A Smart Way to Take Credit Card Payments

Interchange fees. If you're a small merchant, you know how irritating they are, because you have to hand the bank a piece of the transaction each time a customer pays with a credit card. The fees average around $2 on a $100 transaction, and they really pile up. Interchange fees are the second-highest expense for most small merchants, after labor costs.

But like a lot of other annoyances in life -- mortality, taxes, etc. -- exorbitant interchange fees (and the hidden charges that often go with them) are unavoidable. At least, they have been until now. Recently, a disruptive little device that plugs in to a smartphone or tablet has made it easy for merchants to swipe customer credit cards without paying through the nose for the privilege.

Square Is Cool with Merchants

The first national player on the scene is Square, which was launched in 2009 by Jack Dorsey, one of the two guys who started Twitter. Square supplies merchants with an app and a small card reader that connects to the audio jack on an iPhone, Android phone, or tablet computer. (The reader is free.)

It reads a credit or debit card the same way as a traditional card terminal, and Square processes payment for a flat fee of just 2.75 percent of each swiped transaction, and 3.5 percent (plus a 15-cent surcharge) of transactions when the account number is keyed in. To get Square, merchants just go to the company's website. There are no salespeople, no intermediaries, no activation fees, no recurring charges, and no hidden fees.

Square is seeing rapid adoption by everyone from corner-store owners to cab drivers. The company has shipped more than 800,000 card readers and processes more than a million transactions a month.

Intuit Jumps in with GoPayment

Most merchants already use one or more products from Intuit. Now the company that makes QuickBooks, Quicken, and TurboTax offers GoPayment, which is very similar to Square. GoPayment also comes with a free card reader that plugs in to a smartphone or tablet audio outlet.

There is no monthly fee. Merchants that process under $1,000 a month pay 2.7 percent for each swiped transaction and 3.7 percent for each keyed-in transaction. For merchants that process more than $1,000 a month, the high-volume version of the service costs $12.95 a month and 1.7 percent for swiped transactions and 2.7 percent for keyed-in transactions.

North American Bancard Offers Pay Anywhere

North American Bancard is the third big player in the smartphone swipe space. Its Pay Anywhere system works the same as Square and GoPayment. It costs 19 cents per transaction, plus 2.69 percent for each swiped transaction and 3.49 percent for each keyed-in transaction. There is no monthly fee.

There are a number of other companies now in the mobile-payment space, most of them offering some variation of a system that lets customers wave their mobile phone at a wireless counter-top reader. Most significant among them is Google, with its Google Wallet solution.

But for merchants who are comfortable with card-swipe payments and eager to stop forking over expensive interchange fees to banks, the three services described above are a quick and easy answer.