How credit card chips work

How credit card chips work

The cost of credit card processing can vary widely, due in part to the different pricing models used by merchant account providers. To make sure you do not overpay, it’s important to have a proper understanding of how credit card processing fees work.

By-and-large, Square is going to provide the best rates to small retailers, since they have no monthly fees, free POS software and low-cost hardware. Click here to try Square for free.

There are 4 primary factors that affect you much you will pay to process a credit card:

  1. The Interchange Rate – This is the rate that makes up the fees charged by the card issuing bank and the credit card company fees (i.e. Visa and Mastercard). The interchange rate varies by the type of credit card (see a full list here). All small businesses pay the same interchange rate, so this component is non negotiable.
  2. The Merchant Account Provider Fee – In order to connect to the credit card networks you need a merchant account. Merchant account providers make their money by charging a fee (or fees) on top of the interchange rate. These fees are negotiable; different businesses may pay completely different rates, even when working with the same merchant account provider.
  3. How the card is processed – The merchant account provider fee will vary based on how the card is processed. In-store transactions (where the customer is swiping their own card) have the lowest risk of fraud, and will therefore generally have the lowest fees. Online transactions and keyed-in transactions (i.e. when you take an order over the phone), have a higher risk of fraud, and will therefore generally have higher fees.
  4. Setup + Monthly fees – Some merchant account providers will charge you a setup fee and ongoing monthly fees to cover things like support and security/PCI compliance.

Since the interchange portion of credit card processing fees can generally not be negotiated, it all comes down to the merchant account provider you choose.

How Merchant Account Providers Charge for Credit Card Processing

As we explained above, your choice of merchant account provider will have the biggest impact on your credit card processing fees. Your merchant account provider acts as a middleman between you and the credit card companies, so you generally do not deal with credit card company fees (known as the interchange rate) directly. Instead, this is passed down by your merchant account provider in one of 3 different ways:

You pay a single flat rate regardless of the type of credit card being processed. For example, our recommended flat rate pricing provider Square, charges 2.75% for all in-store transactions, regardless of the type of card used. The advantage of flat rate pricing is it’s simplicity: You know exactly how much you are paying each time you process a credit card, regardless of the type of card. Flat rate pricing providers like Square, also give you everything you need to start processing credit cards using your mobile phone or tablet for free ($29 one time fee for a chip reader).

You pay a fixed percentage and a fixed dollar amount above the interchange rate. For example, our recommended interchange plus provider Payline charges .2% + $0.10 above the interchange rate. The advantage of interchange pricing is you can generally get a lower rate (i.e. For a retail visa swipe you would currently pay 1.71% + $0.20 with Payline vs. 2.75% with Square). The disadvantage is that it’s more complicated to understand and setup than flat rate pricing providers. You also don’t get all the bells and whistles that square offers.

With tiered pricing the amount you are charged by the merchant account provider varies widely depending on the type of card you are processing. Because of this, it is very difficult to understand exactly how much you are being charged, and to compare this against other providers. For this reason we recommend avoiding tiered pricing.

How to Know Which Merchant Account Provider is Right for You?

A flat rate merchant account provider like Square is generally the best option, unless you make over $17,500/month in credit card transactions, and/or sell a lot of high-value items.

Square is perfect for small retailers because of their simplicity and lack of monthly service fees. You get a full-blown point of sale (POS) system for free, which allows you to set-up tips and discounts, record cash and check transactions, process refunds, print receipts (or send via email or SMS) and much more.

For those that want additional features like email marketing, employee time clocks, appointment scheduling and more, Square also offers these capabilities as paid add ons.

The catch is that Square users pay a slightly higher credit card processing fee. Square’s fixed 2.75% flat rate is typically around 1% more than what you can get through an interchange plus pricing provider like Payline. For instance, a Visa credit card swipe will currently cost 1.71% + $0.20, from Payline, compared to 2.75% with Square.

However, our calculations show that Square will still cost you less if you’re processing less than $17,500/month. This is because the savings you get from their free POS software and lack of monthly service fees actually outweighs the higher transaction fees charged by Square:

Below we compare flat rate pricing and interchange plus pricing at two different revenue points: $12,500/month and $25,000/month in credit card transactions. The example uses a Visa retail card swipe with an average order value of $35.


how credit card chips work

How credit card chips work

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How To Get Rid Of The RFID Chips That Are Implanted In Your Credit Cards

How credit card chips work

How credit card chips work

How To Get Rid Of RFID Chips In Credit Cards

Many of your are not aware that all the newer credit cards you carry are implanted with RFID (radio frequency identification) Chips. This can allow your evey move to be tracked. Some may think that’s a good thing.

What’s disturbing to some is that you are possibly being tracked without your knowledge. In this post we are going to PROVE that your credit cards have the RFID Chip in them, and how to get rid of them. And yes you will still be able to use your card as you normally would.

This is a two step process to get rid of RFID Chips. One for older credit cars from 2012, and one for new cards issued in 2014 going forward.

Here is the video that will show you how to detect the RFID Chip in your credit card and how to disable it. Video #1 is for older cards. Make sure to watch it even if you have a newer card. After watching the video see the notes below the video. It is important to read both note sections AFTER watching the short videos.

Video #1 Get Rid Of RFID Chips In Older Cards

In newer credit and debit cards there is a RFID / NFC chip that allows you to use your card at stores without swiping the magnetic strip. It works by radio waves and is usually only good for around 6″ or closer to the receiver. The problem with this is it’s a security problem as anyone with a small hand-held scanner can grab your information when they wave it by your back pocket. Also I have noticed that whenever you use this feature the transaction defaults to credit, not debit.

All you have to do it look on your credit / debit card in the reflection, and it will be a small indent in the plastic about 2 millimetre square. simply punch a hole through it and you will hear the chip crack. Once you do that the RFID chip is disabled and will no longer function. The magnetic strip will still work. Source

Video #2- Get Rid Of RFID Chips In Newer Cards

Newer bank cards DO NOT have the divot in the plastic to easily locate the RFID chip embedded into them (see video #1 above). You must use a high powered flashlight to “see through” the card to locate the chip. Once located, use a hole punch to break through the chip, disabling the RFID function.

The software I used on my Samsung SGS3 cellphone is called “Electronic Pickpocket RFID” and can be found in the Google Play Store for free. It will not give you all the credit card information, but enough to test if the card does or does not have a RFID chip embedded. You must have a cell phone that has NFC technology for the app to work.

In newer credit and debit cards there is a RFID / NFC chip that allows you to use your card at stores without swiping the magnetic strip. It works by radio waves and is usually only good for around 6″ or closer to the receiver. The problem with this is it’s a security problem as anyone with a small hand-held scanner can grab your information when they wave it by your back pocket. Also I have noticed that whenever you use this feature the transaction defaults to credit, not debit.

All you have to do it look on your credit / debit card in the reflection, and it will be a small indent in the plastic about 2 millimetre square. simply punch a hole through it and you will hear the chip crack. Once you do that the RFID chip is disabled and will no longer function. The magnetic strip will still work. Source

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