The Smart Merchant’s Guide To Credit Card Machines & Terminals: What Do Small Businesses Really Need?

As consumers, we don’t typically think about what happens in the moments after we swipe our debit and/or credit cards. More often than not, we simply run or insert our card into the credit card machine and hope that the cashier doesn’t use the next few moments to initiate small talk. The number in our checking account decreases or the number on our credit card bill increases, and that’s all we care about.

But, to a business owner, credit card processing is exceptionally important, and it can play a huge role in maintaining the bottom line. There’s a lot of information to take in if you’re a novice when it comes to credit card processing, and, to find what is best for you, you’ll need to decide what elements are most important to your business.

During this decision-making process, in addition to deciding which credit card processor to use, you’ll also find that you need to pick one or two credit card machines from what seems like a dizzying array of machines described as “readers,” “terminals,” “POS systems,” “smart terminals,” etc. What’s more, their prices vary widely. What functionalities are must-haves and which ones are nice-to-haves? Which machine do you truly need?

There’s no one-size-fits-all answer, but read on to find out how you can decide for your specific business.

How Do Credit Card Terminals Work?

Before we delve into the details of how to pick a credit card machine for your business, let’s sync up on some commonly used vocabulary so we can be on the same page when we use these words in this article.

Let’s start with some basics about credit card transactions. You have, no doubt, used hundreds of different types of card readers as a consumer. But what happens once your card’s information has been read? We have other articles that discuss this process in more detail, but, in simple terms, there are three phases involved in the actual processing of credit cards:

• Authorization: Once the information on a card is read into the credit card machine, the information is sent over the internet to your processor for the next step. Your processor sends the card info to the appropriate card network (e.g. Visa, Mastercard, Discover, etc.) with a request to be processed. The card network then forwards the processing request to the issuing bank of the credit card, and the bank checks to see if the cardholder has enough credit to cover the purchase. If there are enough credits, and if the card is registered as valid, the purchase is approved and the approval message is sent back to the merchant. All of this typically takes place in a matter of seconds.
• Submission: The transaction between the merchant and the consumer takes place, and the merchant submits the authorized transaction for actual payment. The submission can take place right away or be held up in a batch somewhere along the process and then submitted at the end of the day or past the weekend. The submission first travels to the processor, which forwards the request to the appropriate card network. The network then sends the submission to the issuing bank. The issuing bank pays the appropriate amount.
• Settlement: The payout from the issuing bank travels by standard inter-bank money transfer methods until the money reaches a specific bank account called the merchant account. By then, the card network, the processor, and the bank(s) have taken their cut of the transaction fees. Only then can the merchant take the money out of the account.

This entire process typically takes a few days. Note that this is not the end of the process–the cardholder eventually has to pay what is owed to the bank and might dispute the charges. However, because this article is about credit card machines, we won’t go into details on that part of the process.

Types Of Credit Card Machines & Terminals

As seen above, to start the credit card payment process, the first thing a merchant needs is a machine to read the credit card information and send it to the processor. In recent decades, the types of machines available have evolved rapidly. Below, we break down the types of hardware currently available to help you zero in on the one that best suits your business’s needs.

Traditional Credit Card Terminals

Credit card machines come in all shapes and sizes, but, in order to transmit cardholder information to the credit card processor, they must all connect to the internet one way or another. By “traditional” terminals, we are not specifying a size or requiring a feature (e.g. an integrated cash drawer). What we mean by “traditional” is that it is a machine that’s connected to the internet via a physical, wired connection such as an ethernet or telephone line.

Traditional terminals come in all shapes and sizes. They can be small devices just five or six inches long, with or without a PIN pad and/or a signature pad. They can be connected to a cash register in various ways so that the payment amount can be displayed on the terminal. Some terminals have a built-in receipt printer, and others do not. They can process the card as a stand-alone device or they can be connected to a point-of-sale system (see below) for additional data collection for your business.

Wireless/Portable Credit Card Machines

Many electronic devices these days have a Bluetooth or WiFi connection, and credit card readers are no exception. If you have a WiFi reader at the checkout counter, the signal is transmitted from the reader to the wireless gateway/router at your store before it goes to a landline and onto the internet. If you’re using a cellular connection through your phone or tablet, the information is transmitted from the device to the cellular base station and then onto the internet via a landline network.

Even though these devices communicate through wireless signals, some of them are still plugged into an electrical socket to provide power. Others, however, use rechargeable batteries. Despite the need to charge the devices, the wireless terminals can offer a merchant a great deal of flexibility, since the readers can be moved around at will, either to different stations or off-premise (to, for instance, trade shows).

The only thing to watch out for when using a wireless or portable reader is that you must have a strong signal, whether WiFi or cellular, for them to work.

Debit Card Machines

A debit card costs less to process than a credit card, so it would make sense for a merchant to have a machine that can take debit card charges. Technically, you can accept debit cards with any type of credit card terminal because there are two different ways to run a debit card charge: the credit method and the debit method. You pay a different fee, depending on the way you run the charge.

