Many people starting new businesses today are too young to even remember the days of the old-school credit card imprinter—you know, that clunky plastic device that made a carbon print of a credit card next to a handwritten receipt?
Lucky for us, payment processing technology over the past 30 or so years has made it way easier to accept credit card payments, even for tiny, startup businesses. In fact, most of today’s leading credit card processing services bundle payments with other features, like e-commerce and inventory management. Here are some convenient, effective ways to accept credit card payments.
How To Accept Credit Card Payments
Accepting credit cards is relatively quick and easy for any kind of business, and you can process purchases in person or online.
Steps to Credit Card Processing
Regardless of whether you receive card payments in person or online, the transaction process typically involves these basic steps:
- The customer swipes, inserts or taps their credit card or mobile device, or enters their credit card number, to input their information into the payment processor.
- The payment processor communicates with the card’s issuing bank to ensure available funds or credit limit, and detect potential fraud.
- If the bank approves the transaction, the payment processor debits the customer’s account and credits your merchant account with the transaction amount.
The difference among various ways to accept credit card payments is mainly in how you input card information on the front end.
In-Store Credit Card Payments
To accept credit card payments in a retail location—like a restaurant or store—you need a point-of-sale (POS) system with a card reader or a credit card terminal that can process transactions on its own.
If required, customers can usually enter a personal identification number (PIN) for a debit card or sign to authorize the transaction onscreen or on a receipt printed from the credit card terminal.
To accept online payments for e-commerce or other business, you need an account with a payment service provider (PSP), like PayPal, Stripe, Square or Shopify.
You’ll have to connect it to your online storefront, which is usually fairly simple with the right website builder. Many modern website builders, like Squarespace, Kajabi and Shopify, and marketplaces like Etsy, are designed to facilitate online purchases and easily integrate with payment processors. While most website builders come with a security sockets layer (SSL) certificate to ensure your customer’s security, you might have to use a standalone service if you want to accept payments over the internet. You can check out our guide to the best SSL certificate services for more information.
If your existing website doesn’t play well with payment providers, you may have to simply link out to your account—for example, with a PayPal “pay now” button on your website—and let customers make payments through the third-party site. This process will be less seamless and may require more manual work on your end to keep orders straight.
Mobile Payment Processing
You can accept physical cards anywhere with no other equipment than your mobile phone through mobile payment processing apps. These lightweight solutions are great for on-the-go sales at places like farmers markets, art fairs, trade shows and parties.
Square is the best-known and simplest mobile payment processor to use. Its card reader is a tiny attachment that fits right into the headphone jack (including Lightning connectors) on your smartphone.
You can simply download the Square Point of Sale app on your Android or iOS device, punch in the customer’s order or total and swipe the card to run the transaction, just like an in-store POS. If required, customers can sign to authorize the transaction right on the screen.
Credit vs. Debit Card Transactions
Credit and debit card transactions look similar but are different on the back end. They’re both facilitated by credit card networks, so the point-of-sale process looks the same: enter information, communicate with the bank and process the transaction.
On the customer’s end, the difference is that a debit card transaction immediately pulls money from their bank account, and a credit transaction does not.
On your end, payment looks different. Debit card transactions are usually settled faster, and the money lands in your merchant account the same day. Credit card processing requires the payment processor to put money into your account (and settle up with the customer later), and that can take up to a few days.
Fees for debit versus credit cards might be different too, depending on what kind of account you have with the payment provider. And a credit card network might restrict transaction minimums for debit cards but allow them for credit cards (because of regulatory requirements).
Merchant Account vs. Payment Service Provider
Traditionally, you needed to open a special kind of bank account, called a merchant account, to accept credit card payments. You would sign up with a bank and negotiate a contract for fees, then receive or purchase the necessary hardware to process payments.
Payment service providers like PayPal, Square, Stripe and the like make this process a lot easier and, in many cases, cheaper. They look similar to merchant accounts, but you can easily sign up and manage the account online. And it’s easy to move money into and out of your PSP account to issue refunds, make purchases or deposit into your bank account.
If you’re starting fresh, a payment service provider is likely going to serve as the simplest and most affordable way to accept credit card payments for a small business.
Credit Card Processing Fees
When you accept a credit or debit card payment, you’ll be subject to these typical fees:
- Interchange rate: This is a percentage of the sale that goes to Visa, Mastercard or other credit card company. Rates can be anywhere from 1.5% to 3.5%, generally higher for premium cards.
- Transaction fee: This is the cut you pay to the payment service provider or processor in addition to the interchange rate. Some processors charge a flat rate per transaction that covers their cut and the interchange rate, and others use an interchange-plus model that charges you the interchange rate plus their own varying fee.
- Service fee: Depending on the provider, you might pay a monthly or annual subscription fee to use the service. Most small-business PSPs, like Stripe and PayPal, forgo this fee and only charge flat-rate transaction fees.
Frequently Asked Questions
What is the best way to accept credit card payments?
The most convenient and affordable way to accept credit card payments for your business depends on several factors, including what you sell, where you sell it, your sales volume and how your customers prefer to pay. Flat-rate payment service providers are best for businesses that do less than $5,000 per month in sales, while more complex models could be better for larger businesses.
How can I accept credit card payments for free?
You can’t accept credit cards without paying fees, because this is a major way credit card networks get paid for their service. However, you could overcome fees by adding a surcharge to credit card payments or raising prices. You could incentivize cash payments by offering a discount for customers who pay with cash.
Is there an app to accept credit card payments?
Several mobile apps exist to accept mobile credit card payments, including Square, PayPal Here, Payanywhere, Clover and QuickBooks apps. Square is the simplest to use and transport because of its small card reader that fits right in your pocket.
How can I accept credit cards on my phone?
To accept card payments using a smartphone, you have to download a mobile payment processing app, like Square, PayPal Here, Payanywhere or Clover. When you sign up, they’ll send you a card reader that plugs into your phone’s headphone jack, so you can accept physical cards and run entire transactions through your phone.
What is the cheapest way to take credit card payments?
Payment processors with flat-rate transaction fees are usually the most affordable option for businesses that make less than $5,000 in sales per month. Processors with interchange-plus models are best for larger businesses with higher sales volume.
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