In this article, you’ll learn:
How credit card payment machines operate
About CNP (Card-Not-Present) transactions
The projected direction of card payments
The use of card payment machines for transactions has grown widely since credit cards first came into being in the 1920s in the United States. In the early days, card payment solutions were primitive to say the least.
However, following the development of electronic funds transfer at point of sale technology – or EFTPOS – which came about in the 1980s, the system for card-based transactions changed beyond all recognition.
Under EFTPOS, a card is processed by the vendor in order for goods or services to be paid for. This is most commonly done with a credit card payment machine.
However, it is worth noting that most credit card machines will also be able to process debit cards. Unlike credit cards, which pay the vendor but only charge the purchaser at a later date, debit card payments made by a terminal make a near immediate transfer of funds directly from the buyer's bank account.
Essentially, a payment terminal does two things when a transaction occurs. Firstly, the credit card reader part of the machine will be able to access data that is embedded in the card.
This is usually held in a magnetic strip at the rear of the card, containing the user's details. Once swiped, this information is stored temporarily in the terminal.
The vendor should have already entered other details, such as the amount to be processed and so on. The machine then contacts the credit card provider, but this is seldom done directly because there are so many debit card and credit card providers out there.
Instead, the card machine makes contact with a merchant provider which, in turn checks that the card is valid and that the transaction can proceed for example, by confirming that sufficient funds are available.
In some cases, the external contact that is required for this to work is made by the terminal through a dial-up connection using modem technology.
However, in larger shops and businesses a dedicated digital line is usually open at all times for multiple transactions to take place at once, with the vendor and merchant provider relaying data many times a second.
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Today, card payment machines offer vendors a great deal more flexibility than they used to. For example, wireless technology means cards can be processed anywhere in the vicinity of the base unit, with encrypted data passing back and forth, making them ideal for showrooms, bistros and so on.
In addition, chip and PIN functionality has been brought in which offers buyers a higher degree of security than they used to enjoy, helping to prevent fraud from lost or stolen cards.
Furthermore, vendors with no fixed place of work can now use mobile technology to process cards for payments. Companies like SumUp provide card payment services which can be used in the homes of customers, building sites or anywhere else where a smartphone or tablet can get a signal.
Some, but not all, card payment machines are able to process transactions when the customer, and thus the card, is not there in person. CNP transactions, as they are commonly called, do not require a card to be swiped or read in person.
Under this system, the digits of the card are entered manually into the device by the vendor. Commonly used by internet-based retailers, CNP transactions differ from in-person ones in that restitution of fraudulent transactions are the responsibility of the bank that hosts the merchant account.
With swiped transactions, the card issuer takes this responsibility. Physical machines require the facility to enter card details, such as expiration dates, to process a CNP transaction.
These days, a card reader can be incredibly small and lightweight, especially if it only has to communicate with a nearby tablet or smartphone to process a payment. Indeed, some are so tiny that they are little wider than the cards themselves and only half the length.
Another likely future trend from technology also will also be the expected increase in uptake of contactless payment terminals which do not require a swipe function at all.
Since it was invented, the credit card system has continued to see innovation aplenty and its upward evolution will unlikely stop any time soon.
Now that card payment machines are portable, merchants can use smartphones to process payments from both credit and debit cards and ignore the previous limitations of yesteryear. It is important merchants stay abreast of the ever-evolving credit card system to ensure customer satisfaction.
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