Tapping or inserting a card only takes a few seconds. But credit card processing companies are facilitating a complex process behind the scenes.
Here’s how to accept credit card payments in-person and online. We also included some top processing solutions in case you haven't found one yet.
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How does credit card processing work?
Every credit card transaction sets off a chain of interconnected events. And they involve multiple financial institutions. Here’s what the process looks like:
- A customer swipes, dips or taps their credit card. If they’re making an online purchase, they enter their card information manually.
- Your card reader or online payment gateway securely captures the card information. The payment processor transmits the data to the associated card network (such as Visa).
- As this is happening, the payment processor requests information from the card's network. This routes the request to the card issuer (such as Chase or Bank of America).
- The issuer evaluates the request and either approves or denies the payment.
- If the issuer approves, you can complete the transaction.
- The payment processor instructs the issuing bank to send funds to the business's merchant account.
- The business gets access to those funds (minus fees), usually after a couple of business days.
These interactions often take just a few seconds to complete. But you can’t do them without the payment processing company, or the right point-of-sale system.
What do payment processors do?
Learn how payment processors work behind the scenes to process card transactions. Also brush up on payment processing best practices for businesses.
» MORE: What is a payment processor?
What do you need to accept credit card payments?
Here are the essentials for accepting credit card payments:
- Payment processing company.
- Merchant account.
- POS system (for in-person transactions).
- Online payment gateway (for online transactions).
Usually, you can get all of these components from the same provider. Many bundle them together as part of a single service.
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How to accept credit card payments in-store
Brick-and-mortar businesses need a payment processor and a POS system. In most cases, your POS system will come with built-in payment processing services.
The simplest way to accept payments in-person is with a credit card reader. Lots of payment processing companies, like Square and PayPal, sell these devices. When you buy them, they're already equipped with POS software. This works behind the scenes to record sales and collect other data.
More established storefronts will probably opt for a countertop POS system instead. You can pair these with cash registers, card readers, receipt printers and barcode scanners.
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How to accept credit card payments online
To accept online payments, you'll need an online payment gateway. This lets customers securely enter their card information on your website. Products like Shopify let you build a website, sell items and process online payments all under the same roof. Alternatives like Stripe are better known for their standalone payment gateways. You can add these to pre-existing websites.
If you accept card payments online and in-store, try to use the same provider for both types of sales. This helps you compare numbers across sales channels and centralize sales data.
How to accept mobile credit card payments
Businesses that do most of their sales at pop-up events or markets might opt for mobile card readers. POS system providers and payment processing companies often sell inexpensive portable options. You simply pair them with a free mobile app to start accepting payments.
There are also payment apps that let you accept contactless payments with just your phone. This is usually done through Tap to Pay technology.
How much does accepting credit card payments cost?
The cost of accepting credit card payments extends beyond processing fees alone. Here’s a rundown of each related expense:
Credit card processing fees
Every time a customer pays with a credit card, your business will owe transaction fees. In general, you'll pay more for online transactions than for in-person ones. That's because the former has a higher risk of fraud.
Costs fluctuate depending on your processing fee structure. The two major ones are flat-rate and interchange-plus:
- Flat-rate: You pay a percentage of each sale plus a small flat fee. This model is simple to understand because it's consistent. There’s one set rate for in-person payments, one for keyed-in payments and one for online transactions. In-person payments usually cost somewhere around 2.6% plus 10 cents per transaction. Online ones typically cost 2.9% plus 30 cents per sale.
- Interchange-plus: This model passes interchange fees directly to you, plus a markup. Interchange fees vary by card network, so you won't pay the same rate for every transaction. The fees are transparent. You can see exactly how much is going to the credit card network versus the payment processor. However, they're also hard to predict.
The cheapest credit card processing companies for one business won’t be the same for another. It depends on your monthly sales volume and whether you make more online or in-person sales. And watch for other costs for PCI compliance, setup, or early termination.
See our article on credit card processing fees for a more detailed breakdown.
Monthly POS software fees
Lots of providers, like Square and PayPal, offer free POS software. These plans typically include basic reporting and invoicing capabilities.
If you need more industry-specific features, you should expect to pay around $50 per month or more. Free plans rarely include capabilities like recipe costing or detailed inventory tracking.
