Accepting credit card payments requires a payment processor, plus a point-of-sale system and card reader for in-person transactions.
Jul 5, 2022
Despite the proliferation of new payment options, credit card transactions still reign supreme: 79% of the US population own at least one credit card. An MIT study indicated customers are willing to spend up to 100% more when paying by credit card. Many small business owners can make it easier for consumers to pay by linking up with a credit card processor. Yes, these payment processors charge transaction fees, but they may be offset with the larger transaction amounts that often come along with accepting credit cards.
When a customer swipes, inserts, or taps their credit card at your physical payment terminal, your payment processor exchanges a series of messages with a customer’s financial institution, which chooses whether to approve the payment. A payment processor is the conduit between the merchant (you) and the credit card company. In exchange for providing this service, the payment processor takes a cut from your credit card sales—usually between 2% and 3%—and may also charge a small flat fee for each transaction. If the payment is approved, the funds transfer to your payment service provider. After one to two business days, the balance (minus fees) transfers to your business checking bank account, and the money is yours. Credit card companies also typically charge merchants fees of 2.4% to 2.9% of a purchase, plus an additional flat fee for each transaction. They also charge feeds for credit card chargebacks, which vary depending on the company.
Before you can accept credit cards, you must set up a bank account. Small business checking accounts will allow you to receive your income from credit card companies. From there, getting set up to receive payments depends on where the commerce is happening: at a brick-and-mortar shop, online, or on the move.
Online credit card payments, also called ecommerce payments, cover financial transactions made over the internet. The transactions on your Shopify ecommerce site count as online credit card payments.
The online payment system functions in largely the same way as the brick-and-mortar payment system. Payment processors still transmit financial information, and customers’ banks and credit card companies either approve a transaction or reject it. As a seller, you can still expect money from these sales to hit your bank account in one to two business days.
To implement this type of transaction, you will need the following:
Mobile credit payments are handy if you move business from one location to another. If you sell food at different farmers markets, or t-shirts at different concert venues, you will want to set up a mobile payments system.
Mobile credit card payments work essentially the same way as brick-and-mortar or online payments. Here’s what you’ll need:
Merchants can charge both credit cards and debit cards using the same point-of-sale software and hardware. Debit card transactions draw money directly from a customer’s bank account. Large banks may only charge a rate of 0.05% plus 21¢ per debit card transaction. Your payment processor may add an additional fee on top of this, but as a merchant, you will still come away paying less than you would for a credit card transaction.
Credit cards let consumers spend more money than they actually have in their bank accounts, and this leads to higher purchase volumes for retailers. Many merchants welcome credit card payments because the high shopping cart totals offset the extra fees charged by credit card companies.
By accepting credit cards, your small business will meet the demands of many customers who enjoy the convenience of paying with a card. Shoppers routinely choose cards over cash when making their biggest purchases. Yes, you will pay fees on each credit card purchase, but you may benefit from the larger purchase amounts that come along with credit card payments.
You will need to have a business checking bank account and a payment processing account. You can opt for traditional payment processors like Stripe and Square or an all-in-one payments system like Shopify Payments. If you sell goods and services in person, you will also need hardware (like a card reader) that lets you process credit card transactions and tap-to-pay transactions from a mobile device. Once your hardware and payment services are set up, customers can start paying you via credit card. Depending upon the vendors you choose, the money from those transactions usually hits your bank account in two to four business days.
To manually accept a credit card payment, you will need a credit card reader, like the Shopify Tap & Chip Card Reader for iOS devices. Such a device connects to your computer, tablet, or smartphone via Bluetooth. It allows secure, encrypted payments that run through a payment processor and eventually to your bank account.
Your customer doesn’t need to present a physical card in order for you to accept credit card payments. Using your payment service provider, you can set up card-not-present (CNP) payments that run through a web browser. You can then manually enter credit card information rather than tapping or inserting a plastic card. You can also accept in-app mobile payment systems that run on platforms like Apple Pay and Google Pay and link to users’ credit cards. Customers simply pay your business from their accounts, which link to their credit cards as a payment source.
If you lack a physical card reader, you would be able to manually enter a customer’s card information into your payment provider’s software app. You can also have customers pay using in-app you will want to set up a mobile payment systems via a platform (like Apple Pay) that is linked to their credit card. These payments then turn up in your sellers account. Or, you can process their payments through a web browser. These transactions are called card-not-present (CNP) payments.
