How to Accept Credit Card Payments: A Merchant’s Guide

How to Accept Credit Card Payments: A Merchant’s Guide

Did you know that 80% of people today prefer using a card, both debit and credit, for everyday purchases? And that number is only going up as contactless payment options become the standard. 50% of American consumers don’t carry cash at all, in fact. So in this day and age, if you aren’t accepting credit card payments, you’re losing out on a huge amount of sales.

If you’re looking to accept credit card payments and you’re not sure where to start, this guide can help. In this article, we’ll walk you through the steps you should take to accept debit card and credit card payments — as well as how to do it in the most efficient and cost-effective way possible. 

Let’s get started.

How to Accept Credit Card Payments: 4 Easy Steps   

Accepting credit card payments requires some initial work. However, once set-up, a well-designed system will coast along in the background while you focus on running your business.

1. Choose the Right Payment Processor

First, you need to set up a way to actually process the money coming in via card payments. For that, there are two options depending on your business stage and sales income:

Merchant Account Through a Merchant Services Provider

If your business’ credit card processing volume is over $3,000 monthly, or you commonly process large transactions, opening a merchant account with a merchant services provider is your best bet. 

Merchant accounts enable you to negotiate your rates with each payment method and card brand personally, which can result in huge savings. Merchant services providers can then handle all of this complexity for you. It should be noted that the threshold for negotiating can be much higher than $3000/month. Some processors won’t consider negotiating if you aren’t bringing in at least $80K monthly.

Merchant services providers typically assess several non-negotiable fees. So, focus on the best overall value that combines the best rates, fewest fees, and month-to-month flexibility.

Important Note: If you’ll use a Point of Sale (POS) System, ask the company to recommend credit card processors that mesh with your POS hardware and software.

Payment Aggregator

If your sales are under $2,500 monthly, or you sell small-ticket items, you will likely find a merchant account expensive, as smaller volumes of sales provide less leverage when negotiating with payment processors. So how do you accept credit card payments without a merchant account? You use a payment aggregator like PayPal or Square instead.

Payment aggregators funnel numerous merchants into one master merchant account. By grouping multiple small merchants together, the aggregator can negotiate better rates on your behalf than you could as a single small business. You’ll pay a percentage of every sale, and (usually) a transaction fee. Although the payment aggregator charges a relatively high percentage, you won’t be hit with many other fees, so for small businesses, aggregators also make it easy to budget processing fees. However, once you start making more than $2500/month, an aggregator quickly becomes the more expensive option.

2. Learn About Credit Card Processing Costs

Payment processors’ fees fall into three general categories. So, perform your due diligence to find the best plan for your business.

Transaction Fees

These per-sale fees are generally a percentage of each sale plus a flat transaction fee, looking something like 2.9%+$0.10 per transaction. Payment processors often advertise “low” transaction fees, although they frequently offset those benefits with other costs.

Most often, the percentage fee covers the interchange fee, which is the fee the issuing bank charges for providing credit. The payment processor will generally add a markup of their own to the percentage, as well. For instance, most interchange fees are under 2%, so in the above example of 2.9%, at least 1% is being added as a markup. 

That markup goes entirely to the payment processor and is used to cover the processor’s operating fees and profits.

Pro tip: Want to lower your transaction fees? Choose a membership-based payment processing company like Payment Depot. Rather than marking up your interchange fees or taking a cut out of your sales, we charge simply charge a flat membership fee and a flat fee per transaction.

Factors that affect your credit card processing fees

It’s important to remember that your monthly fees will vary depending on a number of factors. Payment processing rates aren’t constant, so always run the numbers in your business. In particular, take note of your:

  • Monthly credit card processing volume
  • Average transaction size
  • Common types of payment cards used by your customers
  • The methods you’ll use to accept payments (i.e., in-person, card not present, online transactions, etc.)

All the above factors can affect the pricing of your payment processor. For instance, higher processing volumes may qualify for lower rates. Meanwhile, card not present transactions generally incur higher credit card processing fees than in-person payments

Once you have an idea of the above, discuss the numbers with multiple credit card processing companies and compare their rates. 

It’s also helpful to get familiar with the various pricing models used to determine processing fees. There are four types of pricing models in the real of credit card processing. They include:

Interchange-plus pricing. The processor charges a markup on top of credit card interchange rates. 

