How wireless credit card processing works

As cashless customers become more the rule than the exception, a wireless credit card processing system could both simplify and increase sales, especially sales away from your usual base of operations.

What is a wireless credit card processing system?

A wireless credit card terminal is a hand-held device with a keypad and a credit card reader. The data collected via the device becomes part of the system through which funds for a purchase are transferred from a customer to you, the seller. The names of the six primary components involved in processing a Visa or MasterCard transfer may differ from system to system, but they will be something like this:

(1) Wireless credit card terminal—A device that processes credit card transactions using the same technology as cell phones.

(2) Card holder—Generally the purchaser.

(3) Card issuer—The bank that issues the credit card to the card holder.

(4) Merchant—The seller.

(5) Processor or acquirer—Processes credit card transactions on behalf of the merchant.

(6) Card association—Another term for Visa and MasterCard, Discover or American Express (American Express is generally used for other types of purchasers and purchases and will not be considered here.).

Diane and Chuck Souther of Apple Hill Farm in Concord, N.H., have been using a wireless credit card processing system on their farmstand, pick-your-own orchard and berry operation, as well as at farmers’ markets for several years. Not only do they find the wireless system twice as fast as a land line, but they are also able to capture sales they might have missed from customers who do not carry cash.

How does a wireless credit card processing system work?

To begin the transfer of funds from a purchaser’s account to yours, you enter the amount of the sale and swipe a credit card through a wireless credit card machine. The machine is connected to the processor through the same technology as a cell phone. Over this data network goes information collected by the machine’s magnetic sensor, which reads the thousands of tiny magnets on the credit card’s magnetic strip. The magnets contain data that tell the terminal such information as the card’s account number and expiration date. The terminal then synthesizes this information into a wireless signal that it communicates across a secure wireless data connection to a designated processor. The processor passes the information on to the bank that issued your customer’s credit card. Providing the card is valid and the customer is within their card limit, the bank earmarks funds for the transaction and sends an approval number back to the designated processor, which then passes the information back to your terminal. Once the card and the sale have been approved, your terminal prints a receipt for the customer to sign. The entire process takes eight to 12 seconds, or even less, depending on the wireless signal.

Joel Breton of MJM Associates, Inc. in Hooksett, N.H., demonstrates various wireless credit card devices at a meeting of the NH Farmers’ Market Association.
Photos by Kathleen Hatt.

Will wireless credit card processing work where there is no cell phone service?

Yes, but it may not work immediately. Most wireless credit card processing machines have a feature called Store and Forward, which enables delayed forwarding of card transactions once you are again in a covered area. Before you select a wireless network, check the places where you would most often use a wireless credit card processing device to make sure coverage works well. Once you have chosen the best network for your needs, the next step is selecting and purchasing a wireless credit card terminal that works with your chosen network. Most wireless terminals come in different versions for each network.

What’s all this stuff cost?

In addition to the cost of the wireless credit card terminal, there are typically annual fees, monthly fees and per-transaction fees. “There are some 50 pages of documentation about various fees and how they may/would/could/do operate in various situations,” says Joel Breton of MJM Associates, Inc. based in Hooksett, N.H., one of many merchant account services specializing in wading through this morass and, in the process, saving you time and money. “If you are already processing credit cards, adding a wireless credit card terminal could add about $15 a month to your fees, but it is also possible that it could lower them,” he says. “Most wireless transactions do have a transaction fee of five to 10 cents built into the price. As a seasonal business, you should not be paying every month, but just for the months you use your system.”

Fees, fees and more fees

In addition to the $600 and up for a new wireless credit card processing terminal, there are three categories of fees associated with wireless credit card processing:

  • Annual fees—Sometimes, but not always, assessed once a year.
  • Programming fee—Also known as a download fee, a programming fee could be attached to your initial application for a merchant wireless credit card account. However, instead of being assessed separately, this could be part of the wireless terminal activation fee.
  • Payment card industry data security standards (PCI DDS) compliance fee—Processors charge this fee to keep their networks updated. This could be assessed monthly or annually, and could be hidden in processing fees and cost up to $250 a year.
  • Monthly fees—Called an account on file or statement fee, this is a fixed fee assessed each month and is in addition to the variable cost per transaction.
  • Monthly minimum fee—A fee assessed monthly that could or could not be just for the months you plan to use wireless credit card processing. This is assessed when the processor has not made a minimum amount on your monthly processing fees.
  • Transaction fee—An amount typically ranging from zero to 30 cents per transaction. If no transaction fee as such is charged, it may be assessed as part of the authorization fee or hidden in processing rates.
  • Authorization fee—Like a transaction fee, the authorization fee may range from zero to 30 cents per transaction, or it may be part of the authorization fee or hidden in processing rates. Usually, the processor assesses either a transaction fee or an authorization fee.
  • Bundle pricing—Not the most cost-effective pricing plan, bundle pricing tends to hide many fees and conceal three to six different rates based on how transactions are entered and the collection risk involved.
  • Swipe rate—The rate assessed for swiping a traditional credit card when all three of the card’s magnetic track strips are read.
  • Batch fee—Assessed each time a seller submits a number of wireless credit card transactions to be processed (such as when the seller settles the terminal each day), usually at the close of business.
  • Interchange rate—How a Visa, Master Card or Discover’s transaction is entered and which of some 250 different card types is being used determines the interchange rate. Card types include credit, debit, rewards, corporate, purchasing and retail. Another factor determining the interchange rate is the way in which the transaction is entered, whether it is swiped or keyed, and whether an address verification system (AVS) is used. Another factor in the interchange rate may be whether or not the terminal is settled nightly.
  • Processing fee—Fee charged by the processor to cover their costs.
  • Per-item rate—Similar to an authorization or transaction fee, this is another charge by a processor.

How to calculate your cost of processing transactions

To determine the effective percentage rate of processing wireless credit card transactions, add up the total dollar amount of your monthly fees together with your monthly prorated annual fees. Divide that by your total sales. This will yield a percentage representing the effective percentage rate of processing your wireless credit card transactions.

For example:
Total fees per month = $89.49
Total sales per month = $2,598.95
Effective rate = 3.49 percent

As your sales volume varies each month, so will your effective wireless credit card processing rate. “If you’re paying an effective rate over 3.25 percent, you need to review and reconsider,” says Breton. “If, for instance, your average ticket is in the $40 to $50 range, your effective wireless credit card processing rate should be no higher than 2.5 percent. However, if your tickets average a lesser amount, your effective rate will increase.” A merchant card service such as MJM can help you review and reduce your rate.

Is wireless credit card processing secure?

Wireless credit card processing terminals use high-level data encryption. Encrypted account information is transmitted over a digitally secured wireless connection which, some say, is virtually impervious to technological eavesdropping. Jacques Breton, founder of MJM Associates, has other thoughts. “Data needs to be secure,” he says, “because anybody can tap a wireless system. A landline is the most secure. Do not use Wi-Fi,” he says. Likewise, Internet processing can be insecure. For wireless processing, he recommends an encrypted Web-based gateway that communicates via a third-party processor.

A few tips

Be sure to start the process of obtaining and using a wireless credit card processing system before you actually need it. After all the paperwork has been completed and your account approved, a merchant account service generally starts the system for you in 24 to 48 hours. Breton recommends that you give yourself at least a week in advance of your first anticipated use to make sure everything is up and running successfully.

If you accept a debit card, be sure to ask your customer to enter the account’s PIN number, which will save you money.

If farmers’ markets and other farm sales are seasonal in your area, be sure your merchant account service representative knows that your sales, and hence your account, will go through a slow period followed by a sudden spike. This is important because a sudden burst of activity is a red flag suggesting a stolen terminal, and may result in a temporary freeze on your merchant account wireless terminal when you need it most.

Know what all your fees mean. “Getting help understanding and controlling fees can be the difference between having wireless credit card processing work for you and your working to support your credit card system,” says Breton. “Understanding the basic issues surrounding a wireless credit card processing system will help you prevent or resolve any problems that may come up.” Be aware, too, that wireless credit card processing costs change frequently. If you checked rates previously and found them too high, Breton suggests you try again. “There are now lower rates and plans for merchants whose purchases average under $25,” he says.

Kathleen Hatt is a freelance writer and editor and a frequent contributor to Growing . She lives in Henniker, N.H.