How to Accept Credit Card Payments
Whether they’re used in person, on a computer, or a mobile phone, credit card purchases are on the rise. In 