How To Accept Credit Card Payments: The Ultimate Guide
Does the modern business owner need to know how to accept credit card payments? The data points toward the answer being a resounding “Yes!”
In a 2018 study by the payment processor, TSYS, survey respondents were asked which payment type was their most preferred. Eighty percent of respondents answered debit cards or credit cards! Only 14% answered cash.
The fact is that people like the convenience of credit cards. And to avoid annoying your customers, you’ll probably want to accept credit card payments. And, of course, if you’re going to have an online business, accepting credit payments will be a must.
Let’s take a look at how to accept credit card payments and what you’ll need to do to get up and running quickly.
How to Accept Credit Card Payments: The Basics
Before we get into the nitty-gritty details of accepting credit card payments, let’s get a little vocabulary out of the way. Here are a few terms that you’ll want to know:
- POS (point-of-sale) system: This is where the customer enters their card information.
- Payment processor: This is who sends the card information to the issuer’s bank for approval.
- Payment gateway: You’ll need a payment gateway if you want to accept payments online.
- Merchant account: This is like your business’s personal bank where the proceeds from your credit card payments can be deposited.
There are two kinds of merchant accounts: traditional merchant accounts and all-in-one providers.
With a traditional merchant account, you may need to use a third party for the other three services listed above. Or you can choose an all-in-one service that handles everything under one roof. Let’s take a closer look at the differences between merchant accounts and all-in-one providers.
Traditional Merchant Accounts Vs. All-In-One Providers
Below, we compare traditional merchant accounts on set-up costs, ongoing costs, payment methods, and fraud prevention. Here’s what you need to know.
Set-up costs can be higher with a traditional merchant account because you may need to pay a third party for all of your POS equipment. And by POS equipment, we’re referring to things like payment terminals, card readers, receipt printers, and more.
Many traditional merchants don’t provide any of these things, so you’ll need to buy them yourself. And there may be other set-up fees that are included as well. However, many all-in-one providers offer POS equipment for free and tend to minimize start-up costs too.
Ok, so this is where we’ll talk about transaction fees. To compare merchant accounts, the first term you’ll want to know is the interchange rate. The interchange rate is the fee that credit card issuers and banks charge your merchant account provider whenever they approve a credit card transaction.
Card issuers like American Express, Discover, Visa, and Mastercard each set their own rates and update them once or twice a year. So how do merchant account providers make money? By charging you more than what they’re being charged.
Let’s be clear about one thing. Both traditional merchant accounts and all-in-one providers will charge a markup on credit card transaction fees. But the key is in the pricing structure they tend to choose.
Tiered Fee Structure
This is the way that many traditional merchants price their markup. With a tiered structure, every transaction cost can be different depending on what kind of card is used. A simple cash back card may have a smaller fee than a premium travel credit card. Tiered plans may also offer discounts to businesses that have higher sales volume.
All-in-one services tend to choose a flat-rate pricing model. For instance, for in-person credit card payments, Shopify charges 2.7%. And for online credit card transactions, they charge 2.9% + 30¢.
If you have a smaller business, the simplicity and predictability of a flat-rate plan can be nice. But if you’re a high volume business (eg. more than $25,000 in credit card transactions a month), a tiered plan may save you money.
This shouldn’t be a problem with either type of merchant account. There are plenty of traditional merchants and all-in-one providers that accept all four major credit card issuers (Visa, Mastercard, American Express, Discover).
Whether you choose a payment gateway or an all-in-one service provider, you’ll want to make sure that they provide point-to-point encryption that meets Level 1 PCI compliance standards.
Keep in mind that transactions that don’t include the physical swiping of a card are higher risks for payment processors so they may charge higher fees. Oftentimes providers will charge a higher fee for online payments, and an even higher fee for keyed-in payments (like payments over the phone).
Accepting Out-Of-Store Credit Card Payments
If you’re primarily a brick-and-mortar retail store, you may be able to get by with a merchant account and a POS system. But if you plan to accept payments online, by phone, or even while you’re out-and-about, here’s what you’ll need to do.
How to Accept Credit Card Payments Online
In order to accept online payments, you’ll need to have an eCommerce store to connect to your service provider. Note that some all-in-one providers like Square and Shopify offer their own eCommerce stores.
If you use a traditional merchant provider, you’ll also need a payment gateway to do business online. But with all-in-one providers, the payment gateway is baked into their overall product.
How to Accept Credit Card Payments Over the Phone
If you only plan to accept payments over the phone, you may not need an eCommerce store.
Instead, you may want to purchase a virtual terminal. With a virtual terminal, you can enter your customer’s credit card information right into your computer. Most traditional merchants and all-in-one providers include virtual terminals in their basic plans.
How to Accept Credit Card Payments at a Garage Sale
Planning to hold a garage sale soon and want to be able to accept credit card payments? Or perhaps you’re a piano teacher or a traveling mechanic who wants to be able to accept cards from your clients.
In that case, you’ll probably want to purchase a card reader that can plug into your phone. Most all-in-one merchants offer mobile card readers and may even provide them for free.
What are the Top Payment Gateways?
If you have a high sales volume brick-and-mortar business, you may benefit from the discounts and membership plans that traditional merchants offer. But if you plan to accept online payments as well, you’ll need a payment gateway too.