Tiered pricing. With this model, the payment processor bundles up the interchange rate with their markup and categorizes transactions into three tiers: qualified, mid-qualfied, and non-qualified. Qualified transaction typically get lower rates, while non-qualified are charged at a higher rate. 

Flat rate pricing. Processors that use this model, blend the interchange fees and their markup into one flat rate across the board. 

Membership pricing. Payment processors that use the membership pricing model doesn’t add a markup on top of the interchange rate. Instead, they give you access to wholesale rates and simply charge a flat monthly fee

Other Fees

Your payment processor may also charge service and incidental fees when a specific action occurs. If you receive a chargeback (customer cancels the credit card transaction), verify a customer’s address, or call the payment processor’s voice authorization center, you’ll pay a minimal service fee.

Processors may charge additional fees for a variety of services they perform including:

  • Foreign currency exchange fees
  • Fraud prevention fees
  • Account set-up fees
  • Statement fees
  • Account closure fees

To give you an idea of how much the fees can end up adding up to, Buffer paid ~$13.9K monthly in processing fees in 2014, while averaging ~$422K in monthly sales.

3. Select Your Credit Card Processing Method

Determine whether you’ll process your credit card sales at your store’s checkout counter. If you operate an ecommerce business, you’ll likely process credit cards through your computer. Or, if you spend considerable time on the road, you’ll probably choose a mobile card processing system. Based on your choice, your credit card processor can sell you a countertop or mobile card reader.

Purchase a card reader that accepts magnetic stripe and more secure chip card (or EMV) payments. If possible, get a card reader with Near-Field Communication (NFC) technology that enables fast contactless payments. Always purchase your credit card processing hardware upfront. Don’t lease the equipment, as you’ll pay exorbitant rates and could get tricked into costly renewal plans.

4. Read the Contract Before Making Your Decision

Failing to read a payment processor’s contract can set you up for hidden fees and other unwelcome surprises. For example, a payment aggregator often imposes processing limits or doesn’t work with businesses from your industry. Conversely, a merchant account provider can lock you into its pricey services for years. To avoid these negative outcomes, read the contract before signing it. Tip: Make sure that you are pleased with the amount of customer support your processor will provide you before you sign the contract.

Comparing Different Credit Card Payment Methods

A big part of knowing how to accept credit card payments entails educating yourself on how credit payments are processed. Here is a brief overview of each credit card payment method

Have a look, then decide which payment method makes sense for your business. In today’s omnichannel environment, it’s more than likely you will accept credit cards in a few, if not all, of these methods.

In-store Payments

Your customer brings their merchandise to the register, and pulls out their credit card. They swipe the card into the magnetic stripe reader of your POS system or credit card terminal. If you have a chip reader, they’ll insert the card into that slot.

Next, your payment processor sends the transaction data to the card-issuing bank. If the customer has sufficient credit, and the transaction isn’t flagged as fraudulent, your merchant account receives the “transaction approved” message. Within a couple of days, the transaction funds (less the fees) appear in your merchant bank account.

Ecommerce (Online) Payments

After your customer takes their shopping cart to your ecommerce store’s checkout page, they’ll review the transaction details and hit the “Make Payment” key. Next, the transaction data funnels through a virtual payment gateway to the card-issuing bank. If the transaction is approved, the net funds are deposited into your business’ merchant account. Or, if you’ve chosen a payment processing provider, they can handle the transaction from start to finish.

Over The Phone

Wondering how to accept credit card payments over the phone? It’s actually quite simple: you transform your computer into a credit card processing terminal with “Virtual Terminal” software. Here, you’ll manually enter your customer’s card information, and your service provider will handle the payment processing tasks. 

However, accepting credit card payments over the phone is generally considered to be fairly insecure, as anyone taking the payment can then steal the card information. If you are likely to be accepting credit card payments over the phone often, it would be smart to invest in a system that stores your customers’ card info so they don’t have to reshare each time they call.

Mobile Payments

A phone call is not the only way to take payment by phone. Nowadays, you can actually accept credit card payments on your mobile device.

A mobile credit card processing platform is ideal for businesses such as plumbers, mobile dog groomers, crafters, food truck owners, and farmer’s market vendors. To activate your platform, connect your mobile card reader to your smartphone or tablet, and you’re ready to process credit card transactions. Tip: Ensure that you have reliable Internet service, or invest in a wireless hotspot. You can’t afford to lose business because your Internet stops working on a busy sales day.

When a customer makes a purchase, swipe their card into your device’s mobile card reader. Your mobile payment processing provider’s app will take care of the rest. Tip: Always use the “Email Receipt” function when you process a transaction. Your customer will immediately receive a receipt, which may help them to remember the transaction and hopefully prevent a chargeback.

An Overview of Your Hardware and Software Requirements

Once you decide how to accept credit card payments, determining your hardware and software needs is a straightforward task. Here’s a snapshot of three popular payment methods’ hardware and software requirements.

In-store Payment Devices

If you need to process payments in-store, you can choose from a variety of payment terminals, depending on your needs. The most common types include:

Standard terminals. These are your countertop credit card machines that are either plugged into an outlet or can function wirelessly. These devices can connect to your point of sale system and will function alongside the software when you ring up sales.  Some examples include the Dejavoo Z11 terminal, the PAX A80, Ingenico Desk 5000, and more. 

Point-of-sale system. Some POS systems have credit card readers built in. Examples include the Clover Station POS, Vital Select, and Clover Mini LTE.

Hardware for Online Payments

If you’re operating on an ecommerce platfrom, your desktop or laptop computer is the only hardware you’ll need. Your merchant services provider or third-party payment processor will link you to their credit card payment processing system or virtual terminal. You or your customers will then use the payments platform to enter the required credit card and payment information. Once that’s approved, the transaction will be complete.

Mobile Payment Devices

If you’re a mobile service provider, or you sell products at stand-alone events, use your smartphone or tablet as a credit card payment processing platform. Add a mobile card reader, and you’ve met your hardware needs. Tip: Buy a mobile card reader that accepts both magnetic stripe and chip cards. If possible, find one that also processes contactless payments.

To purchase the mobile card reader, contact a mobile payment processing provider. That company will also provide you with a downloadable app that enables you to process mobile credit card payments. Tip: Before signing on the dotted line, confirm that the app is available on both iOS and Android platforms.

At Payment Depot, we recommend the following mobile credit card readers.

Additional Tips for Choosing Payment Processors

Selecting the best credit card solution providers can help to grow your business’ sales and keep your costs down. So, take an objective look at four major factors that will help you to make the right choices.

Evaluate Your Current Business Stage

There’s no one-size-fits-all debit card or credit card processor.

If you’ve recently opened your business, or you anticipate lower sales volumes, your priorities likely vary from those of an established business owner

Know that your business circumstances can change, and you need the flexibility to take a different path without being penalized for that decision. So, avoid getting locked into a restrictive contract that no longer meets your needs. Instead, consider working with a payment processing provider that offers month-to-month service.

Decide How to Accept Credit Card Payments

Your business type will largely dictate how you’ll accept customers’ credit card payments. If you operate a brick-and-mortar store, you’ll utilize either a POS terminal or countertop credit card terminal to process card payments.

In contrast, your ecommerce store will use a merchant account and payment gateway; or a payment processing provider that manages the entire transaction. If you’re mobile, your smartphone or tablet will process credit card payments, thanks to your mobile payment processing provider’s user-friendly app. Chances are, though, you’ll use some combination of the three.

Look for Fraud Prevention and Protection

Credit card fraud is unfortunately common and the best way to fight fraud is to prevent it. Ensure your provider uses a system like tokenization or point-to-point encryption, as these are highly secure.

Further, take a look into the provider’s fraud protection services and make sure you understand what you’ll be liable for should something like a chargeback occur. 

Perform Extensive Due Diligence

Gather relevant information from merchant services providers or payment processors. Insist on viewing the contract and other relevant enrollment information. Ask for references from similar-sized (or similar-type) businesses.

Make the Best Business Decision

If facts and figures are swimming around in your head, and sales literature is clogging up your email Inbox, put the situation into perspective with a simple technique. List the Pros and Cons of each choice on paper. Then, make the decision that will give your business the best chance for growth.

Need help deciding on the right payment processor or merchant services provider? Get in touch with the Payment Depot team. We’ll analyze your merchant processing statement for free and offer unbiased advice on the best solution for your business.

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