How to Accept Credit Card Payments for Small Businesses: Process, Components, and Fees

Small businesses must consider accepting credit card payments to create their credibility among customers. As per industry standards, businesses that offer the convenience of paying with credit cards, debit cards, and digital wallets tend to appeal to more customers. Payments require a systematic setup and step-by-step processing, inclusive of a service fee of up to 3.5%. Additionally, multiple methods are available for accepting credit card payments, including in-person, online, and phone payments.

Why Small Businesses Should Accept Credit Cards

A 2024 Federal Reserve study showed that 62% of all payments were made by debit and credit cards, 32% by credit, and 30% by debit. Businesses that limit themselves to cash are dealing with a lack of consistent customers.

Beyond the numbers, card payments offer more advantages:

• Higher average transactions: Customers paying with a credit card generally purchase and spend more than they would using cash.
• Faster checkout: Tap-to-pay and contactless transactions are quicker than counting change.
• Better cash flow tracking: Card payments produce digital records automatically, making reconciliation and bookkeeping easier.
• Fraud protection: Card networks provide dispute resolution and chargeback processes that cash transactions cannot match.

The Three Core Components of a Card Payment System

Before accepting the first payment, three core components need to be in place.

1. A Payment Processor

The payment processor handles communication between the business, the customer’s bank, and the business’s bank. Every time a customer pays by card, the processor verifies the card, checks for fraud, approves or declines the transaction, and facilitates the transfer of funds.

2. A Merchant Account

A merchant account is a special type of bank account where credit card funds are held before being transferred to the business’s main checking account. Some modern payment platforms, called payment aggregators, merge the merchant account into their service, removing the need to set one up separately. Traditional processors typically require a merchant account.

3. A Capture Tool

It is the physical or digital method used to collect card details at the point of sale, a card terminal, a mobile reader, an online checkout page, or a payment link. The right capture tool depends entirely on how the business operates.

Methods for Accepting Credit Card Payments

There are different methods available for accepting credit card payments for small businesses. 

In-Person Payments

To accept card payments in person at a retail store, restaurant, or other physical location, businesses can use a standalone credit card machine (EMV-compliant) or a POS system with an integrated payment terminal. Many setups also support wireless or handheld devices for curbside pickup or tableside service.

• EMV-compliant terminals are the standard for fixed-location businesses. They read chip cards, accept tap-to-pay, and protect the business from chargeback liability when used correctly.
• Mobile card readers connect to a smartphone or tablet and accept payments anywhere with a signal. 
• Point-of-Sale (POS) systems combine payment processing with inventory management, sales reporting, tipping tools, and receipt management.

Online Payments

Businesses selling products or services online need a payment method and software that securely transmit card details from the customer’s browser to the processor. Options include:

• Hosted checkout pages are provided by the payment processor, where customers are redirected to a secure payment page to complete the transaction.
• Integrated checkout built directly into an e-commerce website using a payment method API.
• Payment links sent by email or SMS allow customers to pay via a secure browser page without a full e-commerce setup.
• Recurring billing for subscription-based services, where the customer’s card is charged automatically on a set schedule.

Phone and Manual Payments

Some businesses take card details over the phone and key them into a virtual platform, a browser-based interface that works like a card reader but for manually entered transactions. These are classified as card-not-present transactions, which carry slightly higher processing fees, as the card cannot be physically verified.

Credit Card Processing Fees

For every credit card transaction, the business pays a processing fee to the payment processor. The baseline fee is typically between 1.5% and 3.5% of the transaction amount, plus a fixed fee of 10 to 40 cents or dollars.

• Interchange fees are paid to the bank that issued the customer’s card. They are set by the card networks (Visa, Mastercard, American Express, Discover) and vary by card type, transaction method, and industry. Premium rewards cards carry higher interchange fees than standard cards.
• Assessment fees are charged by the card networks themselves, Visa, Mastercard, and others, for using their payment rails. It holds a small percentage of each transaction.
• When interchange and assessment fees are accumulated, the payment processor adds a markup on top. This markup is one of the key components of how credit card processing works, and it is also where processors compete and where negotiation is possible for higher-volume businesses.

Steps to Start Accepting Credit Card Payments

Step 1: Identify how payments will be taken.

Determine whether the business primarily takes payments in person, online, over the phone, or a combination, and which tools and providers to evaluate.

Step 2: Choose a payment processor.

Consider processing fees, funding speed, supported payment methods, customer support, and business management features. Payment aggregators approve businesses quickly with no long-term contracts. Traditional merchant account providers offer more control and often better rates at higher volumes, but involve a more thorough application process.

Step 3: Gather required business information.

Providers typically require a business name and structure, EIN or SSN, bank account details for deposits, and basic information about the business’s sales volume and industry.

Step 4: Set up the account and get approved.

Most small businesses can start accepting credit card payments within one to five business days, depending on the provider. Payment aggregators often offer instant or same-day approval. Traditional merchant account providers take longer due to more detailed underwriting.

Step 5: Choose and set up hardware or software.

For in-person businesses, order the appropriate card terminal or POS hardware. For online businesses, integrate the payment way with the website or e-commerce platform.

Step 6: Test before going live.

Run a test transaction before opening for business. Verify that receipts are generated correctly, funds settle to the right account, and refunds can be processed cleanly.

Accepting credit card payments involves choosing between providers, pricing models, hardware, and compliance requirements for a better experience and long-term benefit. Small businesses must choose the platform that suits them well and test it in advance for security. Moreover, note the processing fees and charges applicable to every transaction. 

Frequently Asked Questions