Modern customers don’t always carry cash. In fact, cash is now used for less than 26 percent of transactions, and that number is dropping. Debit cards and credit cards are increasingly chosen as the payment methods of choice, representing a combined 51 percent of all transactions.

If you want your business to remain competitive and be appealing to your target customers, you’ll need some way to accept credit card payments. But what’s the best way to accomplish this?

Why is it Important to Take Credit and Debit Card Payments?

First, let’s review why it’s important to take credit and debit card payments. While it’s feasible to start a cash-only business in 2021, it’s not going to be a good look.

Benefits to Accepting Credit and Debit Cards:
  • Customer Convenience
    Most people prefer to pay with a credit or debit card because it’s easier and it’s more secure. You don’t have to carry cash, which is inherently more vulnerable to theft, and you can pay with a single swipe, rather than counting out money. Accepting credit and debit card payments will instantly make your business easier and more manageable for customers, even if you’re only saving them a little bit of time.
  • Integrated Tracking and Accounting
    Credit and debit card payments are also easier to track. Rather than counting down a drawer at the end of the day, you can rely on digital tracking to total up your revenue. With the right platform, you can take credit and debit card data and seamlessly integrate it into your accounting approach.
  • Reducing Risk
    Cash is inherently risky. If you’re collecting cash from every customer who walks in the door, you’ll be a lucrative target for a thief or robber—but digital payments aren’t as easy to snatch. Additionally, most credit card processing services offer fraud protection, reducing your risks even further.
  • Competitiveness
    Most businesses are already offering credit and debit card payments. The competitive pressure practically forces you to offer similarly convenient options. If a customer finds you don’t take credit card options, they may move onto another business.

How Credit Card Processing Works

Before we get into the specifics of how to adopt credit card processing in your business, let’s go over the basics of how credit card processing works.

  1. When a customer swipes or taps a credit card, they offer payment for a product or service of yours. This person is known as the “cardholder,” and they initial a sequence of events. Your store is the “merchant” in this scenario. You accept credit card payments; this means you’ll provide products or services in exchange for this credit card transaction.
  2. After a cardholder swipes a credit card, the transaction information is captured by an “acquiring bank,” also known as an “acquirer” or “processor.” This is the merchant’s bank—your bank. From here, the transaction is digitally routed through a card network to the issuing bank.
  3. The “issuing bank,” or “issuer,” then reviews the transaction and evaluates whether it’s valid. Generally, issuing banks look to see whether the cardholder is in good standing, whether they have ample money in their account, and whether the transaction looks fraudulent. In most cases, they grant approval back through the network.
  4. After this process, the transaction is stored in a “batch file,” where it waits to be settled at the end of the chosen time period.
  5. Typically once per day, the merchant sends over a “batch” of authorizations to the “processor.” The processor then reviews all the authorizations via card association networks. Once complete, the processor will deposit funds from the sales into the merchant’s bank account, minus processing fees. At this point, your company—the merchant in this process—is done.
  6. The only remaining moves are collecting money from the acquiring bank and cardholder. Merchants aren’t involved in this process. The merchant’s process then deposits their payments into their account.

Types of Credit Card Processing Fees

As you might expect, there are some fees to pay for credit card processing services. Unfortunately, there’s no single standard that all credit card processing companies follow.

On average, the fees work out to somewhere between 2.87 percent and 4.35 percent per transaction. Fees tend to include one or more of the following:

  • Transaction Fees
    Transaction fees are paid on a per-transaction basis. It’s usually a percentage that you’ll pay on every purchase made through your system.
  • Flat Fees
    Flat fees are charged on a recurring basis, usually on a monthly basis, by your payment gateway or merchant services provider.
  • Incidental Fees
    There are also some additional “incidental” fees you may see periodically. For example, most processors charge you a fee for a “chargeback,” wherein a cardholder requests a return of their money through their bank.

Types of Processors

Generally speaking, there are two routes you can take when it comes to credit card processing:

  • Merchant Account Providers
    Most major businesses create a merchant account to accept credit card payments. You’ll hold a merchant account through a financial institution, and funds from that merchant account will be transferred to your business account in 1-2 business days. Getting a merchant account can be tough, but you’ll usually get access to more services this way (such as PCI compliance services).
  • Third-Party Processor and Payment Services Providers
    You may also consider using a third-party payment processor. In this setup, you won’t need to have a merchant account for your business. These require far less setup, and are far less expensive in some ways, but the transaction fees are a little higher and they’re not as ideal long-term.

How to Accept Credit Card Payments as a Small Business

We’ve explained how the system works, so how can you tap into that system? What steps do you need to take to equip your business with the technology and services necessary to accept credit card payments?

Determine How to Accept Payments

First, decide how you’re going to accept payments from customers:

  • Online – If you sell products online or if your business operates without a physical presence, you’ll heavily rely on online credit card payment processing.
  • In-person – If you have a brick-and-mortar establishment, you’ll need some way to collect payments in person.
  • Mobile – If you travel frequently, if you make house calls, or if you need to collect payments on the go, you’ll also need a mobile option.

How to Choose a Provider

There are many credit card payment processors available, so what’s the best way to choose a provider?

  • Total Services and Functionality
    Pay attention to the total services offered by each provider. Some providers give you the bare minimum, including a card reader and processing services. Others are much more robust, offering invoicing, inventory tracking, employee management and more. Try to find the best fit for your organization; the extra services may sound great, but if you’re not going to use them on a consistent basis, they may not be worth the extra money.
  • Fraud Protection
    Most credit card payment processors offer some level of fraud protection; if a customer uses a stolen credit card or if you’re the victim of fraud directly, is there a layer of protection that kicks in?
  • Types of Payments Accepted
    Different providers may accept different types of payments. For example, will you be able to collect payments from every major credit card provider? Will you be able to accept both credit cards and debit cards? What about international transactions?
  • Fees and Other Costs
    Even if it’s free to create an account or use basic services, you’ll be paying for credit card processing somewhere down the line. Pay attention to the different fee schedules offered by different providers. Try to find an option that’s within your budget and pay close attention to “hidden” or additional fees that may be lurking below the fold.
  • Reputation and Online Reviews
    Before moving forward with any option, take a moment to review the brand’s reputation, along with online reviews for their services. What do other business owners have to say about this service? Have they used it in the past? Did they end up switching to something different?
  • Customer Service and Support
    If something goes wrong, such as a POS system breaking or an instance of fraud, are you going to have support? Is there a representative from this company available to help you solve the issue?

Online Credit Card Processing

If you’re looking for online credit card processing, you’ll have a number of core options to choose from.

Basic Invoicing

For starters, you may want to pick up some basic invoicing software. Invoicing software will help you keep track of your transactions, manage your business’s finances, and remain compliant with the law. Many basic invoicing software platforms offer built-in methods to accept credit card payments from your customers, making these platforms ideal for freelancers, contractors, consultants, lawyers, and other professional service providers.

Basic Invoicing Solutions:
  • QuickBooks Payments
  • FreshBooks
  • Square

eCommerce Stores and Online Retail

If you’re collecting credit card payments through an online store, the easiest approach here is to utilize a service that specializes in online retail. You may be able to collect credit card payments through the website builder you choose, or by enlisting the services of a major online provider.

eCommerce Store Solutions:
  • Shopify
  • BigCommerce
  • WordPress + Woocommerce

Integrate with a Custom Website or Checkout Platform

You can also tap into credit card processing services that offer a customer website or checkout platform. Here, you’ll design a specific webpage and/or process for your customers to follow, and the credit card payment is one step of that process.

Custom Website and Checkout Platform Solutions:
  • Stripe
  • PayPal
  • Payment Depot
  • Fattmerchant

In-Person Credit Card Processing

If you’re collecting credit card payments in a brick-and-mortar store, you’ll need a different option.

Simple Card Reader

One option available to you is a simplistic card reader. This machine exists at the checkout, allowing customers to use their credit cards for whatever they’re purchasing. It’s easy to set up and use, it doesn’t come with many superfluous features, and it’s relatively inexpensive.

Point of Sale (POS) Systems

If you’re looking for something more robust, you’ll want a full point of sale (POS) system. This is typically an integrated computerized network that provides credit card processing, transaction and inventory management, and even extra services like employee management.

If you’re interested in purchasing a POS system for your business, consider the following:

  • Ease of Use Good
    POS systems are easy to use, both from the employee and customer perspective. The simpler it is, the faster transactions are processed and the fewer mistakes are made.
  • Reporting
    A solid POS system should also offer built-in reporting. It should be easy to review your transactions and manage your finances through it.
  • Employee Management
    Some businesses benefit from POS systems with built-in employee management features, like scheduling, clock-in, and clock-out options.
  • Customer Management
    You may also want to manage your customer data directly, learning more about your new and repeat customers.
  • Inventory Management
    POS also frequently provides functionality as an inventory management system, allowing you to keep track of your products in-store.
Point of Sales (POS) Solutions:
  • Square POS
  • Shopify POS
  • Toast POS (for restaurants)

Mobile Credit Card Processing

If your business provides services to customers at home, attends art shows, or otherwise is frequently “on the go,” you’ll need a mobile credit card processing option as well. You can’t take your entire POS system with you, nor do you want to force users to pay you through your online platform.

Generally, these processing units and services rely on a device like a smartphone or a tablet; this becomes the mobile point of sale (POS), where your customers can easily swipe or tap a credit card and pay for your products and services.

Mobile Credit Card Processing Solutions:
  • Square
  • Shopify
  • Payanywwhere
  • Intuit GoPayment

The Bottom Line

If you’re just getting started, setting up credit card payments for your business may seem intimidating. But once you decide how you want to accept payments and what type of services you want, you’ll be in a far better position to move forward. Review the pros and cons of each option and find the right fit for your business needs.