How To Accept Credit Card Payments

For many small businesses, the decision to accept credit card payments opens a lot of doors. But once you’ve decided to accept credit card payments online or in person, you’ll need to find out which form of payment processing works best for your business needs and find a merchant processor (a merchant processor is what you call a company that gives you the tools needed to accept credit card payments). Here we take a look at the main ways to accept credit card payments – through a terminal, mobile card reader, via online payments, or over the phone – and what factors you should consider in choosing the type of service your business needs. 

• Pricing & Important Terms

• Choosing a Merchant Processor

• Recommended Merchant Processors

Before you start, make sure you've setup a business bank account along with the preceding Startup Guide steps. If you haven't, you will not be able to properly apply for merchant services.

Comparing payment processing providers based on how they charge for their services is no easy feat, since there are a few different models. Below is an outline of some of the pricing methods you’ll encounter, which can be negotiated, and some of the more common fees to help you make an apples-to-apples comparison of services.

Type of fees

All payment processing providers will charge a percentage rate of the overall transaction, aka: a percent transactional fee. This percentage may either be a flat rate or be based on factors like the card being present during the transaction (for instance in a face-to-face retail transaction) or not present (like an online payment).

You may also pay a flat per transaction fee in addition to the percent transactional fee. They vary, but are typically around 20 cents. Some service plans also charge a monthly fee. If your card processor does charge a monthly fee, you should be able to get a reduced transaction fee, or get hardware like a terminal or specialized software to justify that expense.

Another type of payment model you may run into is a contract. If a credit card processing vendor is asking you to sign a contract, you should only do so in exchange for a lower transaction fee, or with included access to specialized equipment.

Important Terms

PCI Compliance

PCI stands for Payment Card Industry, and compliance with its guidelines means you’re meeting 12 specific security-related requirements. It is mandatory for all merchants to follow PCI compliance guidelines. If you aren’t in compliance, you’ll have to pay PCI fees. But even if you are in compliance, you may be charged fees, as some providers pass on the costs of adhering to the regulations. Some providers will unfortunately also charge for PCI compliance without actually providing it, so make sure you are checking that your provider does stay up to date with the regulations. 

Depending on the size of your business and how many transactions you make annually, you will have different requirements for being in PCI compliance. According to Payline, “In order to be PCI compliant, each card issuer has its own criteria for assigning a merchant level and validation compliance classification level for a merchant, third party or service provider.”

The six main control objectives for PCI DSS compliance and validation are as follows:

• Build and Maintain a Secure Network

• Protect Cardholder Data

• Maintain a Vulnerability Management Program

• Implement Strong Access Control Measures

• Regularly Monitor and Test Networks (where credit card data is passed through)

What does that mean for your site? If you’re accepting credit card payments, your website must meet security standards for those criteria, as defined by PCI compliance. One of the requirements, for instance, is having an SSL (the thing that changes your URL from “http” to “https”) certificate for your website, something you can get from your domain registrar or from some website builders. Some website builders have integrations with payment processors, which will help ensure compliance.

You’ll also have to meet certain requirements for security if you store or transmit customer or credit card data. In order to help businesses follow these best practices, payment processors provide merchants with questionnaires –like this one from Stripe – to help them ensure they are as secure as possible.

Interchange Rates

Interchange is the base cost of a credit card sale, or how much your processor will have to pay to actually run the cards. Some credit card processors actually structure their transaction fees as “Interchange plus x%,” which allows them to have a more predictable profit margin, but often benefits customers by lowering their transaction costs. Some cards are relatively cheap to process, and others, like those with perks, cost more, because the bank that issues the card has additional costs to recoup. Interchange rates also vary depending on what type of card, from debit to rewards card, is being used in a transaction as well as whether the card is present or not present for the transaction. For this reason, Interchange rates vary quite a bit.

Card Present vs. Card Not Present charges

You can expect to pay a different set of fees depending on whether the card with which the transaction is made is present – e.g. physically inserted or swiped at a terminal or mobile swiper – or not present. Charges are typically lower for card present situations, because the chargeback percent, the percent of charges that are refunded, is lower for these charges.

Card not present charges apply to ecommerce transactions or charges where payment data is manually entered, and tend to be slightly higher. Card not present businesses may also have higher software costs associated with online gateways, and may pay higher Interchange rates.