If you run a debit card using the credit method, you pay the same fee you would if you had run the card as a credit card. You only pay less to process a debit card if you run the card using the debit method. In order to do that, you need a machine with a PIN pad because all true debit charges require a PIN to authorize the charge.

So, while there isn’t really a “debit card machine” dedicated to reading debit cards, any payment card reader with a PIN pad can be thought of as a “debit card machine.” Whether you have something with a PIN pad that you have to take out for the customer to use or a system with a dedicated, customer-facing PIN pad, be sure to be sensitive to security measures when a customer enters a PIN. Pick a payment card reader with a shield to block prying eyes from passers-by, and your customer will appreciate your thoughtfulness.

Smart Terminals

The term “smart terminals” is beginning to be used quite a bit. The difference between these terminals and the traditional terminals seems to be that these terminals have more processing power. In a way, the difference is like a traditional phone and a smartphone in that a smartphone can do more than make basic calls and send plain texts.

While a smart terminal can connect directly to a landline, they typically are wireless terminals with a built-in printer. Often they have a touchpad display, and the display can be used to capture a signature or show a PIN pad, depending on the situation. The smart terminal may also include additional hardware features such as a scanner. Despite these integrated hardware features, a smart terminal can be a small, handheld device that can be taken off a store’s counter and into more mobile environments. For instance, these smaller devices can help a fast food restaurant reduce lunchtime rush at the drive-through by allowing employees to go to the waiting cars and take their order and payment well before the customers reach the window normally used for payment.

The software loaded onto a smart terminal typically is a point of sale software instead of a bare-bones card reader software. Companies that offer smart terminals, therefore, tend to be those with a newer business model–i.e. third-party processors–who sell their other business management services in addition to credit card processing services. Smart terminals include the Square Terminal, the Clover Flex, and the Poynt, all of which have a modern, clean look.

Integrated Credit Card Machines

Last, but not least, there are the integrated credit card machines. These are the most complete systems for a merchant to use to take in money, and they come with hardware and software–typically point-of-sale software–already loaded into the machines. They are full-fledged systems that come with all the bells and whistles, including a large display, cash drawers, receipt printers, PIN pads and/or extra customer-facing display, and handheld scanner.

The price of these systems can get quite high as compared to the other terminals discussed earlier. However, these systems come with fully functional POS software (which may require you to pay an additional monthly fee) that should help you simplify various aspects of running your business.

Credit Card Machines VS Virtual Terminals VS Mobile Processing

We don’t want you to walk away from this article thinking that you have to have a credit card machine in order to take credit cards. There are, in fact, a couple of ways to take a credit card payment without a machine. We will briefly discuss them below.

Mobile Processing Apps

When we refer to credit card “machines,” we mean a piece of hardware that has several functionalities. It will read the information stored in the credit card, encrypt the information, and send the information to your card processor. There exists, however, bare-bones hardware with only one function: to read the information off a payment card, encrypt the information if necessary, and send the information a very short distance to another more complex piece of hardware that delivers the information to the processor.

These bare-bones hardware devices are called “credit card readers.” Some of them are physically attached to a smartphone through a headphone jack and others are connected to the device via Bluetooth. The software working in tandem with these devices is usually known as a “mobile processing app,” “mobile point of sale app,” or “mPOS app.”

Note that an mPOS app is typically the same or a simplified version of the more elaborate POS software sometimes loaded onto smart terminals or fully-integrated credit card machines. This very robust software not only will allow you to take a payment, it can also keep track of other things like employee hours or inventory and generate reports related to them. Another feature of these apps is they allow you to enter credit card information directly into the app, without any other machine. So, even if you don’t have the hardware, you can use a mobile processing app to take credit card sales.

(But there is really no reason for you to not have the mPOS hardware because you can get some them for free. Read about the best free credit card readers available for more details. Or, by paying just a little bit more, you can get excellent readers with additional functionalities.)

Virtual Terminals

The portion of an mPOS app or POS software where you can enter payment card information without using a reader hardware of any sort often goes by a different name: a virtual terminal. Virtual terminals, however, operate not just on mPOS apps but can operate on laptops as well. Basically, any software application that allows a person to enter credit card information by hand is a virtual terminal.

To use a virtual terminal, you simply key in the credit card information into your computer’s browser or an app, and then the card is processed (note the process rate is typically higher because these are card-not-present transactions that have a higher rate of fraud). Virtual terminals are especially suited for online businesses or for businesses that take payments by phone (e.g. food delivery business). Some virtual terminals allow you to customize the page and then open it to your customers so they can enter the credit card information themselves to finalize a purchase.

Some virtual terminals will allow you to pair a card reader that connects to your computer via USB, headphone jack, WiFi, or Bluetooth. This way, you can take advantage of the lower rates of a card-present transaction. Because a virtual terminal is a software-only method to take a payment card charge, they are not considered credit card “machines.”

