How To Accept Online Payments

Today’s online payment solutions give your customers more options to pay whenever, wherever and however they choose, and the more online payment methods you offer, the more successful you can be. In fact, the 2024 issue of the Worldpay Global Payments Report found that, “by offering additional payment methods, merchants can set themselves apart from competitors." This can also allow them to target new customer segments. A competitive edge is just one of the many benefits of online payments for businesses.

Here are a few others:

Expanded customer reach; By accepting payments online, businesses can reach customers beyond their physical location, tapping into global markets and serving a broader audience.

Convenience for customers; Online payments provide convenience for customers, allowing them to make purchases from anywhere at any time.

Increased sales opportunities; The benefits of accepting online payments also include increased sales opportunities. With the ability to accept payments online, businesses can capitalize on impulse purchases and cater to customers who prefer the ease and speed of online shopping.

Streamlined payment process; Online payment systems automate the payment process, reducing the need for manual actions.

Enhanced security; Many online payment platforms offer advanced security features, such as encryption, tokenization and fraud detection, to protect sensitive financial information and prevent unauthorized transactions.

Faster cash flow; Online payments often result in faster cash flow for businesses, with funds deposited directly into their bank accounts, reducing the time between making a sale and receiving payment.

Access to valuable data; Online payment systems capture valuable transaction data, which businesses can analyze to gain insights into customer behavior, preferences and purchasing patterns.

Security considerations; Because you never see the physical credit or debit card during the transaction, the security behind online payments is especially important. When choosing a payment processor, be sure they offer the following security measures:

Secure transactions; When your customers pay online, their personal payment data is transmitted across the internet. Make sure your payment processor offers encrypted connections, like SSL/TLS, to ensure the safe transfer of this data.

Fraud prevention; Beyond data transfer risks, fraud can occur online, so you want to be sure your payment processor has advanced tools and verification methods like 3D Secure to help prevent fraud before it happens. Source

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Using Debit Cards

A debit card lets you pay with money that’s in your checking account. Debit cards aren’t the same as credit cards. Here’s how to know the difference.

What’s the difference between a debit card and a credit card?

When you open a checking account at a bank or credit union, you usually get a debit card. Debit cards look like credit cards, but they use money you already have. Credit cards use money you borrow.

With debit cards:

• You don’t get a bill every month. Money comes out of your checking account right away.
• You don’t pay extra money in interest.
• You don’t build a credit history.

With credit cards:

• You get a bill every month.
• You might pay extra money in interest if you don’t pay the whole bill every month.
• You can build a credit history if you pay your bill on time. It helps even more if you can pay the whole bill each month when it’s due.

Prepaid cards are a different kind of debit card. You buy a prepaid card and load money on it to spend. Many have extremely high fees.

When would I use a debit card?

Debit cards help you:

• buy things without using a check or cash
• get cash back when you buy something at a store
• get cash at an ATM
• Some debit cards are free to use, but some have fees.

What if I use all the money in my checking account?

Your debit card will be declined if your account doesn’t have enough money. You won’t be able to buy things. Some banks and credit unions have overdraft protection. This lets you use your debit card even when there’s not enough money in your account. But you might have to pay an overdraft fee and interest.

How can I keep my debit card safe?

Keep your debit card and PIN private. A PIN is a security code that you type in when you use a debit card. Never share your PIN or card numbers. If you lose your debit card, let your bank or credit union know right away. Ask them to cancel the card and send a new card. Ask your bank or credit union for account alerts by email or text. These remind you of how much money is in your account.

Your debit card use will show up on the statement you get every month from your bank or credit union. If you see a charge on your statement that you didn’t make, tell your bank or credit union right away. If you wait, you might not get your money back. Source

Network Tokenization 101

Today, network tokenization is crucial for businesses that accept card payments, whether online or in person. As a vital part of eCommerce fraud prevention, merchants must understand how these tokens work and simplify recurring payment processes while enhancing transaction security.

Tokenization has safeguarded digital payments since the mid-1990s, starting with the rise of online shopping. Early solutions replaced account numbers and other sensitive information with payment tokens, adding an extra security layer to secure payment pages. By the 2000s, merchants needed to simplify payments by connecting directly with their payment service providers, giving them more control over their customers’ payment experiences.Then, in 2014, modern network tokenization emerged, first used by digital wallet solutions to reduce the risk of data breaches. Card networks issued tokens to protect sensitive data for the first time, introducing global interoperability and dynamic security to help merchants stay ahead of emerging threats.

