Despite the recession, credit and debit card use is growing … and is expected to continue to grow, according to ResourceNation.com. In 2008, 176 million Americans owned credit cards and 181 million had debit cards, according to the U.S. Census Bureau,.
And while credit card use has been down in recent months because of slow job growth, according to the HuffingtonPost.com, debit card use is becoming the dominant form of payment for many consumers.
According to a study by the Federal Reserve, between 1996 and 2006, debit card use grew 20 percent per year and has now exceed credit card transactions. At the same time, the number of checks written each year is dropping steadily and cash transactions are leveling out.
More than ever, Americans are accustomed to paying with plastic over paper. And as smartphone use increases, the newest trend will be virtual wallets — consumers using their phones to make purchases at major retailers.
The cost of scanning devices and processing fees have made some small businesses shy away from offering credit card payments. But the advent of card readers that attach to mobile phones means that even the small and mobile businesses (i.e. food trucks, landscapers, pizza delivery, contractors, etc.) can accept credit cards at a low cost.
Businesses that don’t accept credit cards potentially inconvenience customers (and in the worst case, lose customers who don’t have another form of payment), limit their ability to sell products via the internet, and appear less savvy than competitors.
Types of Credit Card Processing
It is imperative that small business owners not only accept debit and credit cards, but that also make processing such transactions easy and efficient. Here are the primary outlets for accepting credit card payments:
- Dial Up Terminal: Connects through a phone line, one of the oldest and most common forms of credit card processing.
- IP-based Terminal: Connects through the internet instead of a phone line and offers faster processing.
- Wireless Credit Card Terminal: Connects through a wireless network; best for mobile businesses.
- Computer Software: Less common; allows you to process transactions via a computer.
Finally, mobile processing is becoming an increasingly popular option for both businesses and consumers.
Mobile Processing Companies Compete for Small Businesses
Startups are currently developing smart-phone-compatible credit card readers. These readers charge less than the 3 percent that large credit card processing companies collect each time a consumer uses a credit, debit, or gift card, according to a recent Washington Post article.
In addition, earlier this year, PayPal launched PayPal Here, a mobile card reader that charges 2.75 percent per swipe and accepts PayPal payments in addition to credit and debit cards. Square Inc. charges customers a flat rate of $275 a month to process up to $250,000 in sales using its credit card reader.
And another entry into the field, Level Up, doesn’t charge a fee for processing, but requires both the business and customer to download a smartphone app to complete a transaction (the customer’s credit card is linked to the app; in order to pay for an item the customer uses their smartphone to scan a QR code located on the item).
It could be that in the not-too-distant future, consumers will ditch their wallets in favor of their phones. Is your small business prepared?
Learn more about credit card processing for your small business on Business.com.
Image courtesy of SquareInc.com