange fees which can be costly. As a business owner, you pay for the convenience of accepting a chosen payment method in order to accommodate the interests of your customers. Visa and Mastercard are standard, but then you also have American Express and Discover.

It’s important to note that each of these card networks have varying processing fees and policies, so be sure to consider them when deciding on the credit card types to accept.

How Will You Accept Payments?

List the methods you’ll use to accept card payments. Are you accepting in-person payments or online? Will you be accepting mobile payments or contactless payments like Apple Pay? Do you plan to take credit card payment info over the phone? What about online payments?

The answers to these questions will enable you to figure out what hardware and software you need to effectively set up and take credit card payments. For example, if you’re a large retail business that focuses on in-store transactions, then having a robust pos system that integrates with your credit card processor and credit card machines is a must.

If you’re selling online, see to it that your payment processor integrates with your e-commerce shopping cart.

There are many credit card processing solutions you can choose from. Depending on the industry, some payment types will serve as a default with additional options to expand payment collection methods from customers. Customers can make payments on your website or through a POS terminal next to the cash register.

You can process payments on your smartphone with a mobile card reader or you can type payments into a virtual terminal. Payment preferences are continuously changing so it’s important to know how customers want to pay as well as how your business wants to charge.

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How Much Sales Volume Do You Expect to Be Credit Card Transactions?

The number and amount you process are major factors that credit card processing companies consider when setting your rates. As such, you should understand your transaction volume before hunting for a merchant account service.

Step 1: Choose the Right Payment Gateway

The first step to small business credit card processing is setting up a payment gateway account— which is different from a merchant account provider. All your transactions, no matter what type, are channeled through a payment gateway. The payment gateway’s role is simply to decline or approve a transaction. Here’s a look at how payment gateways work:

  • The customer goes through the checkout process and pays for a good or service with their credit card.
  • Next, the authorization needs to be checked. The payment gateway service sends the transaction data to the merchant bank’s processor, who then routes the transaction data to the cardholder’s bank account.
  • The transaction now needs to be verified. The cardholder’s bank will either approve or decline the transaction. Then it will pass that information back to the credit card processors. The processor then passes the information to the cardholder and the merchant.
  • For a card that was accepted, goods or services are delivered. The transaction is completed.
  • The customer’s bank sends the required funds to the credit card processor. The processor forwards the funds to the merchant’s bank. Once you research the different payment gateway options available to you, contact the one that’s right for your business to get started. Be sure to look for the following features when choosing a gateway account for your business.
  • PCI DSS compliant
  • SSL (Secure Socket Layer)
  • eCommerce integration
  • Report generation
  • Customer support

Step 2: Set Up Your Merchant Account

The second step to processing and card machines for small business is choosing a merchant account provider (your payment processor). This involves thorough research into the best credit card processor for your business. Be sure to review not only the credit card processing fees from the payment processor, but also the overall pricing structure.

Some gateway service providers also include merchant services, but you should shop around before settling on that option. You should also note that some payment processors actually have gateway services of their own or have partnerships. It is important to find the right credit card processor for your transaction needs.

You want to find a payment processor that has all the credit card processing solutions you need to make transactions, and you want the best rates for their services.

How To Get A Credit Card Machine For Small Business | Person Using Pos System

Keep These Key Features in Mind When Choosing a Payment Processing Company

Not all payment processors are created equal. To figure out the right payment processing solution for your small business, be sure to take the following factors and features into consideration when researching a credit card processing company.

  • Digital application and rapid setup time. You operate in a fast-paced environment, so it’s important to partner with a payment processor that makes account and equipment setup quick and easy.
  • Favorable pricing structure and low transaction fees. Ask about the pricing model of your payment processor. How much is their markup? What processing fees do they charge? Ideally, your processor should offer transparent pricing and clear details about their rates. Or better yet, choose a payment processing provider that doesn’t take a cut out of your sales. At Stax, you are charged a flat monthly fee for unlimited access to the direct cost of interchange rates.
  • No ancillary or hidden fees (see below). Stay away from providers that tack on additional processing fees beyond credit card processing.
  • Fraud protection. You want a provider that looks out for you and helps prevent fraudulent transactions from taking place.
  • Supports the payment processing solutions you need.  Depending on your business, this may include integration with your POS system, EMV-compliant equipment, support for your shopping cart, POS terminal, virtual terminal, mobile card reader, etc.

