What You Should Know about Credit Card Processing Apps

What You Should Know about Credit Card Processing Apps

Spending more than $100,000 to open a store is common, according to retail consultants. But depending on your industry and location, your initial costs could be much, much higher. That's why it's important not to overlook credit card processing apps to save as much as possible on your expenses.What can you do to ensure you take home more of your revenue? Well, you could consider abandoning large, clunky point-of-sale (POS) systems. Experts estimate the average initial cost of a POS system at around $1,200, and that doesn’t include ongoing fees you pay for each transaction. By comparison, credit card processing apps are more nimble, affordable ways to accept payments. They can put your business in a better position. To optimize the value a credit card processing app delivers to your company, you must choose the right solution and implement wise payment processing strategies.

Why you should have a credit card processing app

Point-of-sale systems can get expensive and don’t offer the simplicity that mobile credit card processing apps do. With the ability to function on a smartphone or tablet, credit card processing apps bring mobile payments to physical stores and mobile businesses, such as food trucks, tutoring services, and cleaning companies. The convenience of having a small, lightweight mobile card reader can’t be understated. Many of your customers pay with a credit card, so you should have the latest, most convenient processor. According to a NerdWallet survey, credit cards are preferred for 34% of purchases. Add in debit cards (44%), and you’ll see that 78% of consumers prefer to pay with plastic.

Which payment method do you primarily use for everyday purchases

The percentage of credit card transactions at your business could be more or less. But note that larger purchases are more likely to be paid with a credit card. Federal Reserve data shows the average non-cash transaction value exceeds the average cash transaction by $90 ($112 vs $22).

Average Transaction Amounts By Payment Method

Even in only 34% of your transactions involve a credit card, 60-70% of your revenue could come via credit card transactions. Clearly, how you accept payments is vital to your success. Because you don’t want to lose money to hardware costs, transaction fees, and monthly subscription plans. Enter the credit card processing app—a mobile point-of-sale (mPOS) system that offers a more affordable and efficient alternative to legacy POS systems. Offer your customers payment convenience, and save on operating expenses.

How do credit card processing apps work?

Also called mobile credit card readers, a credit card processing app can initiate a transaction by:

  • Magnetic stripe payment: The card reader gets account information from data embedded on the strip of the card. Due to issues with fraud, magnetic stripe readers are being phased out.
  • EMV chip payment: EMV chips use dynamic encryption, making it very difficult to steal data.
  • Contactless payment: Using near-field communication (NFC), contactless card readers process payments from e-wallets like Apple Pay and Samsung Pay. After each transaction, credit card data is re-encrypted.

Note: Most mobile credit card processing apps have the ability to accept all three types of payment. Check before signing up. Once the merchant collects the customer’s data, the customer’s credit card network contacts the card-issuing bank. For instance, Visa would contact Chase Bank if the client swipes with a Chase Visa card. The issuing bank authorizes the transaction (or declines it if it appears fraudulent or funds aren’t available). Once approved, the credit card network notifies the payment processor.

How much are credit card processing app fees?

In terms of upfront costs, a credit card processing app will cost less than a traditional POS system. The hardware is much cheaper. Here’s what you pay with three of the top popular credit card processing app providers: Credit Card Processing AppHardware CostsTransaction FeeMonthly SubscriptionSquare$492.75%$0ShopifyFree with subscriptionFrom 2.7%From $29PayPalFrom $24.992.7%$0Note: Credit card processing apps can have different fees for how the transaction is completed. For example, keying in credit card information has higher fees than a swipe, contactless, or chip payment. Check the entire list of fees when shopping for a credit card processing app.

Choosing the right credit card processing app

When shopping for a mobile point-of-sale system (mPOS), see what credit card networks the system supports and what types of payment it accepts (swipe, chip, and/or contactless). Additionally, compare:

  • Fees: While paying 2.7% per transaction may not seem like a lot, that’s $27,000 per year on $1 million in revenue. Transaction fees, along with monthly subscription costs and hardware expenses, can add up.
  • Features: many mPOS systems also have a rich menu of features, including inventory automation, sales tracking, employee management tools, and more. Having these added features could save you a lot of time and resources, and therefore make the added fees a little more worthwhile.
  • Security: Make sure the credit card processing app is compliant with the Payment Card Industry Data Security Standard. This ensures you adhere to the high levels of security when processing customer data.

Finally, look at what other tools you can integrate with the credit card processing app. For instance, if your mPOS integrates with Salesforce, you can have a single, connected view of your customers. This will enable you to make CRM processes more relevant and personalized.

What credit card processing app fees cost your business

Due to heavy competition and high costs, net margins for physical retailers and restaurants are already slim. According to New York University research, net margins in retail range from 1.9% (general) to 12.11% (restaurants). With such margins in mind, consider the 2.75% transaction fee you pay to use a credit card processing app. Those fees are directly hurting your bottom line! Think about this scenario:

  • Your auto parts store brings in $2 million in revenue. After accounting for all operating expenses, you discover your net margin is 4%. This means you make $80,000 from your store.
  • You calculate that 70% of your revenue comes from credit card purchases, as many items cost a lot and customers prefer the plastic for such transactions. That’s $1.4 million in revenue subject to a 2.75% transaction fee.
  • You find that you pay $38,500 in fees just for the convenience of using a credit card processing app.

Now, what if you had a way to eliminate mPOS fees? In the example above, your profits would rise from $80,000 to $118,500. That’s an increase of 32.5%!This should give you plenty of motivation to lower your credit card processing app fees. Thankfully, you have a solution.

Credit card processing apps and cash discount programs

What if you could avoid credit card processing fees and still accept credit cards?When you pair your mobile POS system with a cash discount program, you can.A cash discount program is what it sounds like: Your customers can save money by paying with cash. It’s a 100% legal and compliant strategy to take home 100% of your revenue. Most cash discount programs, such as NadaPayments, integrate with credit card processing apps. You can empower customers to choose the most affordable and convenient method of payment. And you won’t lose any money to transaction fees. If your business utilizes a credit card processing app, and you’d like to learn more about how a cash discount program can benefit you, give us a call at +1 (929) 293-1800 or click the link below.

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Aleksey Nugid
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