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The ability to accept credit cards is important across industries and business models as customers prefer using cards over cash.
According to a 2023 Federal Reserve study, 31% of U.S. consumers opted to use credit card payments, while 18% preferred paying cash. And preference for cards expands every year, according to the Reserve.
In an increasingly digital marketplace, pushing payment models toward credit cards makes good sense – if, that is, you’re prepared for the shift.
Job one is choosing a credit card payment service provider. There are hundreds of payment processing companies out there, and you’ll need to consider factors like rates, fees and contracts. Careful research on the front end, though, means you’re more likely to find the best credit card processing company for your business.
If your business is new or not yet accepting credit card payments, you’re probably wondering how to accept plastic and how much it will cost. These steps will walk you through the process of setting up credit card processing for your business, and provide questions to contemplate.
Should you work with an aggregator, a merchant services provider or a direct processor? How do you know which type of credit card processing service you need? There are multiple ways to integrate a credit card payment service into your unique business.
For example, you’ll need to choose between a card payment service that works with individuals and a provider that serves only businesses. Additionally, you’ll need to factor in the average monthly volume of credit and debit card payments that you accept.
Identify how you plan to accept credit cards and evaluate equipment options.
Do you plan to accept credit cards online or at a brick-and-mortar store, or do you prefer a mobile credit card processing solution that uses a smartphone and a card reader? Do you want to accept payments in multiple ways? These considerations will influence the types of credit card processing equipment and hardware you need.
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Credit card processing fees can be confusing, and it’s beneficial to fully understand credit card payment fees. This will help you negotiate the best transaction rates for this type of service. Expect transaction fees, service fees and incidental fees when working with a credit card processor.
The most commonly types of credit card processing fees you will encounter are:
Of course, there are other fees that could appear depending on the processor you partner with and the model it uses. You can learn more about different types of credit card processing fees by reading our detailed breakdown below.
The best credit card processor for your business is the one that offers you the best value – with low and transparent rates, no hidden fees, and either a month-to-month contract or pay-as-you-go service. Though many of the best credit card service providers post their pricing online, some don’t, preferring to customize their rates for each client. You should plan on calling at least three processors to request a price quote and a contract to review so that you can compare rates and fees for your specific business.
Even if all top credit card processors on your list post their pricing online, it’s a good idea to call and speak with a sales rep because there may be a promotion available or you may be able to negotiate a better deal. It also gives you a taste of the company’s customer service quality, which can be an important consideration as you’re choosing a service provider.
No one wants to read the contract before signing up for a service, but with this industry, it’s necessary. If you sign up with a full-service processor, you risk being locked into its services for several years, paying more than you expected. If you sign up with a payment facilitator, you may find out too late that it has certain processing limits or doesn’t support businesses in your industry, resulting in frozen funds or a closed account.
The best credit card processing companies provide their services on a month-to-month or pay-as-you-go basis, and they don’t charge any early-termination fees.
Standard contracts
Used by independent sales organizations (ISOs), merchant service providers (MSPs) and direct processors, standard contracts typically have three parts: the application, the terms of service and the program guide. Some applications have links to the terms and guide, but most often, you’ll need to ask the sales rep to send these documents to you separately.
User agreements
Most payment facilitators have user agreements instead of contracts. These are much shorter but still important to thoroughly read. You’ll want to check the list of prohibited goods and services to ensure the processor will work with your business. You’ll also want to read the processing contract terms to find out if there are any processing limits, to make sure they won’t affect your business. One factor to keep in mind is that aggregators are very risk-averse and will freeze your funds if there’s anything about your transactions that looks suspicious, such as a sudden spike in volume or transaction size.
This is the easy part! Once you’ve decided which payment processor you want to work with and have read the contract to verify that the rates and fees match what you were quoted, it’s time to apply for an account.
When you sign up for a merchant account with an ISO, MSP or direct processor, you can fill out the application portion of the contract. This is often online, but many sales reps are happy to walk you through the application over the phone. You provide details about both your business and yourself, including your employer ID, Social Security number and bank account information.
The processor then reviews your application and sets up your account. This usually takes up to two days; some processors can get it done the same day you apply, while others take up to a week. Your sales rep can help you decide what processing equipment you need and any extra features – like gift cards and loyalty programs – are needed. Once your equipment arrives, the processor will help you set it up and test it to make sure it works properly and you know how to use it.
If you sign up with a payment facilitator instead, the process is very easy. You’ll fill out an online form to create your account by entering some brief information about yourself and your business. Then, you can order processing equipment and download the app onto your phone or tablet.
If you plan to use a point-of-sale (POS) system to accept credit cards, see our reviews and recommendations for the best POS systems.