Processing Fees You Should Avoid

  • Termination fees
  • Customer service fees
  • Statement processing fees
  • IRS fees
  • Batch processing fees
  • Annual processing fees
  • Contract fees
  • PCI compliance fees

Step 3: Accept Credit Card Payments

Once your merchant account is set up, you’re ready to accept credit card payments. This can be as simple as logging into a software product or entering your customer’s payment information.

In some cases, you’ll need to set up your equipment (i.e., POS system, credit card readers, etc.) Whatever credit card payments solution you choose for your business, it should be simple and easy to use.

If you don’t like the payment processor or the services you’re receiving after a few months, it should be easy to switch payment processors— unless you signed into a contract. Many contracts will have a hefty termination fee you have to pay in order to cancel. Try to get the fee waived or simply choose a credit card processor that doesn’t have contracts.

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FAQs About Getting A Credit Card Machine

Q: What is a credit card machine, and why do I need one for my small business?

A credit card machine, also known as a point-of-sale (POS) terminal, is a device that allows your small business to accept credit and debit card payments from customers. It is essential for modern businesses as it enables easy and secure transactions, expanding your customer base and increasing sales.

Q: How can I get a credit card machine for my small business through Stax Payments?

Getting a credit card machine through Stax Payments is simple. You can visit our website and request a call from our team once you provide some basic information about your business. Once registered, you can browse through our range of credit card machines and choose the one that best suits your business needs. Our team will guide you through the application process and provide assistance every step of the way.

Q: What types of credit card machines are available for small businesses at Stax Payments?

Stax Payments offers a variety of credit card machines to cater to diverse business needs. Our selection includes traditional countertop terminals, wireless terminals for mobility, virtual terminals for online transactions, and mobile card readers for on-the-go businesses.

Q: How secure are the credit card machines offered by Stax Payments?

Security is a top priority for Stax Payments. Our credit card machines are equipped with the latest encryption and compliance measures to protect your customers’ sensitive data. Rest assured that your transactions are safe and compliant with industry standards.

Ready to Set Up Credit Card Processing for Your Small Business?

If you’re looking for the perfect payment processing solutions for your small business, you’ve come to the right place. Stax Pay offers subscription-based integrated payment processing services at a direct cost— without any markups, ancillary fees, or contracts.

How to Implement Cashless Payments in Your Business

Significant advances in the fintech industry frequently introduce innovative new technology for payment methods, allowing consumers and businesses several cashless payment methods to consider.

While cash payments are still in use, we are moving closer to becoming a cashless society than ever before. With so many payment options available, small and medium-sized businesses are able to implement a variety of payment methods—offering secure and convenient solutions to their customers.

This post is dedicated to explaining cashless payments: what they are, the pros and cons, and how to implement them.

What are Cashless Payments?

Plainly stated, cashless payments include any mode of payment outside of paper or coin currency. While this does include payment methods such as the paper check and money orders, for the purposes of this post, we’ll spend most of our time discussing the most common and technology-centric cashless payment options.

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Cashless vs. Contactless Payments—What Is the Difference?

While sometimes used incorrectly and interchangeably, cashless transactions differ from contactless payments.

Contactless payments are defined as any transaction that is processed in a way that removes the physical interaction between the purchaser and the merchant. Examples include eCommerce and transactions processed with near-field communication (NFC), or radio frequency identification (RFID) technology—more on that later.

Essentially, all contactless payments are cashless, but not all cashless payments are contactless.

What Are the Different Types of Cashless Payments?

The list of cashless payment options continues to grow as new technology is created and consumer demand increases. Below are some of the most popular cashless payment options available.

Credit and debit cards

Unless you’re a truly cash-only business, accepting debit and credit cards is a standard for any sized business. This is the most frequently used and widely accepted cashless payment option available.

While credit cards have been in use for decades, another trend has emerged related to card payments: contactless credit and debit cards. Tap-to-pay is widely available and many newly issued cards are enabled with this technology.

One note of consideration is that while many businesses already accept credit and debit cards, the payment terminal needs to be enabled with contactless payment technology—meaning it may be time to upgrade hardware, or even your payment processor if you don’t currently support contactless pay.

ACH

For some businesses, accepting ACH payments can result in lower processing fees than credit cards and is a great option for recurring payments. This cashless payment option is completed through the Automated Clearing House network and processed by transmitting bank routing and account information between the payor and business.

This payment method is already widely in use, as this is the same system that 93% of Americans use to receive employer direct deposits. While not necessarily appropriate for a small retail business, this payment method makes a lot of sense in other sectors such as legal, healthcare, and more.

