How to Accept Credit Card Payments: A Beginner's Guide

By Simone Johnson, writer
| Updated
Jun 19, 2020
Image Credit: cyano66 /Getty Images
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Accepting credit card payments can be a breeze. Here's what your small business needs to do to start accepting card payments.

If your business isn't set up to accept credit card payments, you could be losing sales. Today's consumers expect to be able to pay by credit or debit card as easily as they do with cash. Besides providing customers with the payment option they prefer, accepting credit cards can boost your sales and add professionalism to your business.

How do you accept credit card payments for your small business?

Accepting credit and debit cards begins with selecting a processor. To choose the one that is best for your business, it's important to understand the different types of companies that are out there. You should always look for a credit card processor that offers low rates, few or no fees and month-to-month contracts.

Editor's note: Looking for the right credit card processor for your business? Fill out the below questionnaire to have our vendor partners contact you about your needs.


Unfortunately, the credit card processing industry is a crowded field that can often be confusing to navigate. With varying pricing models, complicated processing fee structures and different types of processors for different platforms, it can be a gargantuan task to find the right partner for your business.

Breaking the process down into several steps can help simplify your decision-making.

1. Determine the type of processor you need.

Choosing the type of credit card processor you want to work with is based on two main factors: One, whether you want to partner with a merchant service for individuals or businesses, and; two, your average monthly volume of credit and debit card payments.

  • If you're an individual accepting payments from a handful of trusted sources, using a peer-to-peer application like Venmo is suitable.

  • If your average sales tickets are small or if you process less than $3,000 per month, payment facilitators like Square or PayPal are good options. Square and other payment facilitators are usually more affordable for small businesses with a low monthly volume because they don't charge monthly or annual account maintenance fees.

  • Businesses with a higher volume and larger sales tickets should consider an independent sales organization (ISO) or merchant service providers (MSP) like Helcim or Flagship Merchant Services. For a more detailed breakdown of the different types of credit card processors, visit our credit card processing best picks page.

2. Consider how you will accept credit cards. 

Determining the methods of payment you will accept can help you better understand what type of credit card processing equipment you need.

If the vast majority of your customers come into your physical location and swipe their card, then perhaps that's the only method you need to accept. However, you may want to accept credit cards through online payment, over the phone, on a mobile device or across multiple channels.

3. Examine pricing models and fee structures. 

Pricing models and fee structures vary greatly from company to company, so this is one of the more arduous parts of the buying journey. There are multiple pricing models available which determine the rates you will pay on certain transaction types.

Most processors charge between 2% and 4% of the transaction value, plus a small transaction fee based on your monthly processing volume, average ticket size, your industry, and your payment processing history. In addition, there are often several fees processors charge.

For a breakdown of the most common pricing models and credit card processing fees, see our credit card processing reviews.

4. Compare quotes. 

By using the criteria above, narrow your list of candidates down to about three to five. Call each of these processors and request a quote. Sometimes, a credit card processor's rates are negotiable, so don't be afraid to haggle – especially if you've already received estimates from other companies. After comparing quotes, request a contract from one or two companies that offer the most competitive rates.

5. Review contracts. 

Review these contracts very carefully. If possible, have legal counsel look at the contract as well to ensure everything is above board. Consider whether the contract includes automatic renewal clauses, early termination fees and other binding clauses. Once you are satisfied that the contract is fair, sign with the company you believe is the best fit for your business.

Once you've completed these steps and decided which credit card processor you'd like to partner with, you are ready to apply. Generally, applications can be submitted online and take two days for the processor to review.

Once your application is reviewed, the processor will set up your account and walk you through the process of selecting any hardware you might need. Once the hardware arrives, the processor will help you set it up and test it.

How do I accept credit cards on my phone?

To accept credit card payments on your phone or tablet, you will need a mobile card reader. Many of these readers plug into the headphone jack of the device. More advanced mobile credit card readers connect to your mobile devices via Bluetooth.

While most credit card processors give you a free credit card swiper when you sign up for their services, it is beneficial to purchase one that also accepts EMV chip cards. EMV chips provide for a more secure transaction, allow you to skip signature authentication and speed up the payment process.

You should also select a reader that is NFC-enabled for accepting contactless payments. NFC capability allows you to accept payments from contactless cards and mobile wallets, such as Google Pay or Apple Pay. You can expect to pay less than $100 for this type of mobile credit card reader.

A mobile card reader is useful for traveling businesses, businesses that frequent trade shows and businesses that want to accept payments from anywhere within their physical location. Using a mobile credit card reader doesn't limit you to accepting payments on your mobile device. These readers can be used as part of a larger system that includes additional hardware.

Another reason to accept credit and debit card payments on your phone is that some of the mobile credit card processing apps include basic point-of-sale (POS) features. Besides accepting payments, the mobile POS system helps you manage your sales and inventory, which can be very helpful for small businesses that aren't yet ready to invest in a full-fledged POS system

How to accept credit card payment online

Accepting credit card payments online requires the use of what is known as a "payment gateway." Payment gateways are often provided by credit card processors, either directly or through a third party.

Typically, a card processor charges you an additional monthly fee for this service, so it's important that you only set up a payment gateway if you regularly make sales online.

In addition to the monthly gateway fee, some payment processors charge a gateway setup fee and an additional per-transaction fee, so review each processor's terms and conditions before signing up.

How much does it cost to accept credit cards?

The price of each transaction varies based on the method you're accepting the credit card as well as the pricing plan you've chosen.

There are three main pricing models you are likely to come across in your research.

Flat-rate pricing

Generally, a model of payment facilitators like Square or PayPal, flat-rate pricing includes fixed rates for certain types of transactions. For example, PayPal charges 2.7% for a card-present transaction, meaning the card was swiped at a physical location.