What is network tokenization?

Network tokens replace sensitive payment and card information throughout the transaction process. These digital payment tokens, unique and generated by card networks like Visa and Mastercard, serve as a secure proxy for sensitive data. They replace primary account numbers (PANs) and other sensitive details rather than being managed by merchants or their payment service providers (PSP).

Though often used interchangeably, network tokens and payment tokens serve different purposes. Network tokens are issued by card networks and are widely recognized across the entire payment ecosystem. In contrast, payment tokens encompass any tokens utilized in digital payments. There are several types of tokenization techniques, like payment gateway tokenization, PAN tokenization and PCI tokenization. That means network tokens are a type of payment token, but not every payment token is a network token.

Several key features define network tokens:

• They are created by card networks, not by merchants or payment processors.
• Each token is unique and linked to a specific customer and account number, making it useless if intercepted.
• Tokens are generated when customers start a transaction.

Network tokens can be used across channels and devices, providing more versatility than other payment tokenization methods. Unlike merchant or payment gateway tokens, network tokens are widely recognized across the payments ecosystem because they come directly from the card networks. A cryptogram – a security code – is typically included in each token transaction to authenticate the transaction. This means that if someone intercepts the token, it’s useless without the cryptogram, adding an additional layer of security to the payment process.

How does tokenization work?

All network tokenization processing occurs behind the scenes to facilitate frictionless payments for customers and enhanced transaction security for merchants. Tokenization begins when a customer initiates a transaction. Once they provide their payment details, information is sent to their card issuer, which generates a network token that is then shared with both the customer’s bank and the merchant’s PSP. Since the merchant can store this information to streamline and protect future transactions, network tokenization is sometimes called card-on-file tokenization.

Network Tokenization, Step by Step

Step 1; The customer enters their card details into the merchant’s system

Step 2; The merchant sends the request to the card network and requests a network token

Step 3; The card network works with the customer’s bank to approve or deny the request

Step 4; If approved, the card network generates a token and shares it with the merchant’s gateway

Step 5; The merchant stores the network token for future use

For example, if Jess saves her Discover card information in her account on an e-commerce site, the site can request a network token instead of the PAN. The next time Jess makes a purchase, the merchant submits the token and Discover maps it to Jess’ actual account information to complete the transaction.

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Credit Card Processing Company Pricing Structures

Credit Card Processing Company Pricing Structures

The most common payment processing models for small businesses include flat-rate fees, interchange-plus fees and tiered rates. Understanding the pros and cons of each is key to finding the best service and processing rates for your particular needs.

Flat-Rate Pricing

Flat-rate pricing is the simplest fee structure and typically charges one low rate for all credit card transactions, regardless of the type of card used. Many flat-rate processing services also provide free sales tools such as POS software, free card readers and integrated online gateways for e-commerce sales.

With flat-rate pricing, businesses pay one low rate based on the type of sale, with fees typically ranging from 2.5% plus 10 cents to 3.5% plus 30 cents per transaction. With flat-rate structures, in-person sales where the card is present have lower fees than online sales, but fees don’t vary based on card brands or rewards programs, plus you don’t have add-on fees for PCI compliance or monthly statements.

Flat-rate pricing can be a good option for businesses with low average transaction amounts, especially when considering free perks such as POS systems, online gateways and card readers. However, higher-volume sellers can save on credit card processing costs with interchange-plus or tiered pricing.

Interchange-Plus Pricing

Interchange-plus pricing is growing in popularity, mainly thanks to the small business-friendly plans offered by Helcim, Payment Depot and Stax. These Interchange-plus payment providers add a minimal fee to the base interchange rates set by the card associations.

Some, such as Helcim, mark up the interchange rate with a small percentage and per-transaction fee but have no monthly fees. Markup fees can range from 0.10% plus 5 cents to 0.50% plus 25 cents per transaction, based on the sale type. Others, such as Payment Depot and Stax, don’t mark up the interchange rate. Instead, they pair a monthly subscription fee with a minimal per-transaction fee, ranging from 5 cents to 15 cents per charge.

When comparing providers, remember that markup rates are in addition to the base interchange rates, which vary based on transaction-specific factors. Even so, interchange-plus models are very transparent and often the most economical choice for businesses processing more than $5,000 in monthly card transactions.

