Merchant Payment Options Guide

Which Payment Types Should Your Small Business Accept?

Once there were two main payment methods: cash and check. Today, merchant payment options are much more varied and businesses feel pressure to keep up with the latest technology in order to give customers the convenience they desire. While large companies have plenty of staff to help them analyze and implement new payment types, as well as the bottom line to absorb associated costs, it’s not as easy for small businesses. Whether you’re just starting out, or considering a change from a longstanding “cash only” policy, you need to figure out which payment types your small business should accept. The answer will be different for everyone, but it comes down to balancing customer satisfaction with overhead costs and the potential for increased profits. Union Bank can walk you through the advantages and disadvantages of different payment types from familiar options like cash and credit cards to newer payment types like mobile payments.

The Pros and Cons of Cash Transactions

Only 11% of consumers prefer to pay with cash

“In God we trust–all others pay cash.” Is this your business motto? Many American small businesses have a “cash only” policy in spite of shoppers’ increasing preference for paying with plastic. The benefits of cash transactions are obvious: no special equipment or processing fees, no waiting for payments to be transferred to your account, no chargebacks. However, cash-only businesses are still vulnerable to theft and fraud. There is always the risk of accepting a counterfeit bill, plus thieves may be more likely to target businesses that seem to have a lot of cash on the premises. Internal theft has been a problem in our area and can be a particular problem when the cash register is full.

The bottom line: It wouldn’t make sense to stop accepting cash altogether, but there are benefits to accepting a variety of payment methods and limiting the amount of cash you keep in your store or office.

Why Customers Love to Pay With Debit Cards

A small piece of plastic has replaced cash and check as the preferred payment method for most consumers. With direct deposit the standard way to receive paychecks for many workers, trips to the bank and ATM are not as common as they used to be. Instead of withdrawing enough cash for the week, people use their debit cards because they offer the convenience of credit cards with the budgetary discipline of paying with cash or check. Some people also like to track their spending through an online budgeting tool connected to their debit card.

Consumers prefer debit for everyday transactions

Although you’ll certainly please your customers by accepting debit cards, you’ll need to partner with a merchant services provider to implement the Point of Sale (POS) equipment needed to process debit and credit cards. Debit cards also incur processing fees that vary depending on the network and how the card is processed (signature or Personal Identification Number PIN). Talk to a merchant services provider like Union Bank to learn more about the upfront and monthly costs associated with debit card transactions.

The bottom line: Your customers expect to be able to use their debit card everywhere they go, but you’ll need to partner with a merchant services provider to offer this payment option.

What You Should Know About Accepting Credit Cards

As we’ve mentioned, some small businesses adopt a “cash only” policy to simplify their administrative tasks and avoid the cost of signature fees and POS maintenance. However, this decision can backfire and end up costing your business more than it saves.

Because shoppers place so much value on convenience, they often end up spending more on credit card transactions than with cash. Some businesses also establish a minimum purchase amount to offset the bank charges that accompany each signature based transaction. Increased sales can offset the costs associated with accepting credit cards, which, in addition to bank processing fees, include monthly expenses for your merchant services POS and associated costs. You may also have to deal with fraudulent chargebacks and other types of fraud, though a good merchant services program like Union Bank’s will provide customer service to help you handle any problems you encounter.

Here’s what you need to know about each major credit card brand:

  1. American Express: Historically, small businesses have been reluctant to accept AmEx cards because the company charges a higher percentage for transaction fees than other credit cards. However, American Express’s new OptBlue program allows merchant service providers to bundle AmEx with other credit cards and gives them the flexibility to set a transaction fee that will work with businesses of all sizes. Ask your merchant services provider if they participate in OptBlue. If so, you may be able to afford to accept AmEx, giving your customers an additional payment option that many enjoy using.
  2. Discover: As one of the smallest credit card networks, Discover may not be as popular among your customers, but they sometimes offer lower merchant fees to make this a viable option for businesses.
  3. Visa and Mastercard: If you are going to accept any credit cards, you’ll want to strongly consider accepting these two options which are the biggest credit card networks.  Both cards have been around for more than half a century. Visa started as the west coast credit card and Mastercard as the east coast credit card, but those distinctions faded many years ago.  Even if you don’t accept other cards, most of your customers will still be able to pay with a Visa or Mastercard.

The bottom line: As with debit cards, customers are likely to expect the convenience of paying with a credit card, and they will often spend more than with cash.

Private Label Credit Cards

Private label credit cards are the least expensive payment method for merchants.

Similar to the benefits of offering gift cards, private label or store-branded credit cards may be viable for larger businesses.  These programs provide free marketing for that business, encourage customer loyalty, and are associated with higher sales than cash or regular credit card transactions. It’s no wonder then that retailers everywhere are eager to sign customers up for their private label credit cards.

Bitcoin: The New Internet Currency

Have you heard of this new payment method consisting entirely of digital money? It may sound like science fiction, but Bitcoin use is slowly growing among individuals and businesses. As a peer-to-peer payment system, Bitcoin runs on open-source software without a “middleman.” Here’s what you need to know about the pros and cons of accepting Bitcoin to determine if it’s right for your business.

Benefits of accepting Bitcoin payments

Ease of use

Similar to other mobile payment systems, Bitcoin users send and receive money through a mobile app or computer program. You don’t need to set up a merchant account to accept Bitcoin payments. Customers can simply scan your business’s QR-code to swiftly and easily pay for goods or services. And when you send or receive money with Bitcoin, you aren’t bound by time zones, calendars, or borders. Bitcoin transactions are processed every day at any time without delay, regardless of your physical location.