What Does Your Business Need In a Credit Card Machine Or Terminal?

So now that we’ve discussed the many types of credit card machines and terminals available in the marketplace, which, exactly, should you choose? Which one suits your business best? While the answer is different for every business and dependent on your industry and customer profile, there are a few things you should keep in mind while picking your hardware:

• Capability: The card reader should be capable of reading EMV (i.e. chip) cards because EMV readers reduce your fraud liability. Fortunately, most card readers have that capability these days, and only a very few readers are magnetic stripe readers only. NFC reading capability for electronic wallets such as Apple Pay or Google Pay is nice to have, but not as essential as EMV.
• Budget: Figure out your budget for the machine and stick to it. Credit card machines run the gamut in prices, from completely free to $1,000+. The difference between the two is the same as the difference between driving a luxury car and a subcompact–they will both get you from point A to point B, but only one of them will give you a journey catered to your comfort and convenience. For credit card machines, the difference often comes down to the type of software loaded into the machine–a machine loaded with a modern POS software can provide a lot of convenience for a busy business owner. Note that, with some third party processors such as Square, not only do you get a free reader, you can use many aspects of their POS software for free. So, before you settle on a machine, be sure to consider your business’s hardware and software needs as a whole, both for now and several years from now.
• Integration: Elaborating a little more on the POS software, you might want to consider whether and how well you wish to integrate your card terminal with any POS software. Basically, this comes down to convenience and the type of business you run. Automatically syncing the card authorization with the payment submission after a transaction can save you a little bit of time (often just a matter of punching an extra button, but this can get tedious if you have a line of customers). If your business takes just a few payment card charges every day or even every hour, then automatically syncing your sales with, e.g., sales reports and inventory might not be important, but if you have a lot of customers every day, the syncing ability could save you a lot of time with the administrative work/daily bookkeeping for your business.

Consider these and other points specific to your business before you decide which terminal to buy. A little planning and thinking ahead might end up saving you a lot of time and money in the future.

Why Your Choice Of Payment Processor Matters More Than Your Choice Of Credit Card Processing Machine

Having worked your way nearly to the end of an article about how to choose your credit card processing machines, you might find it horrifying to see a subheading that says maybe the machines do not matter too much. Sadly, this is mostly true. The machines are just hardware. There are bare-bones ones, standard ones, good-looking ones, and ones integrated with all the hardware and software bells and whistles. But, at the end of the day, they are all supposed to do just one thing–take the information from a credit card and forward it to your processor so you can get paid.

The reality is that there are only a handful of hardware manufacturers of credit card machines. While some might privately label certain designs for certain credit card processors (think Square’s proprietary card reader designs), most hardware is pretty similar by necessity of function. After all, a PIN pad is a PIN pad, and there are only a limited number of ways you can design a slot to insert and read an EMV card.

From a software and security standpoint, again, because the machines must conform with the credit card industry’s security standards, there is not a lot of variation to the programming. Consequently, while this is not 100% true, most credit card machines can be programmed and reprogrammed to connect to different credit card processors, especially between different traditional merchant account providers.

In fact, there are a lot more merchant services providers with a lot more variance in pricing, contract terms, and quality of customer service than there are credit card machine manufacturers. If you look carefully, many of these providers offer the same hardware, but at different prices.

So, while it’s good to understand your hardware options, it is more important to find a good processor and then look at their hardware offerings instead of the other way around. Some of the really good processors will even let you buy or bring your old machines when you sign up with them. Then, for a small fee or sometimes for free, they can reprogram the machines to work with their backend software.

Depending on your particular situation, considering doing one of the following:

• If you already have a credit card machine/POS system, ask your hardware provider for a list of processors that use software compatible with your hardware. This way, you make sure that your existing hardware can be re-used.
• If you really want an integrated system like Clover, shop around. Many payment processors offer Clover, but the contract terms and pricing markups for the hardware can vary quite a bit. We also strongly recommend against leasing your payment processing hardware, which unfortunately is still a common practice, especially with Clover. 
• If you truly don’t know or don’t care too much about the hardware, find a good payment processor. They will talk you through your specific needs and make sensible suggestions from their available options.

As to how to find that really good processor, we have a list of highly-rated processors to serve as your starting point. We rate the processors with pricing, technology, and customer service in mind, so you should be able to get a good feel for which processor to talk to even after just skimming our ratings chart. Then, your choices for hardware can naturally be shortened, and you should be able to find what you need fairly quickly.

One last thing about payment card processing hardware: you’ll notice we didn’t talk much about pricing in this article. That’s because we have another article all about the best ways to get a credit card machine–how expensive they are and how you can find ways to pay for them (again: don’t lease a credit card machine). Take a look at that article as well, so you don’t fall into some easy money traps.

Leave a message below and let us know of your adventures in hunting for that perfect credit card processing machine. Whether it’s a tale with a happy ending or a horror story, we’d like to hear from you!