For online transactions, PayPal charges 2.9% plus 30 cents per transaction. For a card that is keyed in over the phone, PayPal charges 3.5% plus 15 cents per transaction. The reason for the elevated price is due to the increased risk of fraud associated with this payment method.

There are usually no additional fees with flat-rate pricing and no lengthy contracts, making it ideal for businesses that process less than $3,000 per month.

Interchange-plus pricing

This pricing model is based on the interchange rate paid by all credit card processors, plus a processor's markup fee. It is the most transparent model available because it is based on a universal rate.

The markup, which is how the processor makes money, is usually negotiable with interchange-plus pricing. The markup is usually expressed as a percentage plus a per-transaction fee. For instance, you may be quoted 0.25% plus 15 cents. Remember, this is what you will pay in addition to the interchange rate for the transaction (which varies, depending on the type of card, your industry and how you accept the card).

Tiered pricing

This pricing model sorts your transactions into different tiers ("qualified," "midqualified" and "nonqualified") based on what type of card you accept and how you accept it.

Qualified transactions are generally basic debit and credit cards that are physically swiped at a terminal. These are the cheapest rates in a tiered pricing model. Slightly more expensive are midqualified transactions, which often include rewards cards that are physically swiped. Finally, the most expensive is nonqualified transactions, which include premium rewards cards and card-not-present transactions, such as those you key in when you accept payment from your customer over the phone.

In addition to rates you pay for each transaction, processors that use the interchange-plus and tiered pricing models charge account maintenance fees. These include a monthly fee, a monthly minimum, payment gateway fees, a PCI compliance fee and various network fees. Some processors may also charge a setup fee, a payment gateway setup fee and other fees.

These fees all vary depending on the processor. Request a breakdown of all pricing and fees in writing, then read the contract before signing it to verify that you're aware of everything you'll be required to pay.

Merchant account vs. payment service provider

When you're looking for a company to help you accept credit card payments, your business has two main options: a full-service processor (ISO/MSP) that can set you up with a merchant account and an aggregator (sometimes called a payment service provider or mobile credit card processor) that sets up your account under its master merchant account.

A merchant account is a special type of bank account where your money is held while the transaction is processed. After the money has cleared all the processing protocols, the processor deposits it into your business bank account.

The reason you might want your own merchant account is that there are generally fewer restrictions than with a PSP for factors such as the types of industry your business is in, the products or services you can accept payment for, and even the payment amounts you can accept by credit card. However, it takes longer to apply for a merchant account, and you must provide the processor with more information about your business than a PSP requires.

By contrast, it's simple and fast to sign up for a processing account with a PSP, but it is important to read the terms of service to make sure it supports your business type and doesn't prohibit products and services you offer; otherwise, your account may be frozen or closed without warning.

PSPs are more fraud averse than full-service processors and may freeze your funds if there's something about a transaction that raises a red flag, such as an abnormally large transaction amount.

"A PSP manages the merchant account," said Cris Carillo, co-founder of Allied Payments. "This means they monitor transactions and resolve disputes while managing the merchant's payments."

If your business is new, has small sales tickets or processes less than $3,000 per month, a PSP is a great way to start accepting credit cards since there usually aren't account maintenance fees. All you pay is processing fees for each transaction. However, because the processing rates are typically higher than what full-service processors charge, it can become very expensive when your business grows and your processing volume increases.

"With most transactions being debit today, it's important to keep in mind that a business can significantly lower their payment processing expenses by shopping around for a low-cost provider once the business takes off," said Carillo.

What is the cheapest way to accept credit card payments online?

Determining the cheapest way to accept card payments online has a lot to do with your situation.

For the small-volume merchant, using a processor that has flat rates and provides its services on a pay-as-you-go basis is more cost-effective than working with a processor that charges multiple account maintenance fees, even if that processor's transaction rates are lower. Once a small business eclipses $3,000 in monthly volume, though, a processor with lower rates might be more cost-effective, even with the associated fees.

No matter which type of processor you choose to work with, you should avoid long-term contracts. The best credit card processors offer month-to-month terms and don't charge early termination fees. Even though most processor contracts have a standard three-year term, most sales reps are eager for your business and will offer a month-to-month contract if you ask for it.

How do you accept credit card payments on Square Cash and other apps?

Accepting credit card payments on mobile wallets or peer-to-peer applications should only be done when you know and trust the people sending payment. It is much easier for a customer to dispute transactions and recoup money using these platforms, whether it is Square Cash or PayPal. Freelancers working with well-known clients, however, can benefit from using peer-to-peer payments. To do so, simply set up an account and link your bank account to begin sending or receiving money to other users.

For established businesses that want to accept payments from a customer's mobile wallet, investing in an NFC-enabled terminal or card reader is the way to go. NFC-enabled readers allow you to accept contactless payments so customers can pay with apps like Google Pay or Apple Pay while your business is more protected from chargebacks and transaction disputes.

Accepting credit cards is a customer service must.

In the modern business landscape, it's imperative to accept debit and credit cards. Cards as a payment method have become so ubiquitous that many customers don't carry cash any longer. Accepting credit cards is a means of boosting customer satisfaction and driving more sales.

Choosing the right credit card processor for your business can ensure that you not only keep your customers happy but that it doesn't cost an excessive amount to accept credit and debit cards.

Simone R. Johnson was born and raised in New York City. She graduated from the University of Rochester in 2017 with a dual degree in English language media and communications and film media production. She has been a reporter for several New York publications prior to joining Business News Daily and as a full-time staff writer. When she isn't writing, she enjoys community enrichment projects that serve disadvantaged groups and rereading her favorite novels.
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