Archive for May, 2025

So think all credit card machines are alike? Of course not! There are many obvious differences and many that are not so obvious. But you knew that because it works that way with many things: cars, appliances, etc.

So what do you need to be looking for? Well, that’s an article all by itself, but one thing to keep in mind is something never brought up by sales agents and merchants rarely think to ask. “Can this terminal be used with another processor”? Credit card machines may seem simple as they all generally require the same three things:

1. Some way to connect to the processor (telephone line, Internet connection, wireless signal)
2. Electricity (Either a power cord or battery)
3. A merchant account

But it goes much deeper then that. Unlike cars or appliances which generally work no matter what gas station you use or brand of detergent you buy, credit card machines don’t necessary work with every merchant account. Some credit card machines only work with a select few, or even more ominously, only one merchant account provider.

In the case of the terminals that work with only a select few providers, this is due to most processing banks just not offering support for the credit card terminal. In the merchant account world things work a little bit backwards. Instead of their being demand for a piece of equipment first and the manufacturers filling that demand, the manufacturers create the equipment first and then hope their is demand for their product. They have to hope all of the credit card processors will certify their equipment to be used with their services. If they don’t, that processor’s merchants just can’t use that credit card machine. In some case a few processors will certify the machine (typically the smaller processors) but the other processors (the major players) won’t.

In the case of the credit card machines that work with only one processor, the cause is less reason is a little more frightening for merchants. These credit card machines are designed and manufactured with the sole purpose of only working with one processor. This is done at the processor’s request. They do not want their equipment to work with any other processor.

So why are these credit card machines bad? Because if your business chooses to use one of these machines, you will essentially be locking yourself into that processor. If you chose to leave their services you will be forced to buy a new credit card machine to use with your new processor. So if you are unhappy with your current processor’s rates, even if you find a lower rate elsewhere, it could take you months or years to save enough money with your new lower rates to cover the cost of that new terminal. Unless you are extremely unsatisfied with your current processor it is unwise from a business point of view to leave your current processor.

The sad part about this is the sales agents who sell proprietary equipment know what they are doing. They just don’t tell you.

CVV2 is a credit card security measure aimed at reducing fraud for card not present transactions. It is a three or four digit number that is only present on the credit card. Theoretically, this is used to verify that the credit card being used in a purchase in the in the possession of the purchaser at the time of the transaction making the sale more secure.

This code can be found in varying places on a credit card and is called different names by each of the major credit card companies:

Visa places their three digit code, which they call “Card Validation Code” (CVC2) on the back of the credit card in the signature panel. Usually at the very top-right most corner.

MasterCard places their three digit code, which they call “Card Verification Value” (CVV2) on the back of the credit card in the signature panel. Usually at the very top-right most corner.

American Express places their four digit number, which they call “Card Identification Number” (CID) on the front of the credit card, usually toward the end of the credit card number. It is not embossed like the credit card number and cannot be captured with a manual imprinter.

Discover Card places their three digit number, called “Cardmember ID”, on the back of the credit card in the signature panel. Usually at the very top-right most corner.

Using CVV2 is common in online transactions and most online retailers will not allow a sale to proceed unless this number is verified as being correct.

The concept of batching does not apply to Internet merchants as their payment gateway typically takes care of this for them. However, it is possible to have a gateway that does not do this for you. If your gateway is not set up to automatically batch itself out for you, please continue reading below.

Every retail merchant knows that if they wish to get paid for their transaction paid via credit card they must batch out their terminal. Batching your terminal, also known as “settling”, is the process of taking the transactions present in your credit card terminal and sending them to your processing bank. This makes your sales “official”. In other words, when you batch your terminal you are in effect telling your processing bank that you want to get funded for these sales and the customers need to have their credit cards charged. Until you batch your terminal your sales are not final. For example, you may still void a transaction and make it as though it never happened.