Terminals: Physical Terminals, Virtual Terminals, and Mobile Swipers

Depending on the way your business accepts credit card payments, you’ll either need a physical terminal, an ecommerce virtual terminal, or a mobile swiper – or a combination of these tools.

A physical terminal is the machine that physically reads a credit card and is used for “card present” charges. It may also be able to accept payments like Apple Pay. Most physical terminals also have keypads allowing a merchant to type in the credit card information (as happens when a credit card strip isn’t working) for a “card not present” charge.

Virtual terminals are typically in ecommerce solutions, where a physical card swipe doesn’t take place. Customers can enter their credit card information into a website and retailers can login to see the charges, or manually enter charges. All virtual terminal charges are “card not present” charges.

Mobile swipers are attached to smartphones or tablets and are used together with an app to turn that device into a terminal. Those charges are considered “card present” charges. 

How Will You Accept Credit Card Payments?

What do you need to analyze when choosing how to accept credit card payments? First and foremost, think about your sales process. If you’re opening a brick and mortar location you’ll need to be able to swipe a customer’s card in person, whereas if you’re building an ecommerce website you’ll need to have a way to accept online payments. Still other businesses may need to be able to enter customer payments manually as they receive orders over the phone.

Other factors to consider include how much you want to spend – some forms of processing charge more fees than others; your customer base; and future plans such as expansion.

It’s also important to understand how each payment method works. Here’s a little more about each system and the type of business they work best with.

Online

If you do business primarily through your website, it’s easy to set up a merchant account through popular online payment services like PayPal, Stripe, or Amazon. This gives you a way to accept debit or credit card payments directly through your website.

Online processing is one of the least expensive ways to accept credit card payments. You won’t need to purchase any equipment, so your fees will include a processing fee and interchange fee. Expect to pay fee rates from 2% to 3%, plus up to $0.30 per transaction (most online payment processors decrease that rate as sales increase). 

Mobile

Mobile credit card processors work well for businesses that want to accept credit cards at any time and any place – for instance a vendor at a farmer’s market or a repair professional at a customer’s home.

When mobile processing emerged, the businesses using it were largely those without a physical location. But as the technology has developed, more and more brick and mortar stores are using mobile processing. Having mobile processing in a store can mean faster customer service and potentially fewer processing fees. The equipment is minimal – a smartphone or tablet with a compatible system (usually Android or iOS) and a card reader.

What should a business owner consider when choosing mobile versus terminal processing? With the advances in mobile processing, much of it comes down to the way you prefer to conduct sales and what works best for your customer base. Mobile processing can handle almost everything a terminal can, including recurring payments, adding gratuities, and sending receipts. If it benefits you to have portability within (or outside) of your business, mobile processing might be a good option. If your clients or customers are wary of handing payment over to someone with a card reader, or if you need features that a traditional Point Of Sale (POS) system can provide, then terminals may be a better fit. When choosing a mobile form of processing, businesses should take security into consideration. Make sure the app or processor you use encrypts credit card numbers and is compliant with PCI standards.

In addition to the equipment, expect to pay fees that range from about 2.75% to 3.4% plus $0.15 to 0.25 per swipe.

Terminal

Physical terminals can range from a Point of Sale (POS) system that keeps the accounting for multiple locations connected and is equipped to accept payments from a card or from systems like Apple Pay, to a basic terminal that allows businesses to simply swipe credit cards.

While it’s possible to lease a terminal, make sure to understand the fine print on a lease; some leases lock you into a contract for several years, which means you’re also locked into paying a monthly fee that can be as high as $70. If you’re able to pay up front for a terminal, expect to pay $200 to $400.

Expect fees to cost around 2% per transaction.

Over the phone

Taking credit card payments over the phone can be more risky, but payment processors will allow you to accept payment this way. In order to do it, you’ll need to demonstrate that your business is PCI compliant in the way it handles customer and credit card information.

Some online payment processors, particularly those bundled with a website builder, have been known to closely monitor and shut down or limit business accounts if too many manually entered charges show up. In order to avoid this, you’ll want to make sure that you’re proving to your processor via a questionnaire or other form that your business is handling credit card information in a way that is PCI compliant. 