Checks

Paper checks, while antiquated, are still widely used and a cashless payment option. There are a number of downsides to accepting paper checks, including increased risk to the business and delayed processing time.

Mobile wallets

Mobile wallets have gained popularity in recent years, even more so since the pandemic caused a surge in demand for contactless options. Also referred to as digital wallets, this payment method connects the user’s credit and debit cards to an e-wallet which can be used for eCommerce or near-field communication transactions (using the same technology as tap-to-pay). Another feature of making a mobile payment is the security—payments made through mobile wallets are two-way encrypted, making this a secure and convenient payment option.

Cryptocurrency

As the cryptocurrency market continues to grow, there is a lot of information to keep track of. Crypto payments have increased significantly in recent years, with some payment apps like PayPal integrating cryptocurrency trading and payments into their app. Additionally, crypto payments are accepted at some major corporations such as Expedia and Microsoft. While this may not be ideal for small-to-medium-sized businesses, if the market consolidates and stabilizes, this could be one to keep an eye on.

Payment apps

Payment apps, like Venmo, Cash App, PayPal and Zelle are another convenient way to accept payment, both online and in person. While many of these payment apps began as a way to conduct peer-to-peer payments, some businesses are able to easily implement some of these options into the point of sale.

A prime example is a rise in popularity of Apple Pay, Google Pay, Amazon Pay and PayPal to check out in many eCommerce transactions.

Buy now, pay later

Buy now, pay later (BNPL) is a cashless payment option that allows customers to spread out their payments into installments without a credit check. Popular apps include Afterpay and PayPal.

Depending on the BNPL provider, there are varying terms for purchase, but this is an excellent cashless option to increase the bottom line—in fact, a recent McKinsey survey found that 29% of BNPL users would have made a smaller purchase, or not at all, if this was not offered.

Pros and Cons of Cashless Payment Systems

Any business owner looking to evaluate payment options needs to consider the pros and cons of which cashless payment options to offer to their customers. Below is a list of some of the pros and cons to consider.

Pro: cashless payments can increase revenue

Businesses with limited payment options or those that only accept cash transactions are almost certainly leaving money on the table. Because cashless and digital payments dominate the payments industry and are preferred by many customers, making options available can increase sales.

Pro: cashless transactions can shed valuable insight

One advantage of cashless transactions is the data provided, allowing businesses to make more informed decisions. Unlike cash, digital and electronic can shed light on a wealth of information. You can link cashless transactions to customers or customer groups as well as analyze payment volume by time period or payment type.

Payment analytics solutions, like those provided by Stax, help businesses stay on top of trends, keep close tabs on essential metrics, and make data-backed decisions.

Pro: increased efficiency during checkout

Some of the more popular cashless payment options are incredibly simple and fast to process. Consumers today seek out convenient and safe ways to make their purchases, and offering several options not only makes a customer more likely to purchase, it’s often faster than traditional payment methods.

Con: some businesses may struggle with the technological learning curve

Not every business or customer base is going to quickly adapt to cashless options. While the basics of debit and credit cards are commonly known, newer forms of payment like mobile wallets or payment apps may not be as easily adopted. With any new technology, there is a learning curve for both the business and the customer.

Con: businesses cannot accept cashless payments if there is an outage

While businesses can implement a variety of cashless options, if there is a system outage, cash is the only failsafe option. If a business chooses to go completely cashless, internet failures or technology issues mean there is no way to safely accept payment during an outage.

Con: cash is the only payment method that doesn’t charge fees

Any non-cash transaction comes with fees, so deciding to be fully or partially cashless means there will be fees associated with payment processing. However, these fees depend heavily on your payment processor and the costs should be carefully reviewed. Sometimes these fees can be mitigated—for example, credit card surcharging is one way to offset the costs of card processing.

Ready to Implement Cashless Payments?

Any size business—whether operating primarily as eCommerce, hybrid or primarily brick-and-mortar—needs a payment processor that is reliable and meets the demands of the business.

To implement cashless payments in your business, the first step is to choose a processor that is payment card industry (PCI) compliant and able to meet the hardware and software needs of your business. Stax can help your business accept a variety of contactless and cashless payment options.

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What is Business to Business ACH and How Does It Work?

No matter the industry, any company will have significant dealings with other businesses. Whether that is procuring goods or services from a supplier, or working with utility providers, business to business (B2B) transactions are a significant part of daily operations.

When it comes to paying these other businesses, many small businesses still use paper checks or card payments to purchase merchandise and supplies and to pay recurring bills. Though this gets the job done, there is another payment processing option small, medium and growing businesses should consider for their business to business transactions–ACH payments.