If you sell mostly online, you’d probably be better off choosing an all-in-one solution. But if online sales will only be a small part of your overall business, a traditional merchant/payment gateway setup may work for you. Here are three of the most popular payment gateway providers.
Authorize.net accepts every type of payment, including all the major credit cards, EMV chips cards, digital payments, contactless payments, e-checks, and more. They’re also strong on security with over 13 available fraud filters.
Authorize.net charges a monthly gateway fee of $20 per month and 10¢ per transaction and a daily batch fee of 10¢. If you do over $500k a year in sales, you can contact an Authorize.net sales rep to get a custom quote.
It should be noted that Authorize.net has an all-in-solution as well. But you’ll pay a higher transaction fee of 2.9% + 30¢. Finally, you can use their invoiced billing system to track accounts receivable and streamline the billing process.
Remember the tiered pricing structure that we talked about earlier? Well, that’s the model that Adyen uses. Specifically, it’s called the Interchange++ pricing model.
With this model, you’ll literally be charged a different price for each type of card. To get a better idea of what your average transaction cost may be, you can check out their full pricing sheet.
And keep in mind that Adyen is only the payment gateway. If you have a traditional merchant, they may still charge their own fees as well. That may sound scary. But if you’re a big business, Adyen could still be an affordable choice.
Plus they accept every type of payment under the sun and they have top-of-the-line security features. They can handle subscriptions and in-app purchases as well. Adyen is the real deal and is the payment gateway of choice for several big-name companies like Spotify, Dollar Shave Club, LinkedIn, and more.
I mentioned earlier that you should typically only use traditional merchant accounts and payment gateways if you’re primarily a brick-and-mortar business. But Amazon Pay may be the exception. With Amazon Pay, your customers can use their Amazon credentials to pay for their purchase.
That means that customers won’t need to fumble around in their purse or wallets for their credit cards. And a speedier checkout process typically leads to less abandoned carts.
Amazon Pay charges a transaction fee of 2.9% + 30¢ for U.S. web and mobile purchases. And they charge 4% + 30¢ for U.S. Alexa purchases. For overseas commerce, you’ll pay 3.9% + 30¢ for web and mobile purchases and 5% + 30¢ for Alexa transactions. Learn more about Amazon Pay’s pricing.
What are the Top All-In-One Providers?
If you have a small business or an online-only business, then an all-in-one provider may be your best bet. Here is a breakdown of some of the top all-in-providers available today.
Along with Square, Shopify is one of the most popular all-in-one merchant providers available today. And one of the reasons that both companies are so popular is that you can also use them to build your online store.
Shopify makes it easy to get your eCommerce store up and running with customizable themes and a huge third-party app store. You can even promote and sell products from your online store via social channels like Facebook, Instagram, and Pinterest.
But if you already have an online business up and running, they may not be the best choice. That’s because you can’t use Shopify Payments by itself. It comes bundled into their entire product. Thankfully, Shopify plans are fairly affordable at $29, $79, 0r $299 a month.
Once you’ve subscribed to a Shopify plan, you can start accepting payments. With Basic Shopify, you’ll pay 2.9% + 30¢ per online transaction. And they charge a flat 2.7% for in-person transactions. You’ll also get rate discounts if you subscribe to one of their premium plans.
Like Shopify, Square offers a full end-to-end payment processing solution that includes the tools to build an eCommerce site. But where Square really excels is in the point-of-sale (POS) department.
With the Square POS app, you can begin accepting in-person payments on any Apple or Android device. And Square will give you your first magstripe card reader to connect to your phone or tablet for FREE (additional readers are only $10). If you need other equipment, Square has a full POS store to shop from.
Square charges no monthly fee for their POS software and undercuts the competition on fees for POS transactions at 2.6% + 10¢. Online transactions will cost you 2.9% + 30¢ and you’ll pay 3.5% + 15¢ for virtual terminal or keyed-in payments.
With Stripe, you pay them to handle your payments and that’s it. They don’t offer any kind of eCommerce website builder. But if you already have a website up and running, Stripe could be a great choice. You’ll be able to accept just about every form of payment, you’ll get a built-in virtual terminal, and their “Radar” program uses machine learning to protect against fraud.
Stripes charges 2.9% + 30¢ for every successful credit card transaction. They have no monthly fees or set up fees. You can also speak to a Stripe representative about customized pricing such as volume discounts, interchange pricing, or country-specific rates.
PayPal Payments is similar to Stripe in many regards. But what sets PayPal apart is that in addition to their credit card, your customers will able to pay via PayPal or PayPal Credit. And since so many people already have PayPal accounts, this could speed up the checkout process and increase conversions. In fact, PayPal says that offering PayPal as a payment option can lift sales by 44%!
With PayPal Payments, you’ll pay 2.9% + 30¢ per U.S. transaction. And with PayPal Here you can accept in-person payments as well (and PayPal will even provide a free card reader). With PayPal Here, you’ll pay 2.7% per US card swipe and 3.5% + 15¢ for keyed-in payments.
Which Type of Merchant Account Service Provider Should You Choose?
It really all depends on your size and type of business. Large retail businesses may benefit from negotiating a deal with a traditional merchant.
But small local businesses or online businesses may be better served by the transparency and ease of use of an all-in-one provider.
No matter which way you go, make sure to shop around and try to negotiate discounts whenever you can.