Wondering how credit card readers work? Looking for a card reader for your business? We went over everything you need to know.
It’s crucial for businesses to have a secure method of collecting payments, but nowadays, consumers demand convenient payment options as well. With options ranging from card readers to text-to-pay and everything in between, it’s easy for businesses to feel overwhelmed when they think about collecting payments. In this article, we’ll go over everything you need to know about card readers so your business can collect payments with confidence.
What is a credit card reader?
Most of the general population has used a card reader—a device you swipe or insert your card into (or in recent years, tap your card on) at retail stores.
A more technical definition of a credit card reader is a device that retailers use to decode credit and debit card information. That information is stored on magnetic strips or microchips. It includes the account number, authorization code, and other cardholder information.
Types of Credit Card Readers
There are a few main types of credit card readers available to local businesses. Knowing the differences between them will help you choose the appropriate reader for your business.
You’ll notice that many of these types of card readers come in various physical forms. Mobile or portable card readers are remote or wireless, making them highly portable. Virtual card readers collect payment information online. SoftPOS apps are mobile applications and accessories that convert a smartphone or tablet into a card reader. Countertop or tabletop systems are larger card readers connected to POS systems and usually sit on a table.
1. Magstripe Card Readers
Magstripe readers are designed to read the magnetic strip on your credit card. You use the credit card reader by swiping the card.
For a long time, magstripes were the most popular type of card reader, but they are becoming less prominent these days. The decrease in usage is due to the fact that they have a higher risk of fraud than other readers.
2. Chip Readers (EMV Readers)
Chip or EMV readers are a more secure method of making payments, as they can’t be easily duplicated. The term EMV refers to a global standard for secure payments used for both online and in-person transactions.
You use chip or EMV readers by inserting or “dipping” your card. These cards give the option of signing or entering a PIN.
3. Contactless Card Readers
Contactless cards also can’t be duplicated as easily as magstripe cards. These chip cards rely on RFID chips and a few other bits of technology. As the name implies, no contact between the card and the reader is necessary. Customers can wave the card over or tap it onto the reader.
The key concepts that let contactless credit card readers work are NFC (near-field communications), RFID (radio frequency identification), and tokenization. NFC is integrated into the card readers and lets them read information from the nearby card with an RFID chip. That RFID chip transmits data short distances with radio waves, working together with the NFC tech.
Tokenization provides security for these contactless payments. It replaces the sensitive bank account information with a token (non-sensitive information). This ensures that if someone accesses the payment details, they will be unable to read the encrypted data.
4. Reading Digital Wallets
It is also worth noting that contactless credit card readers can accept payments from digital wallets. These include Google Pay, Apple Pay, and Amazon Pay. The digital wallet stores your payment method, and then you can pay using a web portal or card reader.
Want to learn more about modern payment methods? Check out our Guide to Modern Payments.
Benefits of Credit Card Readers for Small Businesses
Using a card reader is crucial for modern businesses, as it does more than just let you accept payment via credit and debit cards. Let’s go over a few other benefits.
1. Ability to accept card payments.
To start, you can easily accept payments via debit or credit cards with a credit card reader.
2. Convenience for all.
Being able to accept cards makes it convenient for your customers and staff. Your customers will appreciate the ability to pay using their preferred method.
3. Eliminate errors.
Because the credit card reader gets the information directly from the card, there is no risk of human error when entering card information.
4. Connection to POS apps and systems.
Your credit card reader will easily connect to your point-of-sale system or application, whether a standalone system or on a mobile device.
5. Ability to track transactions.
Because your credit card readers connect to your POS system, it becomes very easy to track transactions. This helps with record-keeping and gives you data to analyze so you can further improve your payment systems.
6. No Wi-Fi required.
With a card reader, you won’t be dependent on an internet connection to complete a transaction. You can use Wi-Fi, but you can also use a wired connection or a mobile network.
The 8 Best Credit Card Readers for Small Businesses
With a better understanding of what card readers are and their benefits, it is time to look at the best ones on the market. The following are our favorite options that will make it easy for your customers to pay via their preferred method.
1. Square terminal.
Square is easily one of the best-known brands when it comes to credit card processing and POS systems. Square Terminal is a portable, all-in-one system that you can use to accept tapped, swiped, and dipped payments, as well as NFC payments.