We often write about ACH payments and how it can save time and money and is a useful way to ensure recurring billing happens smoothly. Additionally, Automated Clearing House (ACH) payments are likely already in use if your business, in the form of direct deposit payroll.

That being said, while ACH payments certainly make things like customer subscriptions and bill pay easier, it’s worth noting that this payment method is also used in B2B settings. In fact, ACH payments can be massively beneficial given the high transaction values between businesses.

In this post, we’ll take a closer look at business to business ACH transfers. We’ll shed light on how they work and cover the basics of how your business can benefit from B2B ACH payments.

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What is Business to Business ACH?

We can break down business to business ACH payments into two categories:

ACH credits, which are funds added to the bank account of the recipient; and ACH debits, which are funds debited from the originator, or business that is making the payment.

These transactions are processed through the Automated Clearing House Network in the same way as business-to-customer transactions.

How Does B2B ACH Work?

There are four steps in business to business ACH transactions: authorization, transaction initiation, payment request, and payment processing.

These transactions are processed as follows:

  1. In the authorization stage, the transaction originator fills out a form authorizing the funds to be debited from their bank account. This form requires the payee to input their bank account number and routing number, along with other payment details.

In a B2B context, this could mean sending a business client an authorization form or a link to a portal where they can enter their banking information. Let’s say you’re a law firm that recently landed a corporate account.

You would need to interface with the company’s Accounts Payable department and ask them to provide the necessary info so you can initiate B2B ACH transactions.

  1. Next is transaction initiation, where the receiver sends the payment and banking information to the ACH provider or financial institution. This is known as the ODFI, or Originating Depository Financial Institution.

Let’s go back to the above example: when it’s time to initiate an ACH payment, the law firm transmits an ACH debit request to its bank, which is considered the OFDI.

  1. Then, the payment request is sent from the ODFI to the transaction payee’s bank, which is known as the RDFI or Receiving Depository Financial Institution.

In our example, the OFDI communicates with the RFID (the client’s financial institution) to pull the funds.

  1. Finally, the payment processing stage is where the RDFI confirms that sufficient funds are present in the originator’s account and proceeds to process the transaction.

Benefits of ACH Payments Over Credit Cards And Other Payments

There are several benefits of ACH payments, chief among them being faster delivery compared to a paper check, and lower credit card processing fees—both resulting in a cost-effective, faster payment option for businesses.

 

For businesses paying bills or ordering supplies and merchandise via paper check, processing times are much longer than with an ACH payment. Some ACH payments process the same day or within 1-2 business days.

 

This speed is important, particularly for businesses that want to be more agile. When you need to make fast decisions and get deals moving quickly, the rapid delivery of funds is a must.

 

There’s also the matter of processing costs. Transaction values are typically higher in the business realm, as companies tend to order higher volumes of merchandise and are more likely to purchase high-ticket services (e.g., consulting work, legal services, etc.).

 

Payment processing comes with a cost, but the good news is that the expenses that come with processing ACH payments are typically lower compared to methods like credit cards. (More on this below.)

 

Lastly, ACH payments can help B2B companies serve clients better, given the increasing popularity of the payment method. According to the National Automated Clearing House Association (NACHA), the organization governing ACH payments, there are an average of 1.4 million ACH transfers every day, a clear indication that check payments are no longer a popular payment method.

Costs Associated with Accepting ACH Payments

ACH transactions avoid the interchange rates associated with credit card payments and the high cost of wire transfers and are a less expensive option for your business. Most businesses pay just 1% per transaction (no matter the size) with a cap of $10. With Stax, ACH transactions cost $.29 on average and are ideal for high-value transactions.

 

Processing fees are much higher for credit and debit card transactions, and depending on the payment processor, can often be a percentage of the transaction amount. For a business making B2B purchases, often of a higher amount than a consumer transaction, these fees can really add up.

 

For businesses looking to implement business to business ACH payments, other benefits include ease of setting up recurring payments and a secure manner to process transactions. Many B2B transactions happen on a recurring basis, and with ACH payments in place, the headache of re-entering card information or updating the expiration date is a thing of the past.

 

ACH transactions are also notably more secure than other payment options; an estimated 75% of businesses have experienced check fraud—conversely, ACH payments are consistently ranked as one of the safest payment methods.

Disadvantages of Business to Business ACH Transactions

There is a clear business case for ACH transactions for B2B transactions. Frankly, there are very few actual “disadvantages” of offering this as an option for B2B transactions you accept and utilizing ACH transfers for remitting payments to other businesses.

