The Evolution of Payment Cards

From hybrid cards to digital wallets, the future of payments is innovative and diverse. With the ongoing digitization of payments, it’s easy to get caught up in the narrative that the traditional payment card could become obsolete. However, this couldn’t be further from the truth. In fact, card payments are thriving, adapting to the new age of fintech and smartphones.  

Having worked in the payments space for many years, I have travelled across global markets, and I've observed firsthand the evolving landscape of financial transactions. My conclusion is that one size does not fit all. Different markets have different payment requirements.  

In mature markets, I've witnessed the swift adoption of instant payment solutions, revolutionizing the way transactions occur. Meanwhile, in developing markets, the focus shifts towards the proliferation of card-based systems, both physical and virtual, along with the rapid expansion of instant networks. In these diverse environments, traditional notions of card usage are undergoing profound transformations.  

While some regions are still familiarizing themselves with physical card formats, the true innovation lies in the integration of cards with cutting-edge technologies. This entails the emergence of virtual cards, digital wallets, and tokenization mechanisms, heralding a new era of convenience and security in financial transactions. 

The advent of hybrid cards 

One of the most exciting developments in this area is the emergence of hybrid cards. These are not your typical single-function payment cards. Instead, hybrid cards flip between debit and credit functions, switch currencies, and even enable the conversion of digital assets. This opens up a wide variety of possibilities for consumers, allowing them to navigate through an increasingly digital financial landscape with ease. 

Such changes are not only increasing the use cases that cards can support but are embedding ‘payment by card’ into a wide range of user journeys. This enables faster and hyper-personalized customer experiences where the payment is invisible and can drive increased customer satisfaction, loyalty and engagement. It demonstrates that whether for in-person transactions, online payments, international transfers, or navigating blockchain technologies such as Web 3.0, the physical card remains fundamental. 

A new payments landscape 

Another important point to consider is that the landscape of payment methods is as diverse as it is innovative. Digital wallets, wearable technology, and biometric authentication are becoming increasingly popular – as well as contactless payments. The contactless payment market is set to grow at an 18% compound annual growth rate to reach more than $12 billion globally by 2032. The physical card is not diminished with this recent innovation but embedded throughout the next generation of payment technology. It now enables a wide range of unique customer journeys, transforming its role to a source of truth in the sprawling payments ecosystem.   

However, it’s important to remember that attitudes towards these new payment methods vary significantly across different demographics, geographical regions, and between consumers and businesses. For example, in Kenya, the mobile money pioneer M-Pesa reigns supreme offering a range of P2P payments, virtual wallets and credit cards – and mobile money transactions make up more than half of Kenya’s $110 billion GDP. Meanwhile, in North America, credit cards are practically extensions of self, with 82% of U.S. adults having a credit card in 2022. Rewards programs and ingrained financial habits keep plastic firmly in wallets. 

Understanding these geographical nuances is key to appreciating the broader context of payment evolution. 

Tokenization and connectivity 

At the heart of these new payment innovations is tokenization and the connection to payment rails - be it local networks or global giants like Mastercard, Visa, and Union Pay. This connectivity is not just a technical feat; it is what enables a smooth, embedded payment experience, whether through mobiles, wearable tech, or even more futuristic avenues. 

The ultimate aim of these developments is to make payments as seamless and unobtrusive as possible. The idea is to embed the ‘payment by card’ process into various user journeys, making it faster, more convenient, and almost invisible. This seamless experience is key to driving customer satisfaction, loyalty, and engagement. 

The future of cards 

Looking to the future, the question is not about which technology will replace the card. It is about understanding how the fundamentals of card technology will continue to influence and shape new payment methods. The physical card's widespread adoption enables interoperability, ensuring seamless transactions across continents and platforms. 

The world of payments is witnessing a transformation, with cards playing a central role. The challenge and opportunity lie in anticipating which payment methods will evolve from this technology and dominate the market and which will fade away. One thing is certain: the journey of the payment card is far from over. Ultimately, we are not the ones to decide where the journey will go – it is about users, and our role is to give them the choice.  Source

How To Choose the Best Credit Card Processing Company

The best credit card processing company for your business strikes the right balance of cost, functionality and support. Processing fees and monthly costs are the obvious starting points when comparing providers. However, considerations such as ease of use, support, integrated sales features and free software can help you spot the best value for your specific needs.

Here are a few questions to keep in mind when you shop for card processing services.

• What is your average sales volume per month? Higher transaction volumes equal lower processing fees. A good rule of thumb is once you reach $5,000 in monthly transactions, you can benefit from an interchange-plus or tiered processing service. Before then, a flat-rate service such as Clover can be economical.

• Do you sell in-person, online, mobile or combined channels? Where you sell determines your processing hardware and system needs. If you sell in-store, you need checkout registers. If you sell on the go, you need mobile card readers and a mobile processing app or mobile POS. If you sell online, you need a secure payment gateway. If you combine sales methods, you need a payment processing service that seamlessly connects all of your sales within an integrated system.