You’ll need to understand your anticipated transaction volume before you can get started processing credit cards. Some processors specialize in small businesses with low transaction volume, while others can scale to support enterprise businesses. It all depends on what you need and what you expect the future to hold for your business.
If you’re an individual who wants to accept credit cards for personal use – for example, if you want to accept credit cards at a garage sale or for freelance work, or if your business isn’t yet official – Square is a good option. (Read our review of Square for more information.)
Square is one of the few payment processors that works with you individually and works with your business. You will pay a small fee each time you accept a credit card payment, and there are no monthly or annual fees. Square gives you a card swiper, or you can buy an inexpensive chip card reader from the company.
If you desire the ability to accept credit card payments from friends, family or other people you trust – such as the friends you split the bill with at dinner last night – you can use peer-to-peer (P2P) payment services like PayPal, Venmo, Apple Pay Cash, Google Pay or Zelle.
You won’t want to use a P2P payment service to accept payments if you don’t know the individual. Beware that buyers can reverse transactions, such as in Venmo payment scams.
If your small business processes less than $2,500 per month or has small sales tickets, you’ll want to work with a payment facilitator like Stripe.
Facilitators like Stripe are cheaper to use at this processing volume because you pay only a small fee – expressed as a percentage of each sale and, sometimes, a per-transaction fee – for each credit or debit card payment you accept. Even though payment facilitators charge a higher percentage than other types of payment processing rates, you’ll save money because you don’t pay any other fees.
There’s no setup fee, monthly fee (such as statement and payment gateway fees) or annual PCI compliance fee.
Consider PayPal alternatives if you’re looking for low-volume credit card payment processors.
Payment facilitators – also called mobile credit card processors or merchant aggregators – sponsor multiple merchants under their master merchant accounts. This makes it easier to sign up for an account, and there are fewer fees to pay, but they can be more restrictive.
Make sure to carefully read the user agreement to ensure the goods or services you provide aren’t prohibited. Additionally, be aware that processing irregularities – such as abnormally large transactions or a sudden spike in monthly volume – may cause your card processor to freeze your funds, which can restrict cash flow.
If you have small sales tickets, you can save money by choosing a credit card processing company that charges only a percentage of each sale. Some also charge a small per-transaction fee – usually $0.10 to $0.30 – but this adds up quickly if your sales tickets are small.
If your small business processes more than $3,000 per month or has large sales tickets, consider a processor with lower rates, like Payment Depot. These payment processing companies can install a merchant account for you.
Even though these processors may charge fees that the aggregators don’t, they offer lower rates, which saves you money when you’re processing larger sums of money every month.
ISOs and MSPs that resell merchant accounts from direct processors offer credit card payment options for your small business too. Because you’re still processing a lower payment volume than large businesses, you’re not likely to get better rates from direct processors. Even so, you’ll want to shop around to find low rates, few fees and a month-to-month contract.
If you process a low volume of credit cards each month, look for a payment processor that doesn’t impose a monthly minimum – a minimum dollar amount of credit card processing fees you must generate each month.
If you process a high volume of sales each month, you could also consider working with a direct processor like First Data, Wells Fargo Merchant Services or Bank of America Merchant Services. These companies tend to be better suited for large businesses, but they will also work with your small company.
Direct processors provide merchant accounts and have relationships with banks and credit card brands. Again, you’ll want to comparison shop for favorable rates, fees and contracts.
You’ll want to accept credit card payments wherever and however customers want to pay. That’s the case no matter what type of credit card transaction you accept, including in person at your business or another location, online, over the phone, and through mobile apps.
Once you decide how to accept credit cards, address what kind of credit card processing equipment you’ll need. The best processing equipment will meet these standards.
This type of card reader often has a built-in receipt printer and keypad for PIN debit transactions. Countertop models connect via dial-up or Ethernet. Wireless models connect via Bluetooth, Wi-Fi, 3G or GPRS. All new models are EMV compliant so that you can accept chip cards, and most have NFC technology to accept mobile payments. Credit card terminals usually cost between $150 and $600.
A payment terminal is the most common type of processing equipment. It would be ideal for your business should your firm need a card reader to connect to or work alongside a POS system. Or, if you don’t need the credit card processing system to do anything but accept payments.
If you are using a POS system, check with the company to find out which credit card processors the POS system is compatible with, as that may limit your options. Some require you to use their in-house processing services, but the best credit card merchants allow you to work with third-party payment processors so you can shop around for low rates and fees.
Some systems have built-in card readers, while others connect to or are used alongside a credit card terminal or mobile credit card reader. You can add barcode scanners and other peripherals. Available for purchase from merchant account providers or POS companies, a POS system’s pricing depends on the type of system you choose.