Merchant processors that offer traditional retail and ecommerce options

If you're looking for a merchant processor that allows you to accept payments in person and/ or online and over the phone, you should consider using one of these processors:

Payline Data

Payline Data offers extremely competitive pricing and customers rave about its excellent customer service. Payline offers the full range of payment processing options (ecommerce, mobile swipers, virtual terminals, full retail POS machines) via four plans. Payline bases its fees on an “Interchange Plus” model. Although Interchange rates vary, for comparison purposes, you can assume that Interchange rates are about 2% for rewards cards, 1.5% for regular credit cards and 0.5% for debit cards for in-person swiping. Those rates go up about 0.3% when the charge is ecommerce or manually entered. Its four plans include:

Payline Connect (designed for ecommerce + virtual terminal for manually entered charges):

• No monthly fee

• Transaction fees: Interchange +0.65% and 20 cents per transaction

• Includes payment gateway, which provides ecommerce capability and a virtual terminal for manually entering transactions

• Does NOT include a physical swiper or mobile reader

Payline Start (includes mobile swiper for smart device; not enabled for e-commerce):

Payline Surge (designed for retail; not enabled for e-commerce):

• $9.95 per month

• Transaction fees: Interchange +0.3% and 20 cents per transaction

• Surge includes a physical retail terminal (magnetic strip, chip reader, and mobile payments like Apple Pay)

• Does NOT include ecommerce capability

Payline Shop (designed for retail terminal + e-commerce):

• $19.95 per month

• Transaction fees: Interchange +0.3% and 20 cents per transaction

• This plan includes an upgraded physical terminal

• Includes payment gateway, which provides ecommerce capability

CreditCardProcessing.com

CreditCardProcessing.com is an established payment processing service that, like Payline Data, sets its rates at Interchange plus. Although Interchange rates vary, for comparison purposes, you can assume that Interchange rates are about 2% for rewards cards, 1.5% for regular credit cards and 0.5% for debit cards for in-person swiping. Those rates go up about 0.3% when the charge is ecommerce or manually entered. CreditCardProcessing.com offers plans for ecommerce, retail and restaurants, POS, wireless, and phone payments.

Swiped terminal accounts  (VeriFone VX-520):

• $4.95 per month

• Transaction fees: Interchange plus 0.35% + 12 cents per transaction

• The VeriFone VX-520 costs $135 (plus taxes and shipping fees) 

Swiped mobile swiper accounts  (EMV Walker mobile unit):

• $12.90 per month

• Transaction fees: Interchange plus 0.35% + 12 cents per transaction

• EMV Walker mobile swiper is $39 (taxes and shipping included)

• Month to Month agreement with no contract and no cancellation fees

Ecommerce only accounts:  QUIQ Gateway powered by USAePay

• $12.90 per month

• Transaction fees: Interchange plus 0.45% + 12 cents per transaction

• No setup fee

• Month to Month agreement with no contract and no cancellation fees

Retail + ecommerce accounts:

• $15 per month

• Transaction fees: 

• For retail charges: Interchange plus 0.35% + 12 cents per transaction

• For ecommerce charges: Interchange plus 0.45% + 12 cents per transaction

• Purchase a card reader (mobile or terminal)

PayPal

PayPal is a well-known payment processing service that provides merchant processing and also has a huge user base with connected cards and bank accounts, making it a popular alternative checkout option for ecommerce websites. With a Paypal account, you can accept charges in person with a mobile swiper, through your website, or manually type in transactions. Each of these has a different fee structure. 

Transaction Fee Structure:

• In-person charges incur a flat 2.7% fee

• Online payments are charged 2.9% + 30 cents per transaction (for U.S. based charges- charges outside the U.S. incur a fee of 4.4% + a flat fee based on the currency)

• Sales manually typed into the system are charged 3.5% + 15 cents per transaction

Paypal also offers two types of plans: PayPal Payments Standard and PayPal Payments Pro

PayPal Payments Standard:

• No monthly fee

• Doesn't offer payment gateway, but you can put a button your site that says “Buy Now” which then allows your customers to make the purchase on PayPal’s website

• You can’t accept phone payments with the Standard Plan

• You can't set up recurring billing with this plan

Paypal Payments Pro:

• $30 per month

• Includes payment gateway for ecommerce transactions directly on your site

• Allows you to accept payments over the phone

• If you want to set up recurring billing, their is a $10 per month fee

• Advanced Fraud Protection Serivices are $10/ month + 5 cents per transaction

Flagship Merchant Services

Flagship Merchant Services is a merchant account provider that offers a fairly wide variety of processing options, including POS systems and terminals, phone and mail order, e-commerce, plans for restaurants and retail, and wireless processing. Flagship was acquired by iPayment in 2012, and many of the services it offers are provided by iPayment. Flagship offers free account setup and month to month agreements with no early termination fees. The company does charge an annual PCI compliance fee (typically an annual fee is close to $100 in the industry) and monthly minimum. Flagship doesn't post any information about its rates and fees on its website, though, so interested businesses need to call and get a consultation to get more specific information about exactly what they'll pay monthly. It's worth asking an agent exactly what to expect in terms of PCI feels, monthly minimums and non-qualified processing rates if you do call.

Swiped terminal accounts  (VeriFone VX-520):

•  $7.95 per month

• Transaction fees: Interchange plus 0.40% + 10 cents per transaction

• The VeriFone VX-520 costs $138 (plus taxes and shipping fees)

Swiped mobile swiper accounts (EMV Walker mobile unit):

• $12.90 per month

• Transaction fees: Interchange plus 0.40% + 10 cents per transaction

• EMV Walker mobile swiper is $39 (taxes and shipping included)

• Month to Month agreement with no contract and no cancellation fees

Ecommerce only accounts: Authorize.net Payment Gateway

•   $12.90 per month

•  Transaction fees: Interchange plus 0.40% + 10 cents per transaction

•  No setup fee

•  Month to Month agreement with no contract and no cancellation fees

Retail + ecommerce accounts:

• $15 per month

• Transaction fees:

For retail charges: Interchange plus 0.40% + 10 cents per transaction   
For ecommerce charges: Interchange plus 0.40% + 10 cents per transaction

• Purchase a card reader (mobile or terminal)

Square

Square built their brand by giving people free square-shaped credit card swipers they could attach to their mobile phones and iPads to accept credit card payments. Over the years, they've updated their technology, but pretty much stuck to the same business model. With a Square account, you can accept payment with a mobile swiper, through your website or manually enter the transaction. Square does not offer international credit card processing. Square's rates are as follows:

Transaction Fee Structure:

• In-person charges incur a flat 2.75% fee

• Online payments are charged 2.9% + 30 cents per transaction (U.S. only)

• Sales manually typed into the system are charged 3.5% + 15 cents per transaction

Square also offers two types of plans: Square Point of Sale and Square for Retail

Square Point of Sale:

• No monthly fee, but you can add-on Square's employee management tool for $5/ month/ employee

• Includes access to Square integrations with popular website builders, eCommerce platfomrs and their payment gateway

• You can accept payments over the phone with this plan

• Recurring payemnts are included with this plan

Square for Retail:

• $60 per month

• Includes all the features of the POS plan, but includes a their more advanced Square Retail app that offers better inventory and customer tracking tools and includes Square's employee management tool

• This plan is designed for larger retailers with more complex inventory and/ or multiple locations who also want better reporting from the Square system

If you will only need to accept payment online, the above full service providers are still good options, but you can consider these as well:

2Checkout

2Checkoutis an international payment processor specializing in e-commerce. 2 Checkout’s e-commerce solution allows customers to pay using any major credit card as well as Paypal if they prefer. 2 Checkout also offers an easy way to set up recurring billing, which is a good choice if you offer a subscription. 2Checkout works with Wordpress' WooCommerce eCommerce platform via a plugin. You may also apply for approval to use a virtual terminal to manually enter credit card info for purchases (e.g. over the phone purchases). 

• No monthly fee

• The processing fee is 2.9% + 30 cents per transaction for U.S. based charges (charges in other countries vary based on location)

• For accounts doing more than $50,000 per month, 2Checkout will offer a custom quote

Stripe

Stripe is another processor specializing in merchant processing. Stripe offers a way to set up recurring billing, but their biggest advantage is that it the service is directly integrated into some popular website builders like Squarespace, Weebly, Wix, WooCommerce (Wordpress eCommerce platform), Volusion, BigCommerce, Shopify, Genbook and more.

• No monthly fee

• Processing fee is 2.9% + 30 cents per transaction for U.S. based charges (charges in other countries vary based on location)

• .8% for ACH and Bitcoin transactions (with a $5 cap)