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My Small Business Doesn’t Accept Credit Cards. What Do I Need to Know to Get Started?

June 20, 2014
Small Business
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Owning a small business is exciting, but it means doing a lot of research. For example, as your business grows, you might be wondering how to get started with accepting credit card payments.

Luckily, the Nerds are here to help. We’ve put together a resource to provide you with the background you’ll need to begin accepting plastic. Eager to learn more? Take a look at the details below.

Know the benefits of accepting plastic

First and foremost, you should know that it’s probably a smart idea to start accepting credit cards. In doing so, you’ll be providing your customers with a convenience many have come to expect. This increases the likelihood they’ll shop with you again.

Also, you could end up selling more items – no additional advertising required. According to the Small Business Administration:

“The convenience of using credit cards generally increases the likelihood of consumer ‘impulse purchases,’ which ultimately contributes to an increase in a business’s average sale. Customers are more likely to make these purchases if they have access to credit or their available bank account funds.”

All this means that accepting credit cards is a savvy move for most small business owners.

What is a merchant service account?

If you’ve done any preliminary research about accepting credit card payments, you’ve probably read about the importance of setting up a merchant service account. These accounts are somewhat confusing, but they’re key to the traditional credit card acceptance process.

Be aware that a merchant service account is different from a business bank account. A business bank account holds the funds your company earns; payments and expenses also typically come out of a business bank account. A merchant service account is unlike other types of bank accounts; it has a complex web of connections to credit card payment processors, issuing banks and your business’s bank account.

Essentially, a merchant service account acts as a stopover point between a customer’s credit or debit card and your business bank account. When a customer swipes their card, the payment information is processed by your merchant service provider. When the funds are approved, the money comes out of the customer’s account and is transferred to your business’s account.

Although merchant service accounts differ from business bank accounts,  when you set up a merchant service account, you’re typically working with bank. The benefit to this is that the bank acts as a full-service provider for getting you set up to accept credit cards. They will usually provide you with payment terminals (with you can rent or buy), plus other services and supports.

The major drawback to using a traditional, bank-based merchant service account  is the fees. You’ll be charged monthly fees to keep your account active, as well as fees for every credit card transaction you accept. You will probably also have to pay for the initial installation of the payment terminals and other equipment.

The terminal – and beyond

Using a conventional merchant service provider is one option for accepting credit card payments, but it’s not the only game in town. In recent years, online processors have become a popular alternative to traditional systems.

Online credit card payment processors, such as Square and PayPal, work without merchant service accounts. They use the Internet to move funds between a customer’s credit or debit account and your business bank account. There are several major benefits to using an online processor:

  • The equipment is usually inexpensive and easy to set up.
  • Many new businesses don’t have an established credit history. This can make it hard to get approved for a merchant service account. With online processors, this isn’t an issue.
  • Online processors usually provide mobile options. If you have a business that keeps you on the go, you’ll be able to take credit cards anywhere.
  • If your business is web-based, online processors usually offer options that are more convenient and cost-effective than merchant service providers.

There are two potential drawbacks to using an online credit card processor over a traditional merchant service provider. The first is customer service. If the payment technology isn’t working for some reason, it might be more difficult to get in touch with an online provider for assistance. Most banks have a dedicated customer service center you can get in touch with at any time.

The second is swipe fees. Online processors usually charge more per swipe than merchant service providers. For example, Square charges a flat 2.75% per transaction if you use its card reader, which is higher than the roughly 2% a merchant service provider would collect for a Visa payment. However, startup costs and monthly fees will likely be less, so be sure to take those factors into account.

Final considerations

Now that you understand your options for credit card acceptance, it’s time to think through some final considerations:

Is an online processor really cheaper? Many small business owners are enthusiastic about online credit card processors because they appear less expensive than a merchant service provider due to lower monthly fees. But be sure to do the math to verify that this is true for your business. Again, keep in mind that most online processors charge more in swipe fees (see above). Of course, if your business is mobile or web-based, the added convenience might outweigh additional costs.

Have I priced out all my options? Regardless of whether you go with an online or merchant service system, be sure you’ve shopped around. Fees vary wildly between providers, so doing your research is key.

Am I ready for EMV? Smart chip cards coming, so be sure to go with a provider that will allow you to accept EMV cards when they become the norm in the near future.

The takeaway: Getting your small business ready to accept credit cards might seem daunting. But now that you know all the vital details, you’re well-positioned to have your customers swiping in no time!

Small business credit cards image via Shutterstock