How to Accept Credit Card Payments

Accepting credit card payments at your small business can make it quicker and easier for customers to complete their purchase. The task only takes a few seconds, but credit card processing companies are facilitating a complex process behind the scenes.

Whether you want to accept credit card payments online, in person or both will also affect the services and hardware your business needs. Here’s how to accept credit card payments, plus some top processing solutions.

How credit card processing works

Every credit card transaction your business accepts sets off a chain of interconnected events involving 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, and 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, which 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 transaction is approved, you can complete the transaction.

• Once the transaction is approved, the payment processor instructs the issuing bank to send funds to the appropriate merchant account.

• The merchant gets access to those funds (minus fees), usually after a couple of business days.

These complex interactions usually only take a few seconds to complete, but you can’t do them without the payment processing company, or the right point-of-sale hardware and software. Finding the right solutions will depend on your type of business.

What do you need to accept credit card payments?

To accept credit card payments, your business needs a payment processor, POS hardware (if you’re accepting in-person payments), online payment gateway (if you’re accepting e-commerce payments) and a merchant account. Usually, you can get all of these components from the same provider. Sometimes, they even come bundled together as part of a single service.

Some credit card processing companies offer individual merchant accounts tailored to your business, but the application process can be lengthy. Instead of offering individual merchant accounts, all-in-one payment processors, also referred to as payment service providers, aggregate or group funds from multiple companies that use their services into one merchant account. The funds are then transferred into each individual company’s bank account.

The end result is the same, but there are a few distinctions to consider:

• If you need to start accepting payments quickly: Because payment service providers provide an aggregated merchant account as opposed to making you apply for an individual one, they’re simple to use, can be set up quickly and are generally cost-effective for smaller businesses. However, they are more prone to disruptions like holds or terminations. 

• If you’re a high-volume business: Since opening an individual merchant account requires an application and review process, the process is often more cost-effective for businesses with a high volume of monthly sales.

• If you own a high-risk business: High-risk businesses — like ones with high rates of fraud or chargebacks, or those selling federally regulated items — generally open individual merchant accounts. The terms and conditions of many payment service providers prevent these businesses from becoming customers. See NerdWallet’s explainer on high-risk merchant accounts for more information.

How to accept credit card payments in store

Brick-and-mortar businesses need a payment processor and a POS system to accept card payments. In most cases, your POS system will determine your processor, or at least help you narrow down your options. That’s because certain POS systems are only compatible with their own in-house services. Others may integrate with a handful of outside providers.

POS systems for businesses that sell in person require POS hardware and the POS software that works behind the scenes to record sales and collect other data for your business. One of the simplest forms of hardware used to accept card payments is a credit card reader. Some readers only let you swipe cards, while others allow customers to dip or tap their cards. Established storefronts, however, will probably opt for a countertop POS terminal with a built-in card reader, cash drawer and receipt printer.

How to accept credit card payments online

For in-store transactions, the physical card reader or POS terminal acts as the built-in payment gateway and transmits customers’ credit card information to the relevant parties. If you do business online, however, you’ll need a payment processor and an online payment gateway, so that customers can securely enter their card information on your website. Some companies, such as Square, offer an all-in-one solution that pairs POS software and processing services with a payment gateway and tools for building an online store. Others, such as Stripe, are better known for stand-alone payment gateways that you can add to your pre-built website.

Businesses accepting card payments online and in store should use the same processing company and POS software to track both types of sales. This helps them compare numbers across sales channels and centralize their data under one roof.

» MORE: How to accept payments online

How to accept mobile credit card payments

For businesses that do most of their sales at pop-up events or farmers markets, or otherwise operate across multiple locations, mobile card readers may be the best solution to accept credit card payments. POS system providers and payment processing companies often sell their own portable credit card readers that you can pair with a free mobile app on your smartphone. There are also payment apps that let you accept contactless payments with just your phone.

What does it cost to accept credit card payments?

The costs associated with accepting credit card payments extend beyond processing fees alone. Here’s a rundown of each related expense:

Pros and cons of accepting credit card payments

For most businesses, the benefits of accepting credit card payments outweigh the cons, especially since so many consumers don’t carry cash anymore. However, it’s smart to be aware of the challenges that come along with credit card processing as well.

Popular solutions for accepting credit card payments

Why we like it: Square is a well-known payment service provider that includes card processing with its POS system and proprietary hardware. Square doesn't require a long-term contract or charge setup fees or chargeback fees. It has free and paid versions of its POS systems specific to restaurant and retail businesses.

Why we like it: Stripe focuses on online payments with an emphasis on customizability, though it supports in-person payments, too. Its platform allows you to accept card payments without a merchant account. Stripe doesn't charge monthly fees, but you will pay $15 per chargeback.

Why we like it: If you want to accept card payment but don’t need many additional services, check out Helcim. The company supports in-person and online payments, doesn’t require a contract and doesn’t charge a monthly fee. Helcim uses interchange-plus pricing and offers fee discounts when a business has over $50,000 in monthly credit card volume. Its pricing structure works best for businesses with high sales volumes.

Why we like it: If you want to use one company for multiple services, consider Chase for your payment processing and your business checking. You can get your money as soon as the same day and its pricing is competitive.

Randa Kriss, a NerdWallet small-business writer, contributed to this article.