How to Accept Credit Card Payments

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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.

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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 payment processors do?

Learn how payment processors work behind the scenes to process card transactions, and brush up on payment processing best practices for businesses.

» MORE: What is a payment processor?

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.

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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:

Credit card processing fees

Every time a customer pays with a credit card, your business will pay a transaction fee. This fee is a combination of interchange fees (set by issuing banks), assessment fees (set by card networks) and the markup tacked on by payment processors. In general, you'll pay more for online transactions than for in-person transactions due to the former’s higher risk of fraud. The type of card used by the customer also impacts transaction rates. For example, some card networks, like American Express, can be more expensive to accept than others, like Visa.

Costs fluctuate by credit card processing fee structure, too. The two major ones are flat-rate and interchange-plus.

Flat-rate: These fees are made up of a percentage of the transaction total plus a fixed amount (e.g., 2.9% plus 15 cents) that includes interchange fees but charges a flat fee regardless of the card network. They’re simple to understand because they’re relatively consistent — there’s usually one set rate for in-person payments, one for manually keyed payments and one for online transactions.
Interchange-plus: These pricing structures include an interchange rate, which varies by credit card network, plus a set markup. The fees are transparent, in that you can see exactly how much is going to the credit card network vs. the payment processor. But the structure can also make it challenging to predict your payment processing costs, since interchange rates vary by card type. That being said, your business saves when customers pay with cards that have lower interchange rates.

The cheapest credit card processing companies for one business won’t necessarily be the same for another. It depends on your business’s monthly sales volume, the type of credit cards customers use and whether you accept more online or in-person credit card transactions. Make sure you understand the fee structure and all other associated costs, such as PCI compliance, setup or early termination fees.

Monthly POS software fees

In terms of software, you can expect to pay more per month (e.g., $69-$199 and higher) if you need industry-specific features, like recipe costing, or other advanced capabilities. However, there are also free POS systems with basic feature sets that typically include reporting, invoicing and simple staff management tools. If a free software plan isn’t sufficient, you might be able to save by paying subscription costs annually, though you should make sure you like the system enough before committing to it for a year.

POS hardware costs

If you need hardware, you’ll probably have to pay for it upfront, although some companies have flexible payment options that don’t require any money down. Typical prices for credit card readers range from free for a basic reader that connects to a phone or tablet, to upward of $700 for a countertop POS system with a screen, cash drawer and receipt printer.

Estimate your credit card processing fees

NerdWallet’s calculator can help you estimate how much you’ll pay in processing fees with one company vs. another based on your monthly sales volume.

» MORE: How much are credit card processing fees?

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.

Pros

✅ Larger customer base

You have a much greater chance of capturing consumers if you accept credit card payments. While cash-only businesses save in processing fees, they risk losing customers who would’ve made a purchase but only carry cards. Oftentimes, paying the processing fee on a sale is better than not completing the sale at all.

✅ Quicker checkout experience

Lines typically move more quickly if customers can simply tap their credit card to a terminal, take their receipt and make room for the next person in line. Accepting cash isn’t necessarily the most time-consuming process, but the extra time it takes can add up if you have long lines.

✅ Safety

Consumers may feel safer carrying credit than cash, because they are not held liable for unauthorized credit card charges. It’s also safer for small businesses to not have large amounts of cash in store.

Cons

🆇 Expense

This is the biggest drawback of accepting credit card payments. Associated expenses include processing costs and, depending on the processor, fees for chargebacks and PCI compliance.

🆇 Account freezes

If there are enough customer disputes or your processor suspects credit card fraud, your merchant account may get frozen, which could prevent you from accepting card payments for weeks on end. If this happens, make sure to contact your payment processor and promptly send over any requested documentation to resolve any chargebacks, as well as take steps to minimize your 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 so that you can continue doing business if (and when) the internet crashes.

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