Credit Cards: A credit card is a revolving line of credit extended by a bank or credit card company to an individual or organization. The borrower advances on the credit line by “paying” for products or services, at the point of purchase, using the card. The dominant credit cards programs in the U.S. are Visa and MasterCard, followed by American Express (“Amex”) and Discover. To accept payment via credit card, a merchant must establish an account with a processor of credit card transactions. Then, the merchant will incur charges according to the agreement made with the processor, typically a monthly flat fee, a flat fee per transaction, and a percent of each purchase.
Debit Cards: A debit card allows the customer to pay for purchases with funds that are in their checking or savings account. The debit card is swiped into the merchant’s card terminal and then the customer enters a secure personal identification number (pin). The processor verifies that the funds are available in the account, approves the transaction, and then charges the merchant a flat fee of, say, 55 cents (no discount fee/percentage of the transaction).
Check Card: This type of card may be used by its holder as either a debit card or credit card. If at the point-of-purchase the customer chooses to use it as a credit card, the merchant is charged fees accordingly … just as if it was a regular Visa or MasterCard. If the customer chooses to use it as a debit card, the merchant will incur debit-card fees (i.e. no discount fee, just a flat fee for the transaction).
PayPal: The worldwide web has brought buyers and sellers together like never before; many who buy or sell in very small volumes. The most common means is eBay. The typical merchant credit card service account is not economical at very low volumes, so PayPal stepped in to fill the need. The micro-merchant signs up with PayPal, customers of the micro-merchant pay PayPal for the goods, and then PayPal deposits the money into the checking account of the micro-merchant.
Note: PayPal is owned by eBay.
Gift Cards: Want a gift idea for someone special? How about a gift card from the local coffee shop, bookstore, movie theatre or restaurant? Your friend will appreciate it. The establishment will appreciate it even more. Why? They make big bucks on gift card sales. First, the merchant is paid well in advance of having to provide any product or service. Second, some cards will never be redeemed; most only partially redeemed. Ah, the most perfect sale ever conceived.
Steve Norell, president of US Merchant Service, says Starbucks has sold 20 million $25 gift cards. They estimate that $12 remains unused on each card, on average. That’s $240 million in revenue with no service delivered. Not bad, especially since most gift cards are programmed to “lose their value” after a certain period (a term of purchase).
How can you get into this game? Try calling Value Tec (www.valutec.net/), one of the largest and most respected providers of gift cards. They help merchants issue gift cards. Your merchant service provider will already be set up to be able to accept and process payments from private issue gift cards, and most all terminals today are gift card ready. Purchases paid for via gift card simply become an itemized category on your monthly merchant service statement.
Check Guarantee and/or Verification: If you accept checks as payment you may want to consider obtaining a “check reader.” This is a machine that, similar to the credit card terminal, scans the check at the point of sale and instantly (similar to the credit card transaction) submits the data to the merchant service provider (processor) for acceptance or decline. If accepted, the processor assumes the collection risk. The processor also will deposit the funds in your account right away, similar to a credit or debit card sale. No deposits or bad check risk!
Check readers cost $250 to $500 and are most popular with retailers that process a high volume of checks and/or bear unusual risk in accepting checks. Riskier check acceptance environments include ones where checks are accepted for large amounts or where many out of town checks are submitted.
This article originally appeared in The Business Owner Journal, the periodical of choice for owners of small and midsize private businesses. All rights reserved, D.L. Perkins LLC. © 2012.
This publication is intended to provide general information on the subject matters covered. It is sold and distributed with the understanding that neither the publisher nor any distributor or advertiser is engaged in providing legal, tax, insurance, investment or other professional advice. The advice of a qualified professional should be sought before any reader applies a concept presented herein to his or her particular situation or business.
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