2011 Fall – Back to Basics

What can you do to capture farmers market sales from customers who won’t leave home without their credit cards but who never carry cash? There has to be a better way than pointing to the nearest ATM. 

Some farmers market vendors, such as Carole Soule of Miles Smith Farm in Loudon, N.H., are finding a solution in wireless credit card processing. She uses wireless credit card processing for sales of Scottish Highland beef at farmers markets and in her farm store. 

“I’m thrilled with it [wireless processing]. I think of it as an employee – it works so hard for us!” she says.

Chuck and Diane Souther of Apple Hill Farm in Concord, N.H. agree. They use their wireless credit card processing system at farmers markets as well as in their pick-your-own operation, where it saves a trip from orchard to farmstand when cashless customers need to settle up. 

A bonus to this convenience is that the system is fast. It takes about half the time of a landline system, according to the Southers.

Soule likes that all data is entered at the point of sale and that the system immediately recognizes invalid cards. The wireless credit card processing also enables her to print a receipt for customers, something that cannot be done using her smart phone app to scan credit cards. 

Wireless credit card processing terms

Before signing up for wireless credit card processing, it is important to know service, fee and device basics. The basic wireless credit card processing device is a hand-held terminal with a credit card reader and a keypad.

After data on the card is collected by the terminal, it becomes part of the credit card processing system. Then funds for a purchase are transferred to the seller.

Terms for the primary components of a credit card transfer may differ, but they likely are: 
• Card holder – Customer or purchaser
• Card issuer – Bank that issues the credit card to the card holder
• Card association – Visa and MasterCard, Discover, or   American Express. American Express is generally not used for farmers market type      purchases. 
• Wireless credit card terminal – Using the same technology as cell phones, this device processes credit card transactions
• Merchant – Seller 
• Processor or Acquirer – Processes credit card transactions on behalf of merchants. 

The inner workings of wireless credit card processing

Transfer of funds from a purchaser’s account to your account begins when you key in the amount of the sale and swipe the purchaser’s credit card. The credit card machine connects to the processor through the same technology as that of a cell phone.

Over this data network goes information collected by the credit card machine’s magnetic sensor which reads tiny magnets on the credit card’s magnetic strip. Among the data collected are the card’s account number and expiration date.

Synthesized by the terminal, this information becomes a wireless signal which is communicated across a secure wireless data connection to a designated processor. The processor then passes the information to the bank which issued your customer’s credit card. 

If the card is valid and the customer is within the dollar limit of the card, the bank earmarks funds for the transaction. An approval number is then sent back to the designated processor, and the processor passes the information back to your wireless credit card terminal.

When the card and the sale have been approved, your wireless credit card terminal will print a receipt which the customer signs.  Depending on the wireless signal, the entire process may take 8 to 12 seconds. 

Wireless credit card processing without cell phone service

Even though cell phone service may not be available at all farmers markets, most wireless credit card processing machines will continue to work, albeit on a delayed basis. Using a feature called Store and Forward, card transactions will be sent as soon as you are again in an area with cell phone service.

Before selecting a wireless network, check out cell phone coverage in the places you would potentially use a wireless credit card processing device. After choosing the network best suited to your needs, you are ready to select a wireless credit card terminal. Most wireless terminals are available in different network-compatible versions. 

The cost of  going wireless

A new wireless credit card processing terminal may cost $300 to upwards of $600. Added to the cost of the terminal are annual, monthly, and per-transaction fees. Fees and fee structures can be quite complicated.

“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. of Hooksett, N.H. MJM Associates is one of many merchant account services whose specialty is sorting out fees.

Others, such as Merchant Warehouse which Soule uses, are available on the Web. Soule paid an initial $300 per terminal for a ready-to-use system. She also pays $20 per month per terminal + fees. 

“If you are already processing credit cards, adding a wireless credit card terminal could add about $15 a month to your fees – or it could lower them,” says Breton. “Most wireless transactions have a transaction fee of 5 to 10 cents built into the price.