Tiered Pricing

Tiered pricing is a standard pricing structure used by traditional merchant services account providers and business banking services. To set tiered plan rates, providers first audit your business model and transaction history, so it takes more work to get this type of plan in place. Most tiered plans also require lengthy contracts and charge early termination fees if you want to change plans or providers.

Tiered plans break card processing rates into three groups, which are called qualified, mid-qualified and non-qualified tiers. Each tier’s rates are based on a merchant’s overall processing volume, industry and typical transaction types, such as online or in-person sales.

Each sale’s tier is determined based on the transaction type, credit card used and whether or not the cardholder’s billing address is verified. In most cases, qualified transactions have the lowest rates, while non-qualified transactions have the highest rates.

Tiered rates can be tricky to understand and the monthly statements can be very detailed. For most small businesses, flat-rate or interchange-plus plans are more economical and easier to manage. However, higher-volume businesses in certain industries, such as wholesalers and multi-store retail outlets, can save with a tiered card processing model. Source

Credit Card Processing Fees --Who Pays?

Rather than the consumer, the business is responsible for paying credit card processing fees. These fees can vary depending on the pricing model of the processing company; some processors charge a percentage-based fee, while others impose a flat fee per transaction. A fixed fee structure might be more cost-effective for enterprise businesses with a high volume of transactions. You might see either a total fee (blended pricing) or a detailed breakdown of costs on your invoice. These fees are accumulated at different stages of credit card processing; here’s a breakdown of those fees:

• Processing fee: Charged by your payment provider for processing the transaction
• Card scheme fee: Charged by the card schemes for using their network
• Interchange fee: Charged by the customer’s bank
• Acquiring fee: Charged by the acquirer

Interchange fees are usually the biggest expense when it comes to processing credit cards. Interchange fees typically range from 1.5% to 3.5% depending on the card type, transaction method, and other factors. The structure and fees vary for each market, as do types of cards (consumer debit, commercial debit, pre-paid, and so on). And they change all the time. 

Additional fees to be aware of:

Credit card processing fees can vary based on factors such as the type of transaction, location, and enterprise business model. Additionally, processors may impose one-off costs like setup or integration fees. They might also offer value-added services such as 3D Secure, fraud protection, or authorization optimization, which can affect overall costs but significantly benefit your business. Payment device or terminal fees may also apply. Source

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Interchange Fees Explained

What are interchange fees?

Interchange fees are fees merchants pay to issuing banks to cover the costs of issuing cards and processing card transactions. Every time a customer makes a purchase with a credit or debit card, the organization’s acquiring bank is required to pay the interchange fee to the cardholder’s issuing bank. The organization pays back the interchange fee as part of its card processing fees. Interchange fees are set by payment card brands and usually account for the largest portion of overall card fees. The pricing structure of interchange fees is determined by a number of factors, such as:

• The type of card (credit or debit)
• The card brand
• Regions or jurisdictions
• The type and size of the merchant
• The type of transaction (e.g., in-store, online, phone order)

Interchange fees compensate issuing banks for providing and maintaining payment cards and managing risks associated with processing payments. They also help pay for costs associated with network infrastructure and fraud prevention measures. Additionally, interchange fees often help fund customer rewards programs.

How much are interchange fees?

Because interchange fees are set by the card brand, the amount varies. Credit card fees are typically higher, and while there may be a fixed amount involved, the interchange fee is usually a percentage of the card transaction itself. 

In the U.S., the average credit card interchange fee is close to 2% of the transaction value, according to WalletHub. In the EU, interchange fees are capped at 0.3%.

Following the 2011 passage of the Durbin Amendment, debit card interchange fees in the U.S. are capped at $0.21 plus 0.05% of the transaction value. In the EU, they are capped at 0.2%.

Interchange fees are regularly adjusted — typically twice a year, in April and October — so the most accurate way to find current rates is usually to check the card network’s website.

How are interchange fees calculated?

While there may be a fixed amount involved, the interchange fee is typically a percentage of the card transaction itself. The interchange fee amount varies depending on several factors, including:

• Type of card: Credit cards usually have higher interchange fees than debit cards. Furthermore, rewards cards typically have higher interchange fees than standard cards, as interchange fees are often used to fund rewards programs.
• Card-present vs. card-not-present: Card-present transactions, in which the cardholder presents the card at the point of sale, usually have lower interchange fees than card-not-present transactions, such as online or over-the-phone payments. This is because the latter has an increased risk of fraud and data errors.
• Merchant category code (MCC): Every merchant has an MCC that corresponds to its business type. Interchange fees vary based on the MCC, which reflects the level of risk and average transaction size of the business type.

