How To Accept Credit Card Payments As A Small Business

For businesses with physical locations (such as retail stores or restaurants), you’re going to need at least one credit card machine per location. These days, you have a choice between a traditional countertop credit card terminal and a POS system.

Countertop terminals can process transactions, but most traditional models offer little or no additional functionality. On the other hand, a POS system can handle inventory management, employee scheduling, and a host of other functions. Naturally, POS systems cost more than most countertop terminals, although tablet-based systems are more affordable (and mobile) than a standalone POS terminal.

All modern processing hardware supports EMV (Europay, Mastercard, and Visa) card payments at a minimum. EMV (or “chip” card) is now the standard method for accepting credit and debit cards in the United States. Since the EMV liability shift back in 2015, you can be held responsible for a fraudulent transaction if you accept an EMV-enabled card using the magstripe instead of the chip. Although the older magstripe technology is slowly being phased out, it’s still handy to have processing hardware that can also process the occasional magstripe-only card.

Most new terminals, card readers, and POS systems also accept NFC-based payment methods. NFC (near-field communications) technology is used by digital wallet payment systems, such as Apple Pay. It’s now built into most modern smartphones, tablets, and even smartwatches. This technology is gaining in use as more people become aware of its availability and convenience.

QR code payments have also become a popular alternative payment method for retail businesses. Interest in QR code payments increased during the COVID-19 pandemic as businesses struggled to implement “contactless” payment methods to protect their customers.

For eCommerce-only businesses, you’ll have it a little easier with accepting credit card payments because you won’t need any physical hardware. However, you will need either a payment gateway or a virtual terminal to accept payments from your customers.

A virtual terminal is a software application that turns your computer into a credit card terminal. Mail-order and telephone-order businesses use them to enter their customers’ credit card data manually. They can also be combined with a card reader (usually Bluetooth or USB-connected) to accept card-present transactions. A virtual terminal can replace a dedicated countertop terminal for retail merchants if you add a card reader.

A payment gateway is a web-based software service that connects your eCommerce website to your processor’s payment network. Payment gateways allow customers to enter credit card data from wherever they are as long as they can access the internet. Many providers today offer a free payment gateway with your account, as long as you use their proprietary gateway or Visa’s Authorize.Net. Note that you can usually use just about any gateway you like, but most providers will charge you a small per-transaction fee in addition to your normal credit card processing charges if you use a third-party gateway with your account.

For businesses that rely on invoices to get paid, online invoice payments are a faster and more convenient way to send out invoices and collect payments. They’re available from Square, PayPal, and several accounting software providers. Many traditional merchant account providers now offer online invoicing services as well.

If sending an invoice by email is a fast way to get paid, sending one by text message is even faster. SMS payment services allow you to send invoices to clients via text messages, including links they can click to submit payment.

For businesses that need to accept transactions out in the field, mobile readers are lighter and far less costly than wireless terminals, which usually run at least twice as much as their wired brethren and require a separate wireless data plan. They’ve become so popular that you can even see fast food restaurants use them as extra checkouts for drive-through lines during rush times.

Mobile systems typically include an app for your smart device and a card reader that connects to it via Bluetooth or the headphone jack. Modern mobile card readers support EMV and NFC-based payments, and usually cost significantly less than a traditional countertop terminal. Receipts can usually only be emailed, although some more advanced models can also connect to an optional receipt printer. There are also all-in-one mobile POS devices with a built-in payment reader and even a built-in receipt printer, such as those offered by Toast.

Finally, some payment service providers offer Tap to Pay for iPhone or Android. This new payment method uses the built-in NFC capabilities of your smartphone, allowing you to accept contactless payments with just your phone and no card reader. Square, PayPal, and Shopify are among the providers that allow Tap to Pay payments.

For more information on mobile payment systems, please see our article on why accepting credit cards with your phone is the easiest option.

Another recent trend in the payment processing industry is the introduction of integrated payments platforms, which use a payment gateway to bring all your online and in-person transactions together, integrating sales processed using credit card terminals, POS systems, virtual terminals, and payment gateways.

Until just about a decade ago, most retail merchants relied on monthly paper statements to track their transactions, with any data analysis being done manually by the business owner. Today, almost all providers offer a cloud-based online dashboard that allows you to monitor sales data in real time. Even a retail-only business with no website or online sales channel can benefit from this service.

Integrated payments platforms also allow restaurants and other small businesses to accept online and telephone orders from customers. An integrated approach to payment processing offers many advantages to business owners, at least when the service includes the features you need and comes from a reputable provider.

Interoperability between the numerous subsystems within the payments platform eliminates the need for a merchant to cobble together a system using services from multiple providers that may or may not work together very well. While PSPs (such as Square) have always offered this type of platform, most merchant services providers in the industry now use similar systems.

Your first step — which will require a fair amount of research — is to choose a merchant services provider that will be a good fit for your business. Most processors usually offer only one of two types of payment processing services: (1) true, full-service merchant accounts, or (2) aggregated accounts, which you’ll find with PSPs, such as Square, Stripe, or PayPal.

Both of these approaches to payment processing have their advantages and disadvantages. Using a payment service provider will give you quick and easy account approval, a minimum amount of recurring fees, and predictable flat-rate pricing. However, you may also have to contend with limited customer support options and an elevated risk that your account will suddenly be shut down or frozen. Also, flat-rate pricing becomes less cost-effective at higher monthly processing volumes.

Merchant accounts offer much better account stability and generally lower processing rates. However, they also require much more underwriting to get approved for an account. You’ll also have to be on the lookout for long-term contracts, early cancellation penalties, and additional monthly fees on top of the cost of processing your transactions.

Unfortunately, there’s no precise way to decide which option will be a better choice for your business. As a very general rule, payment service providers work best for businesses that process less than $5,000 per month; those processing more than this amount will usually be better off with a true merchant account. We highly encourage you to look at both options and compare your estimated costs under each one before deciding.

Once you’ve identified several possible candidates (we recommend selecting at least three alternatives), contact them and get quotes. In addition to asking about the per-transaction fees, don’t forget to ask about the incidental fees as well, as some of those can add up very quickly.

It’ll be difficult to get a true apples-to-apples comparison on the price, given all the pricing models out there for card processing. However, if you make sure that your contract can be terminated at any time, even if you do make a mistake, you won’t be stuck with a bad processor for a very long time. Remember that the basic interchange fees for processing a transaction are passed through by your processor and beyond their control. However, markups kept by your processor can be lowered (to a reasonable degree) by negotiating a good credit card processing deal.

Processing rate plans come in four different varieties, with interchange-plus and subscription pricing models clearly disclosing the provider’s markup, while flat-rate and tiered pricing options do not.

Unless your business is eCommerce-only, you’ll need some equipment to process your transactions. This could be a traditional countertop credit card terminal, a point of sale (POS) system, or even a mobile card reader that works with your smartphone or tablet. If you accept any online sales, you’ll also need a payment gateway to facilitate those transactions.

As discussed above, most hardware and software options will cost you money. You’ll either have to buy, rent, or lease your processing hardware, and payment gateways and other software services almost always require an additional fee. Also, be aware that popular products such as Square’s line of terminals and card readers and Clover terminals and POS systems are proprietary products that won’t work with a different provider if you later decide to switch processors.

When it comes to hardware, we strongly recommend that you buy your equipment outright rather than leasing a credit card machine. Furthermore, be very wary of the increasingly popular use of “free” credit card readers that require you to sign a long-term contract.

There’s a lot involved with launching a business, from getting a physical location or launching an eCommerce website, to hiring employees, to getting all the legal paperwork ready.

There’s so much involved that we won’t even attempt to cover everything here. We will assume you got the best advice from your available sources, that your grand opening was a huge success, and that you got to use your brand-new credit card processing service many times.

Unfortunately, launching your business isn’t the last — or even the most important — step. The most important step is to continue monitoring your monthly statements and regularly revisit your credit card sales data.

Sometimes, processors charge merchants incorrectly on per-incident items. It’s not necessarily because your processor is bad. It might be a simple data entry mistake. But if you don’t monitor your statements and speak up, no one will correct the error. When you finally notice these extra charges months or even years later, the processor might refuse to refund you 100% of the overpayment. We’ve seen many complaints about this problem on the Better Business Bureau website.

We’ll also warn you that some providers love to raise your rates and fees after you’ve been with them for a while (typically six months to a year). Unfortunately, this often happens with no notice to you, so carefully reviewing your processing statements every month is the only way you’ll catch onto this shady practice.

The easiest way to accept a credit card payment is to sign up with a payment service provider like Square or PayPal. You can apply online and will typically be approved for an account in 24 hours or less. Square’s magstripe card reader is free and you can also accept contactless payments with just your phone using Tap to Pay for iPhone or Android.

Credit card processing costs vary widely from one provider to another, so the cost for each individual business will also vary. However, most businesses pay approximately 3-4% of their overall monthly processing volume to maintain an account and process transactions.

You can accept credit card payments without a card reader in several ways. You can accept QR code payments using a digital wallet service like Venmo, or accept Tap to Pay for iPhone or Android using PayPal, Square, or Shopify. If you have a website, you can use a payment gateway to accept online payments. Finally, you can use a virtual terminal program to manually key in credit card data without a card reader.