“If yours is a seasonal business (as many farmers market vendors are), you should pay only for the months you use your system.”
During the winter, Soule uses one of her terminals in her farm store and at winter farmers markets and discontinues service on the other. 

Annual, monthly, and per-transaction fees

• Annual fees are usually assessed once  a year.

A programming fee, also known as a download fee, could be attached to your application for a merchant wireless credit card account. This fee may be part of the wireless terminal account activation cost.

A compliance fee – Payment Card Industry Data Security Standards (PCI DSS) may be assessed annually or monthly and is sometimes hidden in processing fees. This fee (up to $250/year) is charged by processors  to keep their networks updated.  

• Monthly fee, also called account on file or statement fee, is a fixed amount assessed monthly. It is in addition to the cost-per-transaction fee. 

A monthly minimum fee may or may not be only for the months you use wireless credit card processing. It is levied when the processor has not made a minimum amount on your monthly processing fees. 

• Per-Transaction Fees may range from zero to 30 cents per transaction and may be assessed as part of authorization or processing fees. 

An authorization fee may be part of the cost of approving a transaction or it may be hidden in processing rates. Like a transaction fee, an authorization fee may range from nothing to 30 cents per transaction.   Processors usually assess either a transaction fee or an authorization fee.

A per item rate is similar to an authorization or transaction fee.

A processing fee may be charged by the processor to cover handling costs.

The swipe rate is the fee assessed for running a traditional credit card through the terminal and reading all three of the card’s magnetic tracks.

A batch fee is assessed each time a seller submits a number of wireless credit card transactions to the processor, usually when the seller settles the terminal each day at the close of business.

The interchange rate is set on each transaction based on several factors including which of some 250 different card types is used – credit, debit, purchasing, retail, rewards, and corporate. Other factors determining the interchange rate include how the transaction is entered (swiped or keyed), whether the address verification system (AVS) is used, and whether or not the terminal is settled at the close of business each day.  

Bundle pricing is not the most cost effective pricing plan, according to Breton. Bundle pricing may hide several fees and conceal others which are based on the way transactions are entered and the risk involved in collection. 

The cost of processing wireless credit cards

Your effective wireless credit card processing rate will vary with your monthly sales volume. To calculate the effective percentage rate of your wireless credit card processing transactions, begin by totaling the dollar amount of your monthly wireless credit card processing fees. Add that amount to the dollar amount of your monthly fees coupled with the monthly pro-rated annual fees.

Divide the total fees by total sales to find the percentage that represents the effective rate of processing your credit card transactions. For example: total fees/month ($89.79) divided by total sales/month ($2,598.93) gives  an effective wireless credit card processing rate of 3.45 percent.

“If your effective rate is over about 3.25 percent, you should review your system,” says Breton. “If 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,” he says.  He notes, however, that tickets averaging a small amount will result in an increased effective rate. 

What about security?

Some say that wireless credit card processing terminals using high level data encryption are secure. Others disagree.

Jacques Breton, founder of MJM Associates, believes a wireless system can be tapped. For wireless processing, he recommends an encrypted web-based gateway which communicates via a third party processor. 

“Do not use WiFi,” he says. “Most secure is a landline.”

A few suggestions

Start the process of obtaining and using a wireless credit card processing system before the farmers market season begins. Following completion and approval of your account application, a merchant account service can generally have your system up and running within 24 to 48 hours. However, Breton recommends giving yourself at least a week to test the system before using it.

The fees associated with processing a debit card transaction can be minimized by asking your customer to enter the account’s PIN number.

Alert your wireless credit account processing service when a spike in activity is anticipated – such as the time seasonal farmers markets begin. If not, a sudden spike in account activity suggests a stolen credit card processing terminal and may result in a temporary freeze on your merchant account.

“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. “Know what all your fees mean.”

Understanding the basic process and issues of wireless credit card processing can help you can prevent or resolve problems, Brenton says. He also suggests being aware that wireless credit card processing costs change frequently. 

“Rates that you once checked and found high may have come down,” says Breton.  “For merchants having average purchases under $25, there are now lower rates.”