How do card readers work and what benefits do they have for business owners?

In today's landscape, which values convenience, accepting card payments has become a necessity for businesses.

In fact, the shift towards card payments has been huge, with UK Finance's Payment Markets Report for 2021 revealing that debit and credit card transactions accounted for 48% of all payments in the UK, surpassing cash payments by a significant margin (15%).

To accept card transactions, you’ll first need a card reader. We'll delve into the various types of card readers, how they work, and highlight the advantages they offer to business owners.

What are card readers?

A card reader is another name for a card machine and it lets your business process payments made with credit or debit cards. You might have also heard it called a PDQ machine, a chip and PIN machine, or a card terminal. They all do the same thing, though – let you take safe, secure card payments.

And there are three types:

• Countertop – plugs directly into your broadband or phone line
• Portable – can be used within a certain distance from the main device
• Mobile – can accept payments anytime, anywhere

How do card readers work?

It's a straightforward and reliable process that allows businesses to accept card payments with ease. Here’s a breakdown of what happens when a customer pays via card reader.

When a customer wants to make a payment, they either swipe, insert, or tap their card on the card reader.
The reader establishes a connection with the card issuer's system to authenticate and authorise the transaction.

Once the transaction is approved, the necessary funds are securely transferred from the customer's account to the business’s merchant account.

What payments do card readers accept?

Card readers are compatible with a few different types of technology. Let’s take a look at them in more detail:

Contactless payments

Contactless technology is an easy and quick way for you to accept card payments, and when the COVID-19 pandemic hit, it became very popular, very quickly. Regulators quickly increased the contactless limit to £45 when COVID-19 hit, and that was increased further to £100 in October 2021.

And the contactless payment trend shows no signs of slowing down, even after the pandemic. We recently collected data from our UK card machines and point of sale systems from 2021/2022 to 2022/2023 and found contactless transactions have increased by 25%.

When it comes to the most popular spots for contactless payments, restaurants took the crown, accounting for almost a quarter (22%) of all contactless payments.

The ease and speed of contactless payments have clearly made them a preferred choice for many customers.

How does contactless work?

In a nutshell, contactless lets customers pay for items up to £100 (currently), without entering their PIN number. Instead, they just tap their card on the card reader to process a payment. Easy!

So what’s behind the technology? Well, it uses something called Radio Frequency Identification (RFID). This means your customer can just hold their card a few centimetres away from the card reader, which recognises the signal, communicates with the card and processes the payment. They can simply tap and go.

Mobile wallet payments

Customers can pay for items using their smart device if they have a mobile wallet set up.

How do mobile wallet payments work?

Mobile wallet payments like Apple Pay, Google Pay and Samsung Pay all work in a similar way as contactless cards, but instead of RFID, they communicate using Near Field Communication (NFC) instead. This allows you to hold your phone, watch, or whichever smart device you have a mobile wallet on, close to the card reader, and it’ll communicate with the device to process the payment.

Mobile wallets are really secure, as they use complex encryption and tokenisation to process specific transactions. This involves substituting sensitive banking information with non-sensitive information, known as a token, during the payment process. This means that even if criminals gain access to payment details, they lack the encryption key necessary to read the data.

Chip and PIN technology

Introduced to the UK in 2004, chip and PIN machines are card payment devices designed for in-store transactions. They give customers the power to conveniently make payments using their credit or debit card, combined with their very own secret Personal Identification Number (PIN).

They were designed for security and to help combat card payment fraud. It replaced the old magstripe technology, where you’d have to swipe a card and the customer would sign their signature to authorise the payment. As you can imagine, this left people vulnerable, as if a card was stolen, the thief could easily forge the signature.

As a result, annual counterfeit card fraud losses dropped a significant £81.9 million between 2004 and 2014.

How do chip and PIN machines work?

With chip and PIN, a customer puts their debit or credit card into the reader and is asked to enter a 4-digit PIN code, which is secret to them. The card’s chip interacts with your card reader to start the payment process and verify it.

It'll send the securely encrypted transaction data to your merchant account. And it's here where the payment is approved and processed before the funds are transferred to your business bank account.

While chip and PIN used to be the go-to payment option, the rise of contactless payments has taken the spotlight, offering a hassle-free and swift way to settle transactions. In fact, our data found chip and PIN transactions fell by 12% from between 2021/2022 and 2022/2023.

The benefits of card readers for small businesses

1. Increase sales

By accepting card payments, small businesses can attract more customers and increase sales, as some customers may prefer the convenience and security of using cards instead of carrying cash.

With a card reader, small businesses can accept various payment methods, including credit cards, debit cards, and mobile wallet payments. This flexibility gives customers the freedom to choose their preferred payment method, capturing more sales opportunities.

2. Prevent fraud

By accepting card payments, you’ll have less cash on hand, keeping your business safer when it comes to theft or robberies. Plus, it saves you the hassle of frequent trips to the bank for cash deposits and getting change.

Card readers use secure processes to transmit customer data over the internet, employing payment tokenisation to convert the data into a secure token. So this will also ensure the safety of transactions, making it highly difficult for hackers to access useful information.

These devices are also able to detect fraudulent cards, providing an extra layer of protection for your business.

3. Convenience

Of course, one of the main benefits of going cashless with card machines is the convenience it brings, making life simpler for both your business and your customers.

By accepting card payments, you make it easy for customers to make purchases without the need for cash. It saves them from the inconvenience of carrying exact change or searching for a cash machine, allowing them to pay quickly and get on with their day. And this convenience not only enhances the overall shopping experience but also encourages repeat business and customer satisfaction. In fact, a study by Linnworks found nine in ten (90%) of consumers say seamless and convenient payment options speed up their decision-making and prompt them to spend more.

4. Ability to track transactions

With every card payment processed, a digital record is created, giving small business owners the advantage of easily monitoring and analysing their sales data. This becomes especially useful when there's a need to search for specific transactions, like when a customer returns an item.

Instead of sifting through piles of receipts or manual logs, you'll have the convenience of finding the necessary information right at your fingertips.

Are card readers secure?

Yes! Paying by card is considered one of the safest ways to pay — it’s actually much safer than handling cash. Card machines employ advanced security measures, such as encryption and tokenisation, to protect sensitive customer data and prevent unauthorised access. These features offer peace of mind to both businesses and customers, ensuring a secure payment environment.

So, whether your customers are swiping, inserting, or tapping their cards, you can rest assured that when it comes to accepting card payments, card readers have got your back in keeping transactions safe and secure.

How much does a card reader cost?

At takepayments, we offer personalised pricing packages based on your business’s needs. Our local specialists will meet with you to tailor the package to your business type, expected card turnover, and choice of card reader.

And if you want to take contactless payments, there’s no extra cost: all our card readers come with contactless, Apple Pay, Android Pay, and Samsung Pay already set up.

Get in touch with takepayments today

Whether you choose a countertop, portable, or mobile, all of our card machines for small businesses are here to make payments more convenient for you and your customers.

Our card readers come equipped with all the technology we covered in our blog, so you’ll be able to take payments the way you want.

To learn more about any of our payment solutions, or discuss your options in more detail, contact our dedicated experts today! Or, check out our blog to learn more about takepayments' technology.

John Clark

Product Manager