These systems are best for your company’s physical location, particularly if you want to connect to other business software. Review our best accounting solutions for software recommendations to consider.
Be wary of free credit card processing equipment, as you may be charged higher rates and additional fees – such as an insurance fee or some sort of equipment maintenance fee. Most payment providers also require you to return the equipment when you close your account.
This is a portable device you use with a smartphone or tablet and a credit card payment app. Some models plug into the headphone jack or lightning connector on your phone or tablet, but many newer models connect via Bluetooth. Many processors give customers a free credit card swiper, but you should upgrade to a model that accepts EMV chip cards and NFC contactless payments. These usually cost less than $100.
Mobile card readers can be used as stand-alone devices or as part of a larger system. You could utilize these if your company accepts credit cards on the go. They’re also useful to process transactions from anywhere in the store during busy seasons or if your company runs only a few transactions each day.
If you want to accept credit cards online – for example, if you sell goods or services through your website or an e-commerce platform – you’ll need a payment gateway. Most credit card processors can set you up with this technology and help you connect it to your site. Some processors have proprietary payment gateways, and others set you up with a third-party gateway like Authorize.Net.
There’s usually an additional monthly fee for this service, and some processors charge a gateway setup fee and another per-transaction fee.
All card readers can accept magnetic stripe cards, but you want a model that can accept EMV chip cards (Europay, Mastercard and Visa microchip card payments). EMV card technology protects you from liability for fraud occurring at the point of sale. EMV card readers also allow you to skip signature authentication, which can speed up the checkout process.
Ideally, the card reader will also have NFC technology, which allows you to accept mobile wallets like Google Pay and Apple Pay. This way, you won’t have to upgrade your equipment again as this payment method becomes more popular.
Nearly every credit card processor sells processing equipment, and in most cases, you’ll get at least your card reader from the company. If you already own a terminal, the processor may be able to reprogram it, though there is sometimes a fee for this service. If you want to buy peripherals from a third-party vendor, you’ll need to check with the processor for compatibility.
Plan to buy your credit card payment processing equipment upfront, as installment plan payment models can escalate in price. The FTC cautions against leasing credit card processing equipment for the same high-cost reason.
These are the three common types of credit card processing fees: transaction, service and incidental.
The three most common pricing models are flat-rate, interchange-plus and tiered pricing. Here’s how each option works, along with information on which pricing model is best for your business type and size.
Flat-rate pricing is usually charged by payment facilitators like Square and PayPal. There are different rates based on how you accept your customers’ credit and debit cards. This is the simplest pricing model.
Here’s an example of flat-rate pricing using PayPal’s transaction fees:
Interchange-plus may be the best option for your business. Industry experts recommend interchange-plus pricing because it’s more transparent than the other pricing models: It reveals exactly how much of a markup you’re paying the service provider.
Interchange fees are set by the card associations – or card networks – that pay the banks involved in the transaction for moving money from your customer’s credit card account to your company’s bank account. There are hundreds of interchange rates, depending on the type of card and the brand. The card networks charge a small fee for each transaction. These rates are the same for every processor – regardless of whether they’re a payment facilitator, ISO or MSP, or direct processor – and they’re nonnegotiable. The only debatable part of a transaction rate is the processor’s markup.
With this model, the processor passes on to you the interchange rates and card association fees charged by the credit card networks – Visa, Mastercard, Discover and American Express – and adds a markup percentage and per-transaction fee.
When you receive a quote for this pricing model, you’ll be charged only the processor’s markup percentage and per-transaction fee. So, for each transaction, you’ll pay this amount on top of the interchange rate.
Here’s an example of interchange-plus pricing, using Helcim’s transaction fees. When you accept a credit card payment in person using an EMV chip card reader or a swiper, these are the rates you’ll pay:
Consequently, for this transaction example, the full rate would be 2.05% plus $0.20.
The best processors offer interchange-plus pricing to all their customers and post their rates online. But most of the time, you have to specifically ask for it, and you may need to jump through hoops to qualify for it – such as processing a certain volume of sales each month or working with the company over an extended period.
Tiered pricing can be a good option if your customers typically pay in person using regular debit cards, though it can be expensive if they prefer to use premium rewards, corporate or international credit cards. Most processors prefer this pricing model, but industry experts advise against it, as it’s less transparent than others.
When you call for a quote, ask for interchange-plus rates. Otherwise, be sure to ask how many tiers there are, the rate for each tier, and which types of cards and acceptance methods are grouped into each tier. There are usually three tiers: qualified, midqualified and nonqualified. Some only have two, though, and there may be separate tiers for debit and credit cards.
