How To Set Up Credit Card Payments For 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, Google Pay, and Samsung 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.

When Square first introduced its original card reader in 2009, it was revolutionary. For the first time, merchants could accept credit or debit cards using their smartphones or tablets. Square was (and still is) a great choice for very small businesses, startups, and merchants who operate seasonally. Naturally, the company has spawned many competitors, and today, almost all merchant services providers offer some type of mobile payment system.

These systems 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 newer models can also connect to an optional receipt printer.

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. 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 a few years ago, 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 decision will be between signing up with a payment service provider (PSP) or a traditional merchant account provider. For small or newly established businesses, a PSP will usually be the better — and more affordable — choice. PSPs offer an easy sign-up process, fully transparent pricing, and a minimum of recurring fees. In most cases, you’ll only pay for the transactions you process, plus hardware costs.

At higher processing volumes, this situation is reversed for many businesses, with full-service merchant accounts offering a lower overall cost and better account stability. While you’ll have to submit a lot more paperwork and wait for your account to be approved, full-service merchant accounts generally offer much lower per-transaction processing costs. If you process a large number of transactions per month, these savings can be enough to make this option less expensive overall than using a PSP. Merchant account providers also offer more add-on services than you’ll usually find with a PSP.

Every credit card processor has to come up with a way to charge you for processing your transactions. These charges must be sufficient to pay the interchange fees charged by the issuing banks and ensure a profit (called a “markup” in the industry). Processing rate models can either (a) pass through the interchange fees and charge a fixed markup, or (b) charge one of several fixed rates, in which case the markup will vary with each transaction.

For small businesses with a relatively low processing volume, a flat-rate plan offers predictable pricing and makes it easier to understand your monthly processing statement. Larger companies tend to save the most money with an interchange-plus pricing plan that passes through the applicable interchange fees at cost and adds a small, fully disclosed markup. For very high-volume businesses, a membership pricing plan can save even more money by eliminating the percentage-based markup in exchange for a fixed monthly subscription fee. A fourth option, tiered pricing, is similar to flat-rate pricing but usually results in higher overall costs for almost all merchants. Unfortunately, it’s the default option offered by most traditional merchant account providers – for obvious reasons.

Traditional merchant account providers have been (and still are) notorious for tacking on a host of additional recurring and incidental fees for maintaining your account. These fees can bleed a small business dry, even if you don’t actually use your account every month. In recent years, competition from PSPs like Square and PayPal — who don’t charge any fees for a standard account — has put a lot of downward pressure on these fees, but you’ll often have to negotiate aggressively to get a discount.

Account fees vary widely from one provider to another, and even between accounts with the same provider. At a minimum, you can expect to pay a monthly account maintenance fee ($10-$25), as well as incidental fees for things such as chargebacks. Other common fees include annual account fees, PCI compliance fees (charged either monthly or annually), and gateway fees (if your account includes a payment gateway). For a more detailed breakdown of the most common fees you might see (and how much they’ll cost you), take a look at our guide to merchant services fees.

Depending on how you plan to accept credit card payments, you’re going to need processing equipment, payment gateway software, or both. Again, costs will vary widely depending on what you need and who you buy it from. Mobile credit card readers typically cost approximately $60 to a little over $200, depending on features and connectivity options.

While free card readers are still available, they’re usually magstripe-only and essentially obsolete. A standard countertop credit card terminal can cost anywhere from about $150 to nearly $500. Prices for terminals have steadily crept up in recent years as manufacturers have added extra features such as NFC support, wireless connectivity, color touchscreens, and “smart” connectivity to an integrated payment gateway. Point-of-sale (POS) systems are even more expensive, running from about $500 to as much as $2,000. Note that many POS systems, such as those sold by Clover, also require a monthly software subscription on top of the base price of the equipment.

Likewise, there’s a lot of variability in pricing for software options. Payment gateways, which used to require a setup fee and a monthly fee, can now sometimes be included for free with your account. Note that it’s almost always cheaper to use a gateway offered by your provider than to add on a third-party gateway. Other software features usually incur a one-time fee or require a monthly (or annual) subscription. For information on pricing for a specific provider, we recommend that you check out our review of that provider for the latest pricing information and an assessment of how well it compares to industry averages.

Your first step — which will require a fair amount of research — is to select a payment processor 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 payment service providers (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) through negotiation.

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.

This might mean actually launching your business, changing processors, or maybe going from in-person cash-only to online sales. No matter which, there’s a lot involved in doing all that, from getting a physical location/online store, to hiring employees, to getting all the legal paperwork ready. Some of these we cover on this website, but most we do not. 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.

To accept credit card payments, you will need to establish an account with a merchant services provider. This can be either a payment service provider (PSP) like Square, or a full-service merchant account provider. You’ll also need to acquire the appropriate processing hardware and software from your chosen provider.

The easiest way to accept a credit card payment is to sign up with a payment service provider (PSP) 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, but you’ll want to purchase the Square Card Reader For Contactless & Chip ($59) to accept standard EMV-enabled cards.

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.

Yes. The easiest way to accept credit card payments as an individual is by using a digital wallet such as Venmo, PayPal, or Square’s Cash app. To accept physical cards, you will need to sign up for a payment service provider (e.g. Square, etc.) and purchase a mobile card reader that works with your smartphone or tablet.

You can accept credit card payments without a card reader in several ways. The easiest way is to use a digital wallet service (e.g., Venmo, PayPal, etc.) 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.

As long as you have an account with a payment service provider (Square, PayPal, etc.) or a merchant account, the easiest and most secure way to accept a credit card payment is with a credit card terminal, mobile card reader, or POS system. Alternative methods include digital wallets like Venmo, etc., QR code payments offered through a credit card processor, electronic invoices, or manually keying the cardholder’s information into a virtual terminal.