How to accept credit card payments as a business

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Digital payment options have become more sophisticated and readily available over the past decade, and in turn, cash transactions have become less common.

• 41 percent of Americans don’t typically use cash to pay for any of their transactions in a week, up from 29 percent in 2018, according to a 2022 Pew Research Center study.
• There were about 526 million credit card accounts nationwide as of Q3 2022, Experian research shows, an increase of 31.7 million from the total in 2021.

With credit card usage increasing, accepting credit card payments is now a vital part of increasing sales and improving customer satisfaction if you’re a small business owner. That’s especially true if your business is conducted in part or fully online since cash payments aren’t an easy option for online purchases or payments. Accepting credit cards can also help to streamline your business’ finances and reduce administrative costs, which are useful perks for any type of business owner.

It’s fairly simple to accept credit card payments, no matter what type of business you’re running. Before you get started, though, it’s important to understand the steps for accepting credit card payments, the fees associated with credit card processing and the different ways to receive credit card payments.

How to set up business credit card payments

While the right type of credit card processing can vary depending on the type of business you run, the steps for setting up credit card payments are generally the same across the board. Here are the steps you can expect to take when setting up your business to accept credit card payments.

Step 1: Set up a merchant account

Begin the process by opening a merchant account with a merchant acquiring bank. A merchant account fronts the funds for the transactions that customers make and serves as an intermediary between the customer’s credit account and the business’s checking account. Rather than businesses having to wait to receive the funds, merchant banks make it possible for businesses to immediately access the money from customer transactions.

Step 2: Choose a payment processor

You’ll then need to select a credit card processing provider, also known as a merchant services provider, which enables your customers to make electronic payments. A credit card processor provides the infrastructure to move funds from a customer’s credit card account to a business’s bank account.

There are numerous credit card processing providers to choose from, and finding the right fit for you will largely depend on whether you expect to process transactions in person, online or by phone. Online businesses should opt for processors that can easily integrate with their websites and provide payment gateways. In-person businesses require point-of-sale (POS) systems and in some cases, payment terminals. After you’ve determined the right fit, your processor will supply you with services and equipment to process credit card transactions.

Step 3: Set up payment terminals

The last step is to select and set up payment terminals for your business. Payment terminals are the hardware, such as the credit card machine, that customers use to swipe or tap to pay for the transaction.

Most credit card processors offer their own proprietary hardware. If you have a brick-and-mortar store, you typically order and set up your equipment, which is usually a POS system and credit card readers. Many consumers prefer to tap their card or phone when paying, so it may benefit you to choose a machine that is RFID-compatible.

If your business operates largely online, make sure that your website is fully integrated with your credit card processor, either by hosting your website entirely on an e-commerce platform or by asking a web developer to help you integrate your merchant services provider to your website.

Different payment types

Credit card payments are made primarily in three ways: in store, online and over the phone. Each poses a different level of risk and requires a different technology to process. Each payment type also has its own processing fees.

In-store payments

Most brick-and-mortar businesses, like clothing boutiques, coffee shops and food trucks, will accept in-store payments. To process in-person transactions, brick-and-mortar stores and other in-person services will typically have a POS system and a card reader or a similar system, like a phone attachment that can process payments.

With in-person payments, the cardholder and credit card are present, and the payment terminal authenticates the transaction with the cardholder’s bank and conducts fraud checks within seconds. These transactions are considered relatively low risk, and credit card processors usually charge lower transaction fees in return.

Online payments

E-commerce websites, software-as-a-service companies and even restaurants with online ordering systems process online transactions. Online payments require a payment gateway to secure information, as payment details move back and forth between the cardholder, merchant, merchant acquiring bank and the card issuer.

These transactions are considered more risky than in-person payments because of the ease with which a fraudulent transaction can be made with a stolen credit card number. Therefore, the processing fees for online payments tend to be higher.

Over-the-phone payments

Card-not-present transactions are fairly high risk because the customer must share their credit card information over the phone with the merchant, who inputs the information in the card reader. A lot could go wrong with these types of transactions.

To complete card-not-present transactions, you need either a card reader and POS, which is necessary if you’re doing the transaction in store, or a payment gateway if you receive an order for your online store through your customer service line. Since this payment type is high risk, credit card processing providers tend to charge higher fees. Your business should also keep records of your transactions to prevent fraud and chargebacks.

Credit card processing fees

Credit card processing providers will charge you for their services, which include checking for sufficient funds with the cardholder’s bank and fraud. The fees may be higher for some payment processors than others, and may also be higher for some credit card types.

Processing fees typically range from 1.5 percent to 3.5 percent of each transaction cost. Fees can generally be broken down as follows:

• Interchange fees: These fees are charged for every transaction by card-issuing banks for the cost of approving and authorizing transactions. They also vary based on card type.
• Assessment fees: The four major credit card networks — Visa, Mastercard, Discover and American Express — levy these fees on every credit card transaction.
• Payment processor fees: These fees cover the cost of connecting and transmitting payment data between merchants and banks. This includes monthly fees, equipment fees, wireless access fees, batch fees and transaction fees.

Bottom line

Accepting credit card payments is a key component of running a successful business. It’s convenient for your customers to pay by card, as many don’t carry cash with them, and can also help increase sales. While setting up your business to accept credit card payments is typically simple, it’s important to understand the different payment types and the processing fees associated with them before you choose an option. Do your research on the various credit card processors and their services so that your business is set up for success.