• Do you need free equipment and POS systems? Free equipment and POS software add value to a service, even when paired with higher processing fees. When comparing services, consider what any free perks would cost if you went with a lower-fee processor that doesn’t provide them.

• Do you already have registers, terminals and POS software? A processing service that integrates with registers, terminals, POS systems or accounting software that you already use can save in upfront costs and minimize business interruptions.

• Is your business high-risk? High-risk merchants generally find the lowest fees with traditional merchant accounts with tiered pricing.

• Are you selling restricted items? Many popular card processing services limit what you can sell. If your business falls outside their approved list, you’ll need a traditional merchant account provider.

• How fast do you need your funds? Virtually all card processing companies deposit funds within one to two business days, but charge an added fee for same-day deposits. If you need quick access to funds, look for a provider that offers this for free.

• Do you need 24/7 support? Most providers offer 24/7 service for network outages and other business-critical events, however, a few limit support at lower plan levels.

• Do you sell globally? You need a processing service that supports international cards and exchange rates.

• Do you use QR codes, payment links and online invoicing? You need a card processing service with an online portal feature that supports these cutting-edge payment methods.

• Do you want to accept e-checks and bank transfers? Look for card processing services that support ACH payments. Source

What Is Credit Card Processing?

Using credit cards for purchases is a convenience many consumers have come to expect, but not many customers or business owners actually know how credit card processing works. The process is complicated, involving industry lingo that may be unfamiliar to some, the coordination of multiple participants and the acquisition of a card-reading device. Much of the process happens behind the scenes, however. And while it’s useful to understand the entire process and the key players in it, many business owners will find that the most important aspects to understand are the hardware and software needed for credit card processing and the fees involved. 

What is credit card processing?

Several moving parts are involved in processing a credit card transaction. On one side of the transaction, you have the customer and the bank that issued their credit card. On the other side, you have the merchant and the bank that will receive the payment. Details about the transaction travel between the two banks through a credit card network, and the payment processor helps make sure things run smoothly.

Key participants in credit card processing;

A good first step in understanding the process is to review industry terms for the key participants:

• Cardholder. A cardholder is the customer, or consumer, who is using the card for payment. The cardholder could be either the owner of the card or an authorized user.

• Issuing bank. An issuing bank is the entity that issued the credit card to the cardholder and is responsible for authorizing the transaction. If a transaction is approved, the issuing bank sends funds to the merchant bank, which in turn bills the card owner through a monthly credit card statement.

• Merchant. A merchant is a business that accepts credit card payments from customers for its goods or services. These include in-person, online or phone payments.

• Merchant bank. A merchant bank, also known as an acquiring bank, maintains the merchant account where the funds from credit card transactions are deposited. Some merchant banks act as payment processors in the card transaction. Others rely on third-party payment processors to manage the payment details.

• Payment processors. A payment processor, or merchant services company, helps manage the transaction process with the merchants, banks and card networks. In addition to helping authorize transactions and ensuring the transfer of funds, some payment processors also offer the hardware and software required to accept card transactions.

• Card networks. Credit card networks such as Visa, Mastercard, American Express and Discover are responsible for the infrastructure that allows the transmission of credit card details between the merchant bank and the issuing bank. Credit card networks have rules for the use of their networks and set interchange fees for their services. Source

How Much Cash Reserve Should A Company Have On Hand?

According to experts, setting aside 3-6 months’ worth of expenses is a good rule of thumb. But the right answer will vary depending on several factors, like your:

• Business stage and access to funding
• Goals and long-term growth plan
• Inventory and/or services or products provided
• Industry environment
• Location and real estate
• Number of staff and other operating expenses

For example, a lean remote tech startup with a small team can often get by with a smaller cash reserve than a large retail business with multiple locations and a sizable staff.

Also, consider the economy. During a recession or market downtown, having more cash on hand helps pay workers, keeps the office lights on, and prevents you from relying on emergency funding at high interest rates.

Fun fact: it’s not always better to have a lot of cash on hand. Big cash reserves don’t actively contribute to business growth and leaving money lying stagnant may cause you to miss out on growth opportunities. Plus, investors like to see growing balance sheets, not flat lines.

If you plan on tucking more than 6-12 months’ worth of expenses away, consider how that money can be used to better support the company long-term. Source

Is Your Business Saving Enough?

Small business owners understandably often focus on cash flow management. But as important as cash flow is to the ongoing success of a business, savings or cash on hand can also be key.

Why do companies keep cash reserves?

Businesses with a savings cushion can handle unexpected expenses like surprisingly high materials cost, unforeseen shipping costs, or the need to replace equipment without scrambling for financing. That’s especially true if you don’t have ready access to credit, forcing you to dip into personal finances. Inadequate savings can also keep business owners from growing the business — whether it’s a new location, bigger office space, or expansion into a new market.

How much cash reserve should a small business have?

There’s no one-size-fits-all rule, but generally, small businesses are advised to set aside 3-6 months of expenses in cash reserves. Exactly how much that is for you can vary, depending on a few factors:

Monthly expenses

Look at how much cash your business uses every month. You can do this by reviewing your monthly cash flow reports and adding up recurring categories such as payroll, rent, supplies, and marketing costs. You’ll want to review several months’ worth of reports to capture expenses that don’t necessarily come every month.

Another way to tally monthly expenses is to find the burn rate, or the rate at which a company uses money. To do this, review several months of cash flow reports and calculate the amount of cash you have at the beginning of the period and the amount of cash at the end, then divide by the number of months you’re looking at.

So if you start with $160,000 in cash and end with $100,000 after 3 months, your monthly burn rate is $60,000 ÷ 3 = $20,000 per month. Using the burn rate is useful for startups or other early-stage small businesses that aren’t yet making a profit.

Upcoming expenses

Consider growth plans or big expenditures in the next 12 to 15 months. If your business is growing, the anticipated increase in sales could cover some of the additional expenditures. To make sure you’ve covered your 3-6 months’ expenses, consider how much you might draw from the sales increase and how much from savings.

Business environment

Consider external factors that could impact your spending. When there’s a lot of uncertainty or a looming recession, it’s a good idea to have more savings. Also, consider your type of business. If your business is seasonal or very sensitive to economic downturns, keep 9 or even 12 months of expenses saved up.

Business growth

Evaluate the phase your business is in. Early-stage small businesses burn through cash more quickly than mature businesses. Mature businesses also tend to have more predictable cash flow and expenses. If your business is in a fast growth phase, you may want more cash on hand to provide a cushion against unexpected drops in revenue and to fund expansion plans.

Credit

Access to credit funds is crucial to growth and expansion. Moreover, if you have access to credit you may feel comfortable with savings that are on the lower end of the recommended range.

How much cash will your business need in the future?

While not having enough in cash can be detrimental, having more than the recommended amount isn’t necessarily better for business, either. Having excess cash can curb growth, especially if your business is an early-stage startup that could put that money toward expansion.

Having the “right amount” in cash is a moving target, so this is a process you’ll need to revisit every now and then as your business, and the business climate, changes.

Where to keep your cash

Small business cash should be easily accessible. Business owners may choose to keep cash in a checking account or a business savings account. Also, savings doesn’t necessarily have to be in cash. You could also keep it in short-term Treasury bills, money market accounts, or CDs.

Talk to a banker to weigh your various options for keeping your cash reserves. Interest rates can vary depending on the type of account, so it’s worthwhile gathering information on your options before making a decision. Just keep in mind that interest rates are one of several factors to consider when evaluating accounts. Customer service matters too. Source

Credit Card Processing Equipment and Systems

Card processing equipment is another factor that can impact your choice of credit card processor. Some companies provide their own branded terminals, POS systems and online gateways for free, others charge a one-time or monthly fee. When shopping for a card processing company, consider the equipment you’ll need to accept cards, then see which company combines the best equipment deals with low processing fees for various types of sales.

Physical “In-Person” Card Processing Equipment

In-store and in-person sales settings use terminals and other processing hardware to physically swipe, dip or tap cards at checkout. Since the card is present, these types of sales are considered low-risk and carry the lowest processing fees.

• Point-of-sale (POS) store registers: These systems pair inventory, customer and sales management software with card readers, store registers and touchscreen terminals to complete a sale.
• Smart terminals: Compact all-in-one card processing terminals can be used in-store and in mobile settings via Wi-Fi and cellular connections.
• Basic registers and terminals: No-frills cash registers with card processing terminals work well for basic in-store retail and countertop services.
• Self-serve kiosk checkouts: Customer-facing touchscreen checkouts with built-in card readers are ideal for quick-serve cafes and other self-serve settings.
• Mobile card readers: Paired with a mobile app on a tablet or cell phone, mobile card readers physically process cards for all types of in-person mobile settings, such as fairs and markets, food trucks and mobile service calls.

Virtual and Online Credit Card Processing Systems

Online payments and virtual credit card sales require cloud-based systems called online portals or payment gateways to securely collect and transmit customers’ payment information. Since the card isn’t physically present and staff can’t verify identification, these types of sales are considered higher-risk and carry the highest card processing fees.

• E-commerce payment gateways: Payment gateways are secure online checkout systems that connect your online store to your card processing service to verify and complete online transactions.
• Online payment portals: Some processors have secure online portals that enable a range of modern online payment options including online invoice payments, automated recurring and subscription payments, QR code payments and payment links sent via text or email.
• Virtual terminals: Nearly all card processing services support keyed-in payments through a cloud-based online dashboard, typically called a virtual terminal.
• Mobile terminal or POS app: Many card processing services provide a mobile payment app that enables virtual keyed-in payments using tablets and smartphones. Some providers include this in a POS app that supports both keyed-in and card reader payments. Source

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