 

One potential drawback is that not all businesses will accept and send payments through the ACH network, so consistent and universal adoption may be some time away. That said, it is still advisable to use this for billing and paying other businesses when possible. Your payment processor should have several payment methods available to your business if the receiving business does not accept ACH transfers.

How Can Your Business Implement ACH Processing?

 

To start remitting and receiving payments through the ACH network, choose a payment processor that can accept all forms of payment and integrate seamlessly into your business. There are many options out there when it comes to payment processing, so it’s important to choose a partner that can meet your current and future needs.

Stax is a subscription-based payment platform and can save your business time and hassle by accepting all payment types. With helpful resources and in-depth information, Stax can help you expand your payment processing options to include business-to-customer and business to business ACH transfers.

 

With Stax, business owners benefit from lower transaction fees and transparent pricing. Helpful dashboards help streamline your business operations and best-in-class technology allows you to process all payments easily and efficiently.

 

Accepting business to business ACH transfers is just one of the many ways Stax can help modernize, secure and grow your business.

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How to Process Keyed In Transactions

Credit card processing is a fairly complex topic, particularly since there are a lot of different ways to take a customer’s credit card information.

You can process credit card transactions online via your eCommerce store, in person, and over the phone.

Even in person, there’s more than one way to take the card. A customer can swipe, tap, or dip their card. They can even use a mobile wallet stored in their smartwatch. And of course, a service provider or accounts payable representative can always manually key in a transaction—which is what we’ll focus on today.

Keyed in transactions happen when you enter the credit card information manually into your credit card terminal or point of sale (POS) system. This is in contrast to swiped, dipped, or tapped methods, which can capture payment data when the card makes contact with the payment device.

How to Run a Keyed in Credit Card Transaction

Running keyed in transactions includes more work for your salesperson than other methods of credit card transactions, but it’s still quite easy. Exactly how the process goes will depend upon the particular software you are using. That said, the general steps are:

  • First, your salesperson will usually take the customer’s credit card to read. If they don’t take the card, they’ll have to collect the card information from the customer, as is the case when payments are made over the phone.
  • Next, they’ll select the manual option in your POS or payment processing software.
  • From there, the software will give them space to physically type the card number, along with the expiration date, and frequently the CVV security code. Depending on certain card data requirements, you may also be required to enter the zip code or full billing address associated with the card.
  • After that, the salesperson will have to move on to the next step as directed by the software. Often this step is running the transaction.

Finally, the payment system tokenizes the card information and forwards the data along to the bank to verify, then authorize the transaction. Once it’s authorized, the bank will disburse the funds to your merchant account and you can conclude the transaction.

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Why Do You Run Keyed In Transactions?

Keyed transactions happen for all sorts of reasons, the most typical of which is that your customer’s card isn’t swiping, dipping, or tapping correctly, so manual entry is the remaining option.

This is especially common for customers with older or well-loved cards.

The other reason you’ll run manual transactions is that you can’t swipe the card in real-time for technical or practical reasons. Some of these scenarios include:

  • When you have to take a sale over the phone. In this case, a customer will read you the card information that you then manually input.
  • You have salespeople or field service technicians who are equipped with a terminal and key in card information in order to collect payment and complete the transaction on site as soon as service is done.
  • You take written orders from customers and require they share their card information on the order.
  • You send out paper invoices and attach a payment form that customers can fill out and send back to you. This is a common case with many medical bills.

The Pros of Keyed in Transactions

Keyed transactions can be really useful for merchants, for two main reasons:

  • They provide you with the means to collect payments in the event that methods like swiping are not an option. Overall, keyed in payments can be part of a well-rounded system that gives you the flexibility to accept all forms of payments.
  • And they provide the customer with the convenience of getting their item easily, rather than having to run home for a different payment form.

Ultimately, a keyed in transaction enables you to provide excellent customer service so it’s an important tool in your arsenal.

The Cons of Keyed Transactions vs Swipe Transactions

That said, there are a number of downsides to consider when it comes to keying in a transaction.

Higher credit card processing costs

The biggest con is that keyed in transactions generally come with higher credit card processing fees than swiped transactions. They’re run as card-not-present transactions, which always increase the risk for fraudulence as scammers are able to make counterfeit credit cards that feature real card information.  As the bank is taking on more risk than a card-present transaction, they charge the seller higher fees to compensate.

Increased data security and liability risks

Manual transactions also increase your own liability in a few ways because it’s the least secure way to run a payment.

  • First, if it’s a fraudulent transaction, the bank shifts liability back onto the merchant for keyed in transactions. So you’ll be responsible for all the fees for a chargeback. (As a note, if you aren’t using updated hardware that’s EMV-compliant, you’ll face this level of liability now with all transactions.)
  • Second, it’s very easy for one of your employees to steal card information when they have such prolonged access to the card data especially if they’re writing the card information down.
  • Third, in the case of written card information, even with the most trustworthy employees around, if you don’t dispose of it correctly (shredding, for instance), anyone else can still get their hands on your customer’s card information now.

How to Reduce the Number of Keyed in Transactions in your Business

You likely won’t be able to rid your business of manually entered transactions entirely. Technology will fail at some point.

That said, there are a number of ways you can reduce the amount of keyed in transactions that occur at your store.

Train staff to request a secondary payment method for credit card payments rather than automatically switching to manual entry. Be sure to teach them methods of requesting that don’t fault the customer, so your staff isn’t inadvertently causing embarrassment. A good phrase is along the lines of, “Looks like our machine just doesn’t want to work with that card. Any chance you’ve got another we could try swiping?”

Utilize a virtual terminal when a customer places an order over the phone. Generally, this means you’ll send the customer a billing page or invoice online through your payment processor for them to enter the information. (Want to learn more? Here’s a complete guide to online invoicing.)

Regularly update all your credit card terminal hardware. If you’re finding that your customers’ cards commonly aren’t reading, the issue may well lie with your hardware rather than their cards.

Provide workers who go out in the field with a mobile POS, card reader, or payment app. While mobile card readers are quite cheap these days, if that’s out of budget you can use a solution like the Stax Pay mobile app, which lets users securely capture payment data without the need for extra hardware.

How to Lower Your Payment Processing Fees

If keeping your payment processing fees low is the ultimate goal, consider switching to Stax. Our subscription service plus 0% markup on direct-cost interchange fees includes keyed in transactions—so you actually don’t pay more when you have to manually enter a transaction!

Don’t cripple your business with credit card processing fees. Leverage Stax’s subscription-based pricing and improve your bottom line. Contact us to learn more.

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FAQs about Keyed In Transactions

Q: What is a keyed in transaction?

A keyed in transaction occurs when you manually enter a customer’s credit card information into your credit card terminal or Point of Sale (POS) system. This is the alternative to swiped, dipped, or tapped methods, which capture payment data when the card makes contact with the payment device.

Q: How do you run a keyed in credit card transaction?

To run a keyed in transaction, you first collect the customer’s credit card information, then select the manual option in your POS or payment processing software. You enter the card number, expiration date, CVV security code, and possibly the zip code or billing address associated with the card. The salesperson then completes the transaction as directed by the software. The payment system then tokenizes the card information and forwards the data to the bank for verification and authorization.

Q: Why are keyed in transactions necessary?

Keyed in transactions are necessary when a customer’s card isn’t swiping, dipping, or tapping correctly and manual entry is the remaining option. This might occur with older or well-used cards. Keyed transactions also occur when you can’t swipe the card in real-time for technical or practical reasons, such as over-the-phone sales, field service transactions, written orders, or paper invoices.

Q: What are the pros of keyed in transactions?

The advantages of keyed in transactions include the ability to collect payments when other methods aren’t available and the convenience they offer to customers. They are part of a well-rounded system that accepts all forms of payments and can help provide excellent customer service.

Q: What are the cons of keyed transactions vs swipe transactions?

Keyed in transactions typically involve higher credit card processing fees and increased data security and liability risks. They are processed as card-not-present transactions, which increase the risk for fraudulence, hence the higher fees. Moreover, liability shifts back onto the merchant for keyed transactions, meaning you’ll be responsible for all the fees for a chargeback.

Q: How can the number of keyed transactions be reduced in a business?

To reduce the number of keyed in transactions, you can train staff to request a secondary payment method first or use a virtual terminal for phone orders. Regularly updating your credit card terminal hardware can also help, as can equipping field workers with mobile POS or payment apps.

Q: How can payment processing fees be lowered?

To lower your payment processing fees, consider switching to a service like Stax that offers subscription-based pricing and doesn’t charge more for manually entered transactions.

Q: What are the security measures taken during keyed in transactions?

During a keyed in transaction, the payment system tokenizes the card information, which means it converts sensitive data into non-sensitive data, known as tokens, to ensure data security. The system then sends this information to the bank for verification and authorization.