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Is Your Business Accepting Electronic and Mobile Payments?

By Jesse Butts | June 29, 2012

As more and more consumers demand electronic (and mobile) payment options, now’s the time to upgrade your payment system.

If your store window dons a "Cash Only" sign—or you haven’t dabbled in e-commerce because you’re uncertain of what technology you’ll need to collect payments—you’re losing business, plain and simple.

The "Cha-Ching" Still Is (and Has Been) the "Cha-Charge"

You may be wondering, "But isn’t cash all the rage? I see gas stations and restaurants offering cash discounts. Why should I bother with credit cards and mobile payments if cash is back?" You’re right, to a degree.

After the economic meltdown, some consumers voiced concerns about credit card reliance and, subsequently, reverted to cash payments. When some businesses noticed this, they started offering cash discounts because they didn’t have to pay the credit card processing fees, and smart consumers knew that. In a recent Cleveland Plain Dealer interview with Mithcell Katz, chairman of the Federal Trade Commission, he confirmed cash discounts are perfectly legal, at least at the federal level.

Yet despite this recent cash resurgence, electronic payments reign supreme. By the end of 2010, consumers owned 520 million debit cards and 488.9 million credit cards, and they weren’t afraid to swipe them: Debit cards and credit cards accounted for $2.89 trillion in purchase volume. And, most importantly to your business, debit card use now surpasses credit card, check and cash use individually.

Mobile payment is also making serious headway. In less than a year after Starbucks launched a mobile app with a payment component, the company reported more than 26 million mobile payments. With smartphones on the rise—and no sign of America’s premium coffee addiction ending—small business owners must accept numerous forms of payment in order to stay competitive.

A Quick Caveat about Electronic Payments

Accommodating these payment forms doesn’t require a degree in computer science, nor years of experience working with technology. But no matter what route you choose for accepting electronic payments, you’ll make less money on each sale than you would accepting cash.

The electronic payments service providers need payment for their services, too. Businesses that accept non-cash payments either absorb that cost or raise prices to compensate for credit card company fees. Because the percentage is so small, most customers won’t gripe about the new prices. And the new customers you’ll gain will likely compensate for any potential lost business or reduced margins.

Choosing the Right Electronic and Online Payment Options

The variety of payment options available can be daunting. To help you choose one, we’ve broken down everything into simple categories so you can determine which one will work best for your business.

Traditional merchant accounts. The most common way to accept electronic payments in a customer-facing business involves setting up a credit card account, usually called a merchant account, with a bank or lending institution. Basically, the bank creates an account to accept all your credit card transactions and provides you with the credit card swiper. In exchange for this service, you’ll pay a fee that usually runs from 2.5 percent to 5.5 percent of your credit card sales.

While it may be old school, take a little more time to set up and rely on slightly older technologies, this method has endured for good reason:

  • For higher-volume sales and multiple registers, it’s the way to go. Constantly swiping cards on smartphones isn’t feasible.
  • If you like to maintain a personal relationship with your vendors—especially ones that handle your money—going through a banker you already know for your electronic payment needs adds a sense of security and comfort.
  • The technology has stood the test of time, which can’t necessarily be said for credit card swipers for smartphones, having been on the market for only a few years.

Computer-attached credit card swipers. Small business owners who aren’t interested in working with banks to obtain merchant accounts or shelling out the money to upgrade to smartphones do have an option.

Companies like USB Swiper and Barcodes Inc. offer various credit card swipers independent from your cash register that plug in directly to your Mac or PC. Like a credit card machine, you can type in credit card numbers from online sales. Some of these vendors also allow you set up various online payment options.

Smartphone-attached credit card swipers. If your business doesn’t experience high-volume credit card use, but you still maintain a storefront and want to accept payments in person and over the phone—and you feel like you shelled out a few hundred dollars for something you use just to play Angry Birds—you can use your smartphone to accept electronic payments.

From a hardware and software perspective, this payment option necessitates:

  • Purchasing a credit card swiper that works with your phone
  • Downloading and installing its respective app
  • Ensuring you understand the contract, fees and, if applicable, the merchant account

Of course, you must confirm that the app and credit card swiper you choose work with your phone.

Popular apps include Square Card Reader, Intuit GoPayment Mobile Credit Card Processing and Verifone’s PAYware Mobile. This only scratches the surface of the many mobile payment options at your disposal.

Online-only payments. Perhaps you have a product or service you’d like to make available to the world, and you’re not interested in opening any brick-and-mortar stores. You know you need a website, but how do you accept payment without having to manually type in a bunch of credit card numbers? And who would be willing to just email their credit card numbers, anyway?

To answer the second question first, not many. Instead of purchasing a credit card swiper, you can integrate an online payment service into your website. Depending on the service provider you choose—and the website you’ve created—integrating can be fairly simple and involve no programming.

PayPal remains one of the most popular online payment methods for small businesses. If you haven’t created a website yet, services like AccountEdge’s Enstore and Volusion can let you kill two birds with one stone, allowing you to create an e-commerce website with online payment already included.

Mobile payments. Yes, we’ve already talked about the smartphone-attached credit card swiper, so what’s the difference between that and mobile payments? Quite a bit.

With mobile payments (sometimes called contactless payments), your customers’ smartphones are their credit cards. At your registers, customers can tap their smartphones against a device—usually a SingleTap, MasterCard PayPass or Visa PayWave—that deducts payment from their mobile payment apps. You can also offer mobile payments in your online store so customers don’t have to go through the hassle of typing in their credit card information.

Google launched its mobile payment service, Google Wallet, in mid-2011 and already claims 300,000+ locations accept this form of payment. This service adds a bonus for your brick-and-mortar store as it includes a Google Offer component that works like this:

  1. Someone in your area uses a smartphone to search Google Offers for coupons related to your service or product.
  2. Your business comes up, and he or she decides to visit your store.
  3. When the customer pays with Google Wallet, it automatically redeems the coupon, and you can add "loyalty points"—a rewards system Google hopes will keep your customers coming back.

While the marketing aspect is intriguing, Google Wallet currently serves a limited number of smartphones, and it’s not iPhone compatible. PayPal launched its own mobile payment service, PayPal Mobile Wallet, that may become a worthy adversary for Google.

If you’re located in an area with wide smartphone use and plenty of foot traffic, mobile payments may be right for you. But the fact is most customers aren’t expecting mobile payments yet, and with the smartphone and mobile payments battle still waging, you could end up picking the service that turns into the Betamax of mobile payments.

Determining the right electronic or mobile payment option is a commitment. Even if you’re not under contract or have a money-back guarantee, adopting and abandoning the technology wastes significant time. But the fact remains: Not accepting electronic payments is telling some potential customers you simply don’t want their business.

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