With the growing popularity of credit card payments, it’s important for businesses to adapt to the changing times. To accept credit card payments online and in person you need to work with a credit card processor or merchant service provider. The entire process isn’t always straightforward and easy. This guide will walk you through the considerations you need to make to get your credit card processing up and running.
- Accepting Cards Online
- Accepting Credit Cards at a Store/In-Person
- The Cost of Accepting Credit Cards
- How to Accept American Express Credit Cards
How to Accept Credit Card Payments Online
The first step in accepting credit card and debit card payments on your ecommerce site is to sign up with a payment-processing platform. You can easily find a multitude of options by by searching for ‘online credit card processing’. From there, you will need to decide whether you want to rely on a prebuilt platform, which is usually the easiest to set up, or whether to use an API and build a custom checkout system on your website.
The former will typically be the fastest and easiest way to get your online business to accept credit cards. However, doing so will typically require you to send customers to a third-party website. For example, PayPal is one of the most commonly used online credit card processing platforms. You can accept credit card payments easily through it, though you will need to forward your customers to PayPal’s website for them to complete the transaction.
The second option for taking card payments online requires you to use a processor’s API to build a custom checkout. You can also sometimes use a customizable eeommerce platform and hook it up to an independent processor. However, this will typically increase your monthly and overhead costs. These types of services are rarely free.
How to Accept Credit Card Payments In Your Store/In-Person
To start accepting credit cards at a physical location you first need to choose what type of processing solutions you need – mobile, point of sale (POS) or something in between. For example, restaurant owners may want mobile credit card processing solutions since your staff will likely be on the move, and customers will be paying from several locations. You will need small readers that are portable. Conversely, if you operate a shop with a register, you may want a bigger POS card reader that can have more features, such as inventory management.
Once you decide on the type of credit card processing you need, your next step should be to find a credit card processor or merchant services provider. This is a company that will typically provide you with all the equipment necessary, as well as handle the actual backend of transactions – transferring funds from your customer’s bank to your merchant bank.
Payment Service Providers vs Standard Merchant Account Providers
When choosing a processor, you will likely face the option of either using a payment service provider or a standard merchant account provider. The choice will have a direct impact on the services you receive and the price you pay.
Payment Service Providers: Use this type of service if you are concerned about minimizing the cost of accepting credit cards and want to get up and running as quickly as possible. This is typically the best choice for small businesses that don't process too many payments. Because Payment Service Providers take on more clients at a faster rate, without doing much or any underwriting, they have more aggressive fraud detection policies to minimize their losses. For business owners, that means these will be more succeptible to freezing your account the moment you process unusual transactions. Unusual here may mean higher transactions than usual. Example: Square
Merchant Account Providers: These services are intended for more established businesses. They will do some sort of underwriting when they begin to work with your company to establish your legitimacy. That will involve some paperwork, and may take some time to get up and running. Merchant Account Providers will also typically charge incidental fees and have more overhead costs. In exchange for this, you will typically experience greater stability and receive better customer service. Example: Dharma Merchant Services
The Cost of Accepting Credit Cards
The average cost of accepting credit card payemnts is about 1.75% of the transaction. Your cost will vary from this depending on the type of card you accept, and where the transaction takes place. For example, online transactions typically cost 2.9%. On top of the per-transaction costs, you may need to pay additional monthly service fees if you want extra features, such as employee or inventory management.
Cheapest Way to Accept Credit Card Payments
When you are choosing between different credit card processors based on price, you need to understand that there exist multiple ways these companies structure their fees.
- Tiered Pricing (Most Expensive): If you see terms like "qualified" or "non-qualified" transactions listed under pricing of a processor, you’re likely dealing with a tiered pricing scheme. These often prove to be the most expensive for small business owners and they make it difficult to accurately predict your future costs. Tiered pricing separates transactions into three different buckets, based on arbitrary criteria that aren’t always made public, and then assigns different fees to each. We advise most business oweners steer clear of tiered pricing.
- Fixed-cost (Cheapest for Startups): Some companies offer credit card processing at a fixed cost – typically charging somewhere between 2.6% and 2.9% per transaction. These pricing schemes usually don’t involve any annual, monthly, or setup fees. While they are more expensive for processing debit cards and some credit cards, it’s still less expensive for small businesses due to lower overhead costs.
- Interchange Plus (Cheapest for Mid-to-Large Sized Businesses): Processors that target larger businesses now typically offer interchange pricing. It works by making you pay for the interchange fee that is imposed by the card networks and then charging a small markup on top of that. With this price structure, you will pay less for debit cards and certain non-rewards credit cards than you would with fixed prices.
No matter what type of pricing plan you go with, there will also be significant differences in cost based on how you accept your credit card payments. For example, if you swipe or dip a card into a reader the cost is typically as low as it can get. If the card details need to be manually keyed into a reader the cost goes up -- usually by a percentage point. Online credit card payments are usually most expensive, since they carry the greatest risk of fraud. Processors bake the increased risk into the cost of your service to make up for any losses they suffer. You may also pay more if you are accepting cards in certain industries that are prone to credit card fraud.
Accepting American Express Credit Cards
It usually costs significantly more to accept American Express credit cards than Visa and Mastercard, if you are using interchange plus or tiered pricing. You need to enroll in Amex's OptBlue program through your payment processor. The per-transaction fees will be different than your normal swipe fees. If you are using fixed pricing plans, you pay the same fee for Amex, Visa, Mastercard and Discover transactions.
The rates for accepting American Express cards are not standard across all payment processors, despite them all using the same OptBlue program. For example, with Helcim you pay 3.0% + $0.10 for if you run a lodging business and charge more than $1,000 in a single transaction. However, with Dharma Merchant Services you would pay 3.15% + $0.20 for that same sale.