It also offers the convenience of integrating with a third-party POS or a custom one. This includes the ability to connect it to a Square Register, a computer, tablet, or smart phone. You even get a receipt printer and a free merchant account. This means you won’t have to get a separate merchant services account or payment processor.
As a bonus, Square Terminal comes with free tools for customer management, inventory, and POS. It also uses end-to-end encryption.
The installment plans make this terminal more financially accessible to small businesses, but those plans aren’t available in every state. Those installment plans are important, as the hardware cost is fairly high.
Additionally, Square Terminal doesn’t offer Bluetooth connectivity. It also has limited customer service, so if customer support is a priority for you, you may want to consider a different credit card reader. Square somewhat makes up for the lack of support with online video tutorials and a detailed user guide.
If you stick to the basic POS plan, there is a $0 monthly fee for the point-of-sale software itself. Industry-specific advanced plans are available for $60 a month. For card-present transactions, you’ll pay 2.6% + $0.10. For keyed-in card transactions, you’ll pay 3.5% + $0.15. The card reader cost is $299. If you live somewhere where payment plans are available, you can pay $27 a month for 12 months.
Keep in mind that you can also opt for Square Reader which accepts contactless and chip payments. This has identical transaction fees and monthly POS fees, but the card reader just costs $49. The optional dock is $29.
Or you can opt for the full Square Register. That costs $799 or $39 a month for 24 months (where payment plans are available). A replacement customer display with a card reader would be $349 and accessories can be up to $500.
Square Stand is yet another option if you use an iPad and want a self-service kiosk. The card reader costs $149 or $14 a month for 12 months. Accessories can be up to $500.
2. Podium
Podium lets you accept every type of payment, including swiped, chipped, and dipped credit cards and contactless payments. The Podium Payments system stands out with its support for subscriptions and financing, something few other card readers support.
It also integrates text-to-pay, adding convenience for your customers. Of course, it has the expected security features, such as automatic reconciliation and advanced fraud protection.
Get paid faster and save time with Podium Payments. Best of all, Podium also comes with other tools to help you grow your business, saving you money. It includes Inbox for communications, Reviews to encourage reviews, Phones, and more. This means that while the monthly fees will be higher than the card readers on this list, you get much more for the price, adding value.
3. Toast Go 2
Toast Go 2 is an incredibly popular option for small restaurants. The system was specifically designed to fit the unique needs of food service businesses, so you get a lot of specialized features. For example, it has a fully-integrated kitchen display system. It also features loyalty tools and marketing tools. Smaller restaurants may not need all these capabilities, while mid-size and growing restaurants are likely to appreciate them.
In addition to all these features, Toast Go 2 allows businesses to accept tap, swipe, and dip payments plus NFC payments. It can work as a standalone mobile POS and connect to other hardware from Toast.
The hardware itself is durable and industry-grade, so it can handle the tough use it is likely to see in a restaurant. The battery lasts a full 24 hours to ensure availability, and the interface is intuitive to reduce the need for intensive onboarding. You also get Bluetooth and Wi-Fi connectivity.
While the hardware is durable, the Toast proprietary hardware is the only option you have. On top of that, if you need additional software or hardware, which is likely, it will be expensive. You also have to use Toast as your payment processor. On top of that, Toast Go 2 requires a long-term contract, something few small businesses want.
As a new restaurant owner, you can get the software and hardware without paying upfront or dealing with monthly fees. Instead, you can opt for a higher transaction fee. That increases the payment processing cost but reduces the startup costs, so it can be appealing for some small business owners.
If you can pay a monthly fee and the $609 fee for a standard card reader, you can get competitive rates. (Individual and add-on card readers are $409). In fact, Toast Go 2 offers discounted bundles of monthly rates for your add-on software and can match processing rates if you were previously using another POS system.
Expect standard card-present transactions to cost 2.49% + $0.15. If you have the pay-as-you-go plan, the fees become slightly higher at 2.99% + $0.15. Keyed-in transactions cost 3.5% + $0.15. Hardware and accessories can cost anywhere from $119 to $599 and the monthly fee for the POS can be up to $69.
The cost for adding online ordering, email marketing, loyalty, and gift cards is $57, $75, $50, and $50, respectively.
