How Payment Terminals Work

You’ve probably seen signs that say ‘payment kiosk here’ or ‘we accept Apple Pay’ in any number of stores you’ve been in recently. You’re probably used to paying at the pump at a gas station with an easy swipe of your card. You might have gotten annoyed when you purchased coffee at a mom-and-pop shop and they didn’t have a contactless payment option to accommodate your digital wallet.

If you’re an owner or employee at a retail business, you’re likely very familiar with the importance of payment terminals. If a system goes down, business comes to a halt. If you don’t offer enough options, customers may complain. Striking the right balance between cost and convenience can be tough.

Today, there are all types of payment options that businesses are introducing into their shops. Modern points of sale systems are convenient, quick and they tell customers that they are heard. We all have preferred methods of payment, and when our favorite stores offer solutions to those preferences, we’re more likely to give them business and more likely to advertise via word of mouth.

Dipping your card or holding your phone underneath a scanner is easy enough, but do you know exactly how payment terminals work?

We’ve compiled a list of everything you need to know about how the money travels from the issuing bank to the acquiring bank once a transaction is completed. If you’re a business owner, we’ve got you covered too. We’ll dive into the benefits of selecting the right payment terminal for your business.

It All Starts with the Card Holder

All the credit and debit cards being issued in the U.S. now have an EMV chip in them. Chip card readers prompt consumers to dip their cards rather than swipe. The purpose of this shift in EMV payments is to increase safety and decrease fraud. It is much more difficult to copy card information in cards with the chip because they are small bits of encrypted data, and that data changes with every purchase made. The magnetic stripe many people are used to has data that remains the same for every payment.

Payment terminals that accept credit cards equipped with the chip complete the payment internally. Since transaction codes differ from payment to payment, EMV payment terminals take a few seconds longer to authenticate a payment than the cards with magnetic stripes.

The internal transaction that occurs is the transfer of banking information from the cardholder’s financial institution to the acquiring bank. Because the transition to chip-only cards is still in the works, point of sale systems might still prompt the customer to insert a PIN code or provide a signature.

 

 

Chip Readers, Magnetic Strip Readers, and Near Field Communication

Obtaining new software and hardware to accommodate every type of payment can get expensive. Most stores can’t accept all types of payments just yet, but the good thing is that many point of sale systems accept various forms of transactions.

Most EMV terminals that accept chip-enabled credit cards also still have the option to swipe. If your customer has a card with a chip, they should dip their card. The magnetic stripe still works, but should only be used in payment terminals that don’t have chip technology.

Near Field Communication (NFC) is most commonly used for mobile credit card processing, but can also work with chip technology. The hardware required for NFC transactions allows customers to complete frictionless payments.

The bottom line when it comes to different types of payments is that no matter the payment type, communication is still happening via issuing bank, processor, and acquiring bank.

When you’ve heard about this communication between financial institutions, you might have also heard the terms payment gateway and payment processor. The processor is the payment terminal that takes information from a credit card. The gateway is an extra step some transactions go through in order to be verified.

Not all businesses need payment gateways to authenticate transactions. They are typically most helpful for e-commerce sites because the card is not present in the store at the time of purchase. It’s simply an added security check.

Wireless, Wired and Unattended

The stationary payment terminal is what has been used for many years and what most established businesses have at their registers. There are checkout lines where customers buy their products and swipe or dip their card on a wired machine that transmits data electronically. The other way some companies are choosing to let their customers pay is through a wireless credit card terminal.

Mobile credit card processing is fast becoming the most efficient way to conduct a transaction on the spot. Customers no longer have to wait in long lines to purchase a product. Typically, a merchant will have a payment terminal that attaches to a company cell phone or it might even be something as simple as a small white box that allows for contactless payments.

Both take card information the same way, but it’s how the data is transferred that differs. Wired payments are considered a bit safer, if only because transaction details don’t have to be shared wirelessly through a cloud database. They are also successful in creating higher foot traffic because customers can avoid lines and be in and out of the stores with mobile payment terminals much quicker.

Unattended kiosks have also been on the rise inside places such as fast-food restaurants because of their ease-of-use for the customer and their ability to speed up the ordering process.

Everyone knows what it’s like to be in line behind three people paying in cash. The unattended payment terminal allows people who know they are paying with a credit card to complete their order quickly and without speaking to a cashier. For guests on the go, this option can be especially beneficial to customer satisfaction.

These terminals are equipped with the same processors as wired and wireless EMV terminals, but a human doesn’t have to be present. They are perhaps more commonly seen at gas stations where you simply insert your card and begin pumping gas immediately. The transaction takes place within the machine, your bank is notified, and the payment data is sent to the acquiring bank.

How Payment Terminals Benefit the Consumer

Payment terminals mean customers have more options when it comes to paying for the products they are purchasing. They don’t have to worry about carrying cash in their wallets and they can choose whether or not they want to use a digital wallet or a credit card once they are at the register.

Giving your customers the autonomy over how they pay tells them that you want their business. You are paying attention to how they want to spend their money, and you have changed the way you accept money in order to accommodate them.

It also means you are aware of their time. Modern payment systems are incredibly efficient, and customers always need more time in their day. What’s better than a transaction that can happen in just seconds?

How Payment Terminals Benefit the Business

Payment terminals are built to accept credit, debit and digital wallets that are equipped with NFC technology, magnetic stripes, and encrypted chips. The biggest benefit to businesses is that they are becoming more secure all the time. It’s a big risk letting consumers pay without cash present, but EMV is making things a whole lot safer for both parties involved.

Data is now encrypted as it travels from one financial institution to the next, which means it can’t be decrypted until it reaches the acquiring bank. Because most terminals now have chip reading technology, it also means it goes hand-in-hand with customer satisfaction, but when point of sale systems speed up the purchasing process, it means the customer leaves happy, and you’ll start to see more business because customers won’t leave due to long lines.

Looking for the Right Payment Terminal? Contact Us Today!

At ID TECH, we have payment solutions for every type of business. Our professional team will help you determine which payment terminals might be best for your company depending on the type of business you run and what your customer base prefers. Check out our blogs regarding different types of payment systems and how the payment landscape is changing, or reach out with questions.