POS hardware costs
How much you spend on POS hardware depends on your provider and what type of equipment you need. Mobile credit card readers range from $29 to upwards of $100. More complex solutions include handheld terminals and countertop systems. These can cost north of $700.
Estimate your credit card processing fees
NerdWallet’s calculator can help you compare rates based on your monthly sales volume.
Pros and cons of accepting credit card payments
For most businesses, the benefits of accepting credit card payments outweigh the cons. After all, many consumers don’t carry cash anymore. However, it’s smart to be aware of the challenges that come along with credit card processing.
Pros
✅ Larger customer base
Cash-only businesses save in processing fees. But they risk losing sales, because lots of people don't carry cash. Oftentimes, paying the processing fee on a sale is better than not completing the sale at all.
✅ Quicker checkout experience
Lines move quicker if you streamline the purchase process. Credit card processing does this.
Customers simply tap their card to a terminal, take their receipt and make room for the next person in line.
✅ Safety
It's safer for consumers and employees alike not to carry large amounts of cash.
Cons
🆇 Expense
This is by far the biggest drawback of accepting credit card payments. At the very least, you'll owe processing fees. You might also pay chargeback and PCI compliance fees.
🆇 Account freezes
Payment processors can freeze your account if they suspect fraud. The same applies if you have too many chargebacks. That can prevent you from accepting card payments for weeks on end.
If this happens, make sure to contact your processor. From there, promptly send them any requested documentation.
A dedicated merchant account as opposed to a shared one can reduce this risk.
🆇 Internet disruptions
You don’t need an internet connection to accept cash. But that’s not always the case for credit card payments.
Before committing to a POS system, make sure it has an offline mode. This lets you continue doing business if (and when) the internet crashes.
Popular solutions for accepting credit card payments
Square: Best for all-in-one payment processing and POS system
Payment processing fees:
- 2.6% plus 15 cents for in-person transactions with Free plan.
- 3.3% plus 30 cents for online transactions with Free plan.
- 2.5% plus 15 cents for in-person transactions with Plus plan.
- 2.4% plus 15 cents for in-person transaction with Premium plan.
- 2.9% plus 30 cents for online transactions with Plus and Premium plans.
- 3.5% plus 15 cents for manually keyed transactions.
Why we like it: Square is a popular option for retailers, restaurants and service-based businesses. It offers a free POS software plan, as well as paid ones, alongside a variety of hardware options. Its free plan's processing rates are slightly higher than the competition. But we think its features make up for it.
Stripe: Best for online payments
Payment processing fees:
- 2.7% plus 5 cents for in-person transactions.
- 2.9% plus 30 cents for online transactions.
- 3.4% plus 30 cents for manually keyed transactions.
- 4.4% plus 30 cents for international card transactions.
Why we like it: Stripe lets you customize your own online checkout flow. That way, you can add checkout links or modules to existing websites. You can also purchase mobile card readers and terminals for accepting in-person payments.
Helcim: Best for interchange-plus pricing
Payment processing fees:
- Interchange plus 0.4% and 8 cents per in-person transaction (if $50,000 or less in monthly card transactions).
- An additional 10 cents per Tap to Pay transaction.
- Interchange plus 0.5% and 25 cents per online or manually keyed transaction (if $50,000 or less in monthly card transactions).
- 0.5% plus 25 cents for ACH payments (capped at $6 for transactions less than $25,000).
Why we like it: Helcim is a great option for high-volume businesses that want an interchange-plus pricing model. The company supports in-person and online payments, doesn’t require a contract and skips the monthly fee.
Chase Payment Solutions: Best for partnering with a bank
Payment processing fees:
- 2.6% plus 10 cents for in-person transactions.
- 2.9% plus 25 cents for online transactions via Authorize.net.
- 3.5% plus 10 cents for keyed transactions, payment links and invoicing.
Why we like it: If you want to use one company for multiple services, consider Chase for your payment processing and business checking needs. You can get your money as soon as the same day for free. And its pricing is competitive.
Randa Kriss, a NerdWallet small-business writer, contributed to this article.
A version of this article was first published on Fundera, a subsidiary of NerdWallet.
