How Do Credit Card Machines Work: A Guide to Payment Hardware

How-to Guides
Credit card payments with mobile devices, cards, and payment machines

Unfortunately, too many small businesses pay little attention to credit card processing. The service is an integral component of any modern business, so the fees are unavoidable. But there are important steps that businesses can take to get the right hardware, find the best solution, and lower their overall spending on processing.

One of the biggest obstacles is the steep learning curve that the topic poses. It’s not exactly riveting reading material and the steps to lower your processing rates are irksome. Nonetheless, processing plays a key role in determining your bottom line. And in addition to finding the cheapest merchant service solution, you’ll also need to find the best credit card machines and hardware. Check out our guide to credit card machines for retailers.

How do Credit Card Machines Work?

No matter how familiar you are with credit card processing, you’ve likely used a card many times and witnessed the evolution of the technology. The transactions themselves seem remarkably simple and, indeed, most of us rarely ponder the amazing array of tasks that go into each transaction. The little credit card machine works to communicate instantaneously with various entities across the world to facilitate a transaction. Below is a brief breakdown of the process:

Credit Card Authorization

Once a card is swiped, dipped, or tapped, information is immediately sent to the merchant’s processor. The processor then sends the information to the shopper’s card network/association (VISA, MasterCard, etc.). The card network takes note of the type of transaction and card and sends the information to the issuing bank (the customer’s bank).

The issuing bank determines if the cardholder has sufficient funds/credit to make the purchase and either approves or declines the purchase. Amazingly, this typically takes just a few seconds.

Payment Submission

At some point, the merchant must submit for actual payment to their account. Businesses have the option of doing so immediately or letting payments batch throughout the day or week. Most businesses submit payments at the end of each business day. Once a merchant submits something, it first goes to the processor, then, again, to the appropriate card network, and finally back to the issuing bank.

Batched Settlement

In the final stage, the issuing bank will send the money to the acquiring bank (merchant’s bank) into the business account. In the process, all fees, including those going to the credit card processor, card network, and banks are deducted and distributed, leaving the remainder to go to the merchant. Settlement typically occurs 24-48 hours after batching has been completed.

There are still cases where disputed charges or fraudulent activity delay the process of transferring the money to the acquiring bank, but these are rare exceptions.

an infographic about credit card hardware

What Are the Different Types of Payment Terminals?

Recently, credit card terminals have changed rapidly. That means that your store has plenty of credit card machine options and price ranges. Check out the choices below to help you determine which is a great fit for your store.

Traditional, Wired Credit Card Machines

Any credit card machine must be connected to the internet to complete a purchase. There are many different types of traditional credit card machines, but all will be connected through a wire, typically with an ethernet cord or telephone line.

Traditional terminals vary in size and style but usually come with a small screen, PIN pad, and, sometimes, a signature pad. For the easiest use, the terminal is connected to your point of sale to process the payment and log the sale in your inventory and reporting system.

Wireless Credit Card Hardware

More and more electronic devices are now connected through Bluetooth or WiFi technology. This allows the information to be transmitted from the device to the server from any location in your store.

While these devices provide more flexibility for the checkout process, they still may need to be plugged in for power. So for convenience, they should be charged and connected to a strong wireless signal.

Debit/Credit Payment Terminals

Every credit card machine is built to accept either credit or debit cards. The hardware needed to accept a swipe, chip, or tap is the same regardless. But merchants have the choice of running a transaction as either credit or debit at the terminal. This allows you to require one transaction over the other. Debit transactions are always cheaper, so some businesses may want to set up their system to only run PIN debit transactions to save on processing fees.

Modern Payment Terminals

Most retailers should also invest in modern payment terminals to be able to accept the newest payment trends and options. These aren’t prohibitively expensive and some processors may provide them for free. Brick and mortar shops should have chip and PIN and mobile payment capabilities. Online retailers, of course, must have a payment gateway and online payment portal established and secured.

Are There Alternatives to Credit Card Hardware?

In a few cases, yes. But for the vast majority of businesses, it’s necessary to have a credit or debit machine at your store.

One common alternative for a business’s point of sale payments is a mobile processing reader. These machines read the information from the credit card, encrypt it, and send it to another device. This device, then, eventually sends it to the processor. These are most often attached to a smartphone or tablet through the headphone jack or Bluetooth capabilities. While this solution is easy and convenient, it doesn’t come with a powerful POS solution behind it. This means that businesses that use a mobile processing app will be without adequate inventory management, reporting, employee management, loyalty, and much more.

eCommerce stores are another exception. Any online store that takes payment through virtual terminals has no need for a physical credit or debit card machine. A virtual terminal, by definition, is any software that allows users to manually enter payment information by hand. Credit card information only needs to be keyed in to finalize a purchase. Though necessary for online stores, the transaction processing fees will be higher than a transaction made on a physical terminal.

What Should You Look for in a Credit/Debit Card Payment Machine?

The most important thing to look for with your payment hardware is choice. Like any POS hardware, there are a lot of different machines available that vary in price, design, and functionality. So it’s important that you keep your options open.

  • So, the first step is to look for a POS system that integrates with a variety of hardware options. Whether it’s your actual hardware or processing solution, you want to be able to find the right fit for your business. A one-size-fits-all model will never work for everyone.
  • Next, look at various capabilities of the machines. At this point, it’s critical for all businesses to get EMV payment terminals. Nearly all shoppers now have chipped debit and credit cards, and requiring chip payments reduces your liability on any fraudulent transactions. You also should consider near-field communication readers. These process contactless payments, such as Apple and Android Pay, and are quickly growing in popularity. It’s not as essential for businesses as the EMV readers are, but it’s a smart idea to get ready for the future.
  • You’ll also need to consider your budget. Payment machines vary widely in price. Cheaper options will likely come with more basic features. Speed is largely the same between devices and more dependent on your point of sale software. Instead features for the customer experience will be diminished, with more expensive options adding larger screens, touch screens, better displays, etc.

Whatever option you go with, first focus on integration to make sure it works with your POS system. After that, no matter what you choose, it will still be able to easily accept all debit and credit payments.

Learn More About KORONA’s Payment Hardware Options

At the end of the day, your point of sale system is far more important than your hardware selection. KORONA POS comes with many of the best options on the market at a wide range of prices. We’ll help you find the best fit for your store. Plus, if you have existing hardware, it’s likely that KORONA integrates with it. Give us a call to learn more and set up your free trial by clicking below!

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Written By

Michael Chalberg

Michael has long focused his writing on the world of retail and small businesses. He''s been a part of the KORONA POS team since 2018 and loves helping entrepreneurs find ways to adapt and succeed. In his spare time, you'll likely find him hiking somewhere in the Southwest.

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