4. Helcim
Helcim is another popular option that works with both iOS and Android devices. It can also connect to countertop devices. Take advantage of USB and Bluetooth connectivity. Like most card readers, you get end-to-end encryption and online user guides.
However, the card reader is expensive and customer reviews can be poor. You also won’t be able to accept swiped payments. The expensive card reader only accepts tap and dipped payments, as well as NFCs. So, you will need an additional system if you want to accept swiped cards.
In terms of pricing, Helcim offers very competitive processing fees. It also stands out with its interchange plus pricing and automatic volume discount. The platform offers fees at 0.3% + $0.08 for sales that are under $25,000 a month. This translates to 2.16% + $0.16, making it one of the lowest processing fees on the list.
The transaction fee for card-present transactions can range from the interchange plus 0.10% + $0.05 to 0.30% + $0.08. Keyed-in transactions are between interchange plus 0.20% + $0.10 and 0.50% + $0.25.
The card reader costs $019 but there are no monthly fees for the POS software. Additionally, the $15 chargeback fee is refundable.
5. SumUp Plus
For business owners on a tight budget, SumUp Plus is a good choice. It is easily among the most affordable 3-in-1 card readers. It features a PIN pad and accepts dip, tap, and swipe payments. You can also accept QR and NFC payments plus a free mobile app, complete with Bluetooth connectivity. That app includes sales tracking, product management tools, and registry tracking. You also get a zero fixed-cost fee for each transaction.
However, the trade-off for that affordability is that high-risk businesses can’t use this system. Additionally, customers have complained about their funds being held or frozen. You also won’t find in-person invoice payments. Reviews are more mixed than some of the other systems on our list, but there are video tutorials online, plus a written user guide.
The card reader itself costs $39 and the optional dock costs $49. The card reader is highly portable, making it greater for pop-up stores, shows, and farmers’ markets. There is no chargeback fee. The card-present transaction fee is 2.75%, which is higher than many others but doesn’t include an additional flat fee, so it could be good for businesses that have fewer tickets. Keyed-in, online, and virtual terminal transactions are 3.25% + $0.15. The same fee applies to gift card processing. Invoice processing costs 2.9% + $0.15.
If you only sell seasonally or as a hobby, you may also want to consider SumUp Solo. This card reader costs $129 with a charging dock or $199 with a printer. You can use it to accept chip, contactless, and digital wallet payments. You can’t swipe payments, so stick to SumUp Plus if you want that feature. You also get the free SumUp App along with payment links, invoicing, reporting, and smart tipping.
6. Shopify Go
If you already use Shopify for e-commerce, it’s natural to consider Shopify Go for accepting credit cards. It lets you accept in-person sales that are swiped, tapped, or dipped. You can start sales in your store and then finish them online. It also allows your customers to buy online and pick up products in-store. It is also helpful for curbside pickup or payment on delivery.
One drawback is that you need a mobile device for Shopify Go to work. You will also need a Shopify e-commerce subscription, making pricing a concern.
The card reader costs $399 or four payments of $99.75 via Shop Pay, while a case costs $39. Card-present transactions cost 2.4% to 2.7%, and online transactions cost 2.4% to 2.9% + $0.30. The POS software costs anywhere from $0 to $89, and the e-commerce subscription is $29 to $299 a month.
7. Stripe M2
Stripe M2 is a very appealing option for small businesses that occasionally do pop-up events overseas. This is one of the few card readers that let you accept in-person payments internationally. As long as you are in an applicable country, your customers can swipe, tap, or dip their cards, and there are 135 countries where you can use the reader.
But the disadvantage of Stripe M2 is quite significant. You need to use a custom-built POS, so you will need high-level coding skills or to have the funds to hire someone who does. The fees are also fairly high.
Stripe M2 isn’t the most affordable card reader, but it is a relatively low-cost option for small businesses. The card reader costs $59 and there is no monthly fee for the POS software. Dip and swipe transactions cost 2.7% + $0.05, while tap and contactless transactions cost 2.9% + $0.30. International payments add 1% to the fee.
8. Clover Go
Clover is another big name in the world of credit card payments, and Clover Go is their mobile payment option. You can program Clover Go for multiple payment systems. It also accepts magstripe payments, which not all other readers on our list accept. That is in addition to dip, tap, and NFC payments. You can use Clover Go with Android or Apple devices and use Bluetooth or Wi-Fi connectivity. Conveniently, you can even use Clover Go when you are offline.
If you choose Clover Go for your business, you can also get a three-year warranty that doesn’t have an upfront cost. Otherwise, you get a standard one-year limited warranty. Clover is also one of the few options that can use an existing merchant service account.
There is, however, an upfront cost for e-commerce tools. You will also have to pay for a POS app, as Clover doesn’t offer a free one. And you will need an app to get the invoicing feature. The app does give you inventory management capabilities.
If you don’t need any advanced features or inventory tools, you can have no monthly fees, just the initial card reader cost of $49. (A dock costs $29). You will still get sales tracking tools and digital receipts. However, most businesses will need to pay $9.95 or $14.95 a month and get those additional features. In terms of transaction fees, card-present ones are 2.6% + $0.10. Card-not-present transactions are 3.5% + $0.10.
How to Choose a Card Reader for Your Small Business
With so many credit card readers to choose from, which one do you choose? As you compare your choices, keep the following factors in mind.
Functionality
Start by confirming the built-in functionalities of your chosen card reader. Does it accept swiped, chipped, and dipped cards? What other functions do you need? What about other contactless payments?
Usability
Next, compare usability or ease of use. The interface should be user-friendly, and the card reader should have reliable customer support, both via online guides or FAQs and a support team. With an intuitive card reader, your can also spend less time training employees on how to use the system, so they can focus on more important tasks.
Advanced Features
How Do Credit Card Readers Work?
So, now you know about the different card reading systems available to you. But how do card readers work? As mentioned, modern credit cards store information on a chip, magnetic strip, or both. That includes:
- The full name of the cardholder
- The card number
- The card expiration date
- The card validation code
With a modern credit card reader, you insert, tap, or swipe a card, and the reader “reads” all of this information. That information then goes through the payment processing system connected with the reader.
The system is complex and includes various checks to ensure the validity and security of the payment. When a card reader gets information, it checks that data with the issuing bank or credit card company. The bank will check for fraud or a frozen card. It will also confirm there are enough funds for the transaction in the bank account.
Then, the bank lets the point-of-sale system know the transaction is approved or authorized. Only then will the transaction go through. The entire process is completed in a matter of seconds.
Here’s the step-by-step process in more detail:
- A customer swipes, scans, or inserts their card.
- The data on the card enters the payment gateway.
- The payment gateway brings the encrypted data to the customer’s bank.
- The customer’s bank confirms the transaction is legitimate and there are sufficient funds in the bank account.
- The bank holds the funds and changes the transaction to “pending.”
- The credit card company shifts funds to the merchant’s account.
- After the processing is done, the funds settle, meaning they are fully deposited in the merchant’s account. Settlement of the funds can take several days.
All-in-One Payment & Growth Solutions
The best credit card readers are secure and allow for simple payment processing services. With a card reader, you can accept credit cards, giving your customers more convenient ways to make their purchases.
Podium offers an all-in-one solution for payment processing in addition to customer communication and business growth. Start by using webchat to make your website a conversation starter. See Webchat in action on your site to see how it generates leads.
Use Podium to increase your number of positive reviews and boost your online presence. Remember that more reviews mean more business for you. You don’t even have to make a commitment, as we have a Free Google Review Link Generator. Meanwhile, our phone system turns more customer calls into revenue.
Then, when your customers are ready to complete their purchase, pull out your Podium card reader for a seamless transaction. You can even let customers text to pay if they prefer.
FAQs
1. What is the best credit card reader for small businesses?
The best credit card reader for small businesses will depend on your needs and budget. Square, Podium, and Toast top our list, but anything that made the cut is a good option.
2. How does a card reader work?
A card reader reads the information on customers’ credit or debit cards. It then transmits this information to the point-of-sale system to be processed.
3. How much does a card reader cost?
Credit card readers can cost up to $500, but most on our list are $200 or less. Some are even more affordable or even free with a long-term contract.
4. Are credit card readers secure?
Credit card readers specifically include technology to keep important information secure. As mentioned, chip, EMV, and contactless readers are considered more secure than traditional swiped cards. That is because they are harder to replicate.