Lower Fees

There are no set fees for sending and receiving Bitcoins. However, users are incentivized to set their own fee in order to experience faster transaction confirmation, which means the transaction has been processed. Typically, the sender pays the fee, which is a plus for businesses, although you could also decide to cover the fees for your customers. Transaction fees are collected by Bitcoin “miners” who do the work of processing transactions and contributing to the development of new Bitcoins. If you decide to accept Bitcoin payments, you can manage your Bitcoin wallet on your own or work with a merchant services provider. Union Bank is not currently participating with Bitcoin as the market has not yet been proven and Bitcoin currency is still volatile.

Lower Risks

Once a transaction has been confirmed it is irreversible. This means that you, as the merchant, could provide a refund, but the customer cannot make a dishonest chargeback or otherwise commit fraud.

Fewer Administrative Hassles

Bitcoin transactions are not subject to the Payment Card Industry Data Security Standard (PCI compliance), which reduces your administrative responsibilities and costs. And since Bitcoin payments don’t include personal information, you don’t need to worry about cyber theft of sensitive customer data.

Downsides of accepting Bitcoin payments

Since Bitcoin is still relatively new, many people do not know about it or may be reluctant to use it. This is a bit of a “chicken or egg” issue in that more people will hear about Bitcoin if more businesses advertise it as an accepted payment type, and businesses will want to accept Bitcoin if many of their customers ask to pay with it.

Additionally, Bitcoin’s young age means it is still in the process of improving and adding new features. Bitcoin value may be volatile and Bitcoin software may experience glitches as it develops.

The bottom line: You may want to survey your customer base first to see if a majority would take advantage of a Bitcoin payment option before you implement it.  In our rural market, it is not likely that you would see sufficient consumer demand to make it worth your while.

Mobile Payment Methods

Mobile Payment Methods

Mobile pay refers to a broad category of smartphone-powered payment options. Some require a physical point-of-sale mobile payment system, while others can be processed solely through an app or program on your computer. There are lots of mobile pay options to choose from including:

  • PayPal: A familiar name in the mobile pay arena, PayPal is attractive to customers and businesses can use it to receive payments through their website (for online shopping) or via the PayPal app for in-store purchases. PayPal can also be linked to a compatible POS. Fees vary depending on where and how a transaction occurs.
  • Apple Pay, Samsung Pay, and Android Pay (formerly Google Wallet): Customers with a smartphone from one of these three companies can make contactless mobile payments in your store with these mobile pay apps. You’ll still need a merchant account, POS, and Near Field Communications (NFC) enabled terminal to process credit cards through the apps, but there are no additional fees on top of the usual credit and debit card bank processing fees.
  • LevelUp: Specifically for the restaurant industry, LevelUp allows customers to order ahead and pay for food orders through the LevelUp app.

Pros and Cons of Accepting Mobile Payments

While most observers have noted the relatively slow adoption of mobile payments, particularly in our market, businesses may be able to attract new customers who appreciate the ease and freedom of paying with their phones instead of carrying cash or credit/debit cards. Existing customers will also appreciate the convenience of mobile pay and may increase the number of transactions they do with their company as a result. Businesses also typically pay lower fees for mobile pay transactions than traditional credit/debit card networks.

On the other hand, you will still need a POS in order to accept most mobile payments and some companies may charge additional fees on top of credit/debit card processing fees. Ultimately, businesses should weigh the advantages of mobile pay with the number of customers they think would use it.

The bottom line: Mobile payment methods are a great way to expand your digital presence and offer tech-savvy customers more options.

Why You Shouldn’t Overlook Gift Cards

Electronic gift cards the size and shape of credit cards are ubiquitous at the cash registers of major retailers. With their attractive designs and popularity as an alternative to a physical gift, there are many benefits to offering gift cards at your small business. Union Bank can help you set up a gift card program, and generally the extra business gift cards generate will make up for any costs associated with them.

How will my business benefit from selling gift cards?

Whether you own a store or provide a service, gift cards are an attractive and convenient option for your existing customers when they need a gift for a special occasion. And when a current client gives a friend or relative a gift card, that person becomes at the very least a one-time customer and perhaps a recurring one.

It’s not uncommon for gift card recipients to spend more than the amount of the gift card, generating extra revenue for your business. And before they redeem their gift, the plastic card with your logo on it acts as a free marketing tool. Even if the gift card holder never uses it, your business still profits from the initial gift card purchase.

Are there any downsides to selling gift cards?

You’ll need a POS system to sell plastic gift cards that work like credit cards. There is an upfront cost to ordering gift cards through your merchant services provider or an outside vendor, but you may be able to receive a discount on bulk orders. Finally, you’ll have to design your business’s gift cards, either on your own or through the card vendor of your choice.

Overall, the cost and burden of a gift card program is outweighed by its function as a marketing tool to grow your revenue and customer base. Gift cards also act as a perk for your established customers. Cash is often viewed as too impersonal a gift, but people don’t have the time or inspiration to pick out something original. A gift card is the perfect compromise, and people love to receive them. Even if you think your business isn’t a good fit for gift cards, you may be surprised by the number of people who would love a gift certificate for a lawn care service, for example.

The bottom line: Give your customers what they’re looking for with an attractive and easy-to-use gift card. As a bonus, gift cards also provide marketing for your business.

Learn more about the best payment types for your small business

Across Northern Vermont and New Hampshire, Union Bank can help your small business understand the pros and cons of accepting these different payment methods. Talk with a local merchant services advisor to learn how to accept these payment methods and find the right options for your business.

Union Bank Merchant Services