In addition to processing rates, most full-service credit card processors charge an assortment of fees to maintain your account and provide customer support. Payment facilitators don’t typically charge these fees. Before you sign a processing contract, be sure to read it and make sure you’re aware of all the fees that the processor charges so you won’t be shocked when you get your first bill. Here are the most common service fees:
Credit card processing services vary in their offerings. Your selection will likely depend on your pricing and approval needs, and you’ll need to look into features like fraud protection and customer service. Need a comprehensive selection? See our list of best credit card processing providers. Alternatively, we’ve chosen several standout services for breakout reviews, and our findings will help in your research process.
A fast and easy approval process, seamless integration and attention to security make Merchant One our pick for small businesses across the board. It’s quick and easy to set up and offers strong data security and fraud protection, and you can even use the software to categorize and search past payment transactions. Read our Merchant One review.
If you’re seeking transparency and scalability, Square is the way to go. Small business owners are likely to appreciate its upfront, flat-rate fees and add-on features like Square Analytics, which can give you a bird’s-eye view of new and frequent customers. See our Square review to decide if it’s best for you.
If you’re a new business that’s just getting started and you want to dip your toe into credit card processing, Clover can help. You’ll find flexibility in pricing plans and payment acceptance models. You can skip a POS system in favor of an e-commerce interface or a virtual terminal, which can result in greater ease of use for both you and your customers. Find out more in our Clover review.
Credit card processing is a series of actions that securely move money from a customer’s credit card account to your company’s bank account. It takes multiple parties to do this – credit card companies, banks and processors – and each of them takes a portion of the transaction fees you pay the processor in exchange for their services.
Credit card processing helps your business by offering your customers more payment options. With it, you can accept all major credit cards and debit cards. With a new credit card reader, your business can accept payments using contactless cards and mobile wallets, such as Apple Pay and Google Pay.
You could just accept cash – and some businesses do – but you risk losing business from customers who prefer to pay with credit and debit cards. According to the Federal Reserve’s report on the Diary of Consumer Payment Choice, 22% of all transactions are paid with cash, 29% with debit cards and 31% with credit cards. Of course, these numbers shift depending on the dollar amount of the transaction, the type of business you have and customer age.
ISO, MSPs and direct processors can set you up with a merchant account and a merchant ID (MID). They then act as the liaison between your business and your customer’s credit card company or bank. They process payments and make sure the money is appropriately withdrawn from a credit card account. Once the money clears all of the processing protocols, it can be transferred to your company’s bank account.
Payment facilitators set you up as a submerchant under their merchant account. The pros of this arrangement are that it’s very easy to set up your account, the company takes care of PCI compliance, and there are usually no monthly or annual fees. The cons are that there are more restrictions on your account, the processor won’t work with certain business types and there are limits on how much you can process. If you process more than $100,000 per year, you’ll be required to get your own merchant account.
When your customer inserts a card into the credit card reader, the data on the card and a request for payment is securely transmitted between the processor, the credit card network and the bank that issued the card. The bank that issued the card authorizes or denies the payment request, and the information is transmitted back through the credit card network, the processor and the merchant bank. At the end of the day, the merchant batches its transactions and the data again travels through these channels to debit the customer’s credit card for the amount of the transaction, and deposits the funds into your business bank account.
The best way to use credit card processing is to accept payments across every channel your customers want to use – whether that’s in person at your physical business location, using a mobile device if you’re working off-site or taking payments online through your website or electronic invoices. Depending on how your business works with customers, you may need to utilize multiple acceptance methods.
No matter which type of processor you work with, you’ll pay transaction fees for every card payment you accept. If you work with a full-service processor, you’ll also pay a variety of other fees.
For each transaction, you’ll pay a percentage of the sale (usually 2% to 4%) and often a per-transaction fee (usually $0.10 to $0.30). If you work with a payment facilitator, there usually aren’t any other fees. But if you want your own merchant account, you’ll have account service fees – such as a monthly fee, gateway fee and annual PCI compliance fee.
It depends on several factors, such as the types of cards your customers use and how you accept them, the processor you work with, and the model it uses to calculate your fees.
Most processors prefer to use the tiered pricing model to calculate your processing costs, but industry experts recommend the interchange-plus pricing model, as it’s more transparent. You’ll want to ask which pricing model the company uses when you call for a quote.
Customers don’t usually pay credit card fees directly. Most of the time, you can include this expense in the prices you charge customers. Although it’s legal in most states to add a surcharge when customers pay by credit card, or to set a minimum purchase requirement, it annoys customers.
What kind of equipment do you need for credit card processing?
Elizabeth Crumbly and Brian O’Connell contributed to this article.