How do interchange fees work?

Every time a purchase is made with a credit or debit card, interchange fees are involved. Below is a basic overview of how interchange fees work.

1.) A cardholder makes a purchase using a credit or debit card.

2.) The transaction information is sent from the merchant’s payment processor to the acquiring bank. 

3.) From there, it’s sent to the card network, which passes on the information to the issuing bank.

4.) The issuing bank evaluates the transaction based on the amount of funds in the cardholder’s account, the cardholder’s credit limit and fraud detection protocols.

5.) If the issuing bank confirms that the cardholder has enough funds or credit available, it sends authorization for the transaction through the card network to the acquiring bank, which passes it on to the organization.

6.) The acquiring bank sends the authorized transaction to the card networks for settlement. This typically occurs in batches at the end of the business day.

7.) The card network routes the authorized transaction to the issuing bank and debits the transaction amount from the issuing bank’s account.

8.) The card network transfers the transaction amount, minus the interchange fee, to the merchant’s payment processor.

9.) The payment processor transfers the remaining amount, minus any additional fees for payment processing, to the acquiring bank.

10.) The acquiring bank deposits the funds, minus an acquiring fee, into the merchant’s account. Source

What is a Card Reader and How Does it Work?

A card reader is an electronic device that enables businesses to more securely accept and process credit, debit, or gift card transactions. It can come in various forms, such as part of a countertop POS system, as a smartphone attachment, mobile reader, or even as a handheld or wireless device. Credit card terminals work by decoding the information stored on the card, encrypting it, and then transmitting it to the payment processor for authorization. The process involves several steps:

• The cardholder initiates the transaction by either swiping, inserting, tapping, or waving their card or mobile device over the card reader.
• The card reader decodes the card’s information and encrypts it for secure transmission.
• The encrypted data is sent to the payment processor, which routes it to the cardholder’s bank for verification and authorization.
• The card-issuing bank approves or declines the transaction, and the response is sent back to the card reader.
• The card reader displays the transaction result and, if approved, the sale is completed.

What is a magstripe reader?

Magstripe readers, also known as magnetic stripe readers, are card terminals designed to read the information stored on the magnetic stripe on the back of credit and debit cards. These card readers use a magnetic head to decode the card data, which is then sent for authorization. While magstripe readers are still used in the U.S., they are less secure for in-person shopping than EMV card readers because the data on the magnetic stripe can be easily copied or cloned.

What is an NFC card reader?

NFC card readers, or near-field communication readers, allow for contactless payments using cards or mobile devices with NFC technology. These card terminals use short-range wireless communication to exchange data between devices. To make a payment, the customer simply needs to hold their card or mobile device near the reader. Contactless mobile wallet payments, like Apple Pay® and Google Pay™, continue to increase in popularity due to their speed and convenience. Source

How Many Credit Cards Should I Have?

There's not a one-size-fits-all solution for the number of credit cards a person should own. However, it's generally a good idea to have two or three active credit card accounts, in addition to other types of credit such as student loans, an auto loan or a mortgage.

Just remember: The number of credit cards you own is less important than how you use them. Be sure that you can keep up with your existing monthly payments before considering a new credit card. Having multiple credit cards, along with other types of credit, can be a good thing, as long as you use each one responsibly. Two factors that contribute to your credit score are the number and type of credit accounts. If your goal is to get or maintain a good credit score, two to three credit card accounts, in addition to other types of credit, are generally recommended. This combination may help you improve your credit mix.

Lenders and creditors like to see a wide variety of credit types on your credit report. Keeping up with multiple credit accounts suggests to lenders that you understand how credit works and know how to manage the amounts you borrow. Many credit cards also offer borrowers access to special rewards programs. These might include cashback options for certain purchases, travel benefits or other types of rewards.

How many credit cards are too many?

Owning more than two or three credit cards can become unmanageable for many people. However, your credit needs and financial situation are unique, so there's no hard and fast rule about how many credit cards are too many. The important thing is to make sure that you use your credit cards responsibly.

Here are some things you should remember about credit, especially if you have multiple credit cards:

• Keep an eye on your balances.
• Avoid late payment fees by paying on or before the due date.
• If possible, pay off your credit card balances in full instead of only making the minimum payment.
• Check your credit reports frequently so that you see what lenders see.

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