All merchants are expected to batch their sales within 24 hours of the sale occurring. So, if your business ran a transaction successfully at noon on Monday, that sale is expected to be batched out by noon on Tuesday. Typically a merchant will ensure all of their transactions are batched out in a timely manner by batching out their terminal at the end of each business day. That way all sales are sure to be batched out in time.

But what happens if you don’t batch out your terminal in time? Any sales that are not not batched out in a timely manner automatically are charged the highest rates Visa and MasterCard offer. This will be the non-qualified rate your processing bank charges (if you don’t know what yours is you can contact them to find out). A non-qualified fee is usually double the rates a merchant typically pays. Not batching your terminal in a timely matter always trumps all other considerations when determining what rate your sales are charged. So, if you swiped a check card through your terminal and obtained a signature but failed to batched that sale out in a timely manner, you will go from paying one of the lowest rates possible to the highest.

Fortunately avoiding the penalties of not batching your terminal out in a timely manner is easy to avoid. A simple remedy is to make batching your terminal a part of the nightly routine for your store’s closing procedure. Any smart business will do a batch report detailing their daily credit card sales. This is the perfect opportunity to batch your terminal out. Additionally, a smart business will also attempt to batch their credit card terminal out every morning before they open. Why? Because a credit card terminal will not batch (or, more precisely, cannot batch) and empty terminal. So, if the night shift forgot to batch the terminal, you have caught their error and saved your business money. If they didn’t forget, you simply only wasted five seconds of your time.

Another solution is to have your terminal programmed for Auto Close. Auto Close allows your terminal to match itself out every day at a preset time without any human intervention. There are two kinds of Auto Close: Terminal-Based and Host-Based.

Terminal-Based Auto Close is when a merchant’s credit card terminal is programmed to automatically batch itself out each night. The terminal acts as if a human being has manually batched the terminal out. It dials out and communicates with the processing bank just like a regular batch. Thus the terminal requires to be plugged in and have access to a telephone line. If these two criteria are met the merchant can use Terminal-Based Auto Close.

Host-Based Auto Close is similar to Terminal-Based Auto Close but the batching is done without the credit card terminal doing anything. The batch is handled by the processing bank’s computers (the Host). Merchant accounts set up with Host-Based Auto Close do not have to manually batch out their terminal or keep their terminal plugged into a telephone line and electricity because their terminal is not part of the batching process.

One thing to note about Auto Close is that it is not available to merchants that adjust their sales for tips. This is because if their terminals are batched before they are able to adjust their sales to add tips they will lose their tips! Merchants who add tips during the transaction are unaffected by this and can have Auto Close.

A common question asked about chargebacks is why retail stores always seem to win and Internet merchants always seem to lose. A common misconception is that credit card processors don’t care about Internet merchants, most likely because most of them are small and don’t make any real money. This is untrue.

The reason why retail stores don’t have chargebacks issues is due to the circumstances under which the transaction is conducted. If a retailer is able to swipe a credit card through their terminal and have the customer sign the receipt they are protected against chargebacks and here’s why. It is assumed that at the time of purchase the these four conditions are all true:

1. The merchant is present
2. The customer is present
3. The merchandise is present
4. Both the merchant and customer are satisfied

It is assumed that if there was a problem the customer would not allow the purchase to be completed. By allowing their credit card to swiped and providing a signature the customer is saying they are satisfied with their purchase and the circumstances under which it occurred. As a result, they cannot claim any of the following:

1. The did not make the purchase
2. The merchandise was unsatisfactory

They can still claim fraud but the merchant is still protected against this (the card issuing bank eats the cost for this).

Internet merchants cannot swipe a credit card or get a customer signature. As a result they can offer any verification about the transaction. Thus no protection.

Discover Financial Services announced in early February plans to eliminate the contested “no surcharge” rule on Discover card transactions. A spokeswoman for the company said that Discover will notify merchants of this development in June, and the policy will take effect this October.

The no-surcharge rule (which Visa and MasterCard also enforce) prevents merchants from adding additional fees to credit and debit card transactions in order to recoup the costs of accepting those cards. It primarily refers to high-priced rewards cards but could also be applied to lower cost debit cards.