How Do Card Machines Work? Everything You Need to Know

A complete guide to the process behind accepting card payments

As society increasingly moves towards a cashless model, businesses of all sizes need to offer cashless payment options or run the risk of being left behind.

Luckily there are card reader options to suit every business type. From sole traders that offer their services and collect payments on a door-to-door basis, to large retail operations with multiple outlets, there is a card reader solution.

Whatever type of reader your business uses or is planning to use, it is useful to understand the mechanics behind the payment process and the different options available when choosing a card reader solution.

This guide takes a look at how card readers work, the different types of card readers available, and what type of business can benefit from them.

The payment process

For the merchant, the process is simple. A customer either inserts their card or uses a contactless option to pay for goods and services. The payment is then authorised, and the job is done.

This usually happens in a matter of seconds, and this speed masks the complexities of the number of processes that have occurred during those few moments.

Step 1: Payment

The first process in any transaction is payment. The customer can pay by swiping a card, using it contactless, or using a device like a phone or a smartwatch to begin the process.

Once this happens, the merchant’s card reader sends the details to the payment processor or acquiring bank. The details sent include:

• Card number
• Expiration date
• Payment amount

This information is forwarded to the correct card network, for instance, Mastercard or Visa. The card network then forwards the details to the customer’s issuing bank to authenticate the transaction.

Step 2: The payment authentication process

Once the issuing bank has received the payment request, it authenticates the payment. Put simply, this is a two-part process, as described below:

The first step the issuing bank checks is whether the customer has the available funds to cover the transaction.

To prevent fraud the bank will also undertake some security measures to ensure that the transaction is genuine and to confirm the cardholder’s identity.

Once the transaction is approved, the bank communicates this to the payment processor, and from there, the approval is forwarded to the card reader.

Step 3: The clearing process

At the conclusion of the business day, the terminal sends confirmation of approved transactions to the payment processor.

The processor then sends the details of each transaction to the correct credit card network. The networks then send the details of each transaction to the appropriate card issuer.

At this stage, the various financial elements of the transaction are concluded, mainly these involve the shares of transaction fees being moved to the appropriate bank, processor, and network.

The parties involved

It is a testament to the robustness of the technologies that underpin the entire process that most card payments are seamlessly concluded within a few seconds. This is all the more remarkable when considering the process noted above and the number of parties involved in ensuring it works.

The main parties involved in just about every card payment are as follows: 

Customers

Customers are the obvious starting point of every transaction. They are responsible for presenting their card or other payment device such as a smartphone and a service such as the one that Google, Apple, or Samsung provide.

Merchants

The business provides the goods, but more importantly, in the context of this article, the hardware and infrastructure to accept card payments.

It is this hardware and its network functions that ensure that the payment and payment method information is securely passed to the appropriate recipient.

Payment processor

The payment processor is an essential part of the chain. It is usually a third-party company and often holds affiliate links with the acquiring bank. The processor’s task is to provide the platform and infrastructure to facilitate the transaction.

The acquiring bank

The acquiring bank acts as an intermediary between the business’s bank and the customer’s bank. Each business that accepts card payments will need to set up a Merchant account with an acquiring bank before accepting payments.

The credit card network

Amongst the tasks the networks carry out are:

• Receiving transaction details from payment processors
• Sending authorisation requests to customers issuing card-issuing banks
• Sending responses back to the payment processor

Customers banks

The bank that issued the customer’s card is the final link in the chain. They have the final say on the authorisation of the transaction based on funds available and the security measures used to verify the transaction is not fraudulent.

Types of Card Reader

Not every business has the same needs when it comes to offering card transactions. There are several types of card readers available that reflect these differing needs.

Countertop card readers

Supermarkets and retail outlets with fixed till positions are likely to use countertop card readers. These are fixed positions and usually hard wired both for power and network connectivity.

Portable card readers

These are the perfect choice for businesses where there is no reliance on a fixed till position to receive customer payments. This makes them perfect for establishments like restaurants and other hospitality businesses, where the bill is often brought to the customer.

These use Bluetooth to communicate with a base unit that concludes the transaction.

Conclusion

These days all businesses need to offer the availability of paying by card if they are to avoid falling by the wayside. Luckily, although the process of taking payment goes through a number of complex procedures, the merchant can stay blissfully unaware of this.

For the business, the important factors are simplicity and speed, and that’s what modern card readers offer.

At PaymentPlus, we can provide tailored card terminal solutions that exactly meet your business’s needs. Why not contact us today and find out more about how we can help your business optimize sales and increase efficiency with a card reader.

Mobile card readers

These are the perfect option for businesses on the move. These use a mobile signal to transmit data. This makes them a great option for trade businesses like plumbers, mobile hairdressers, and builders who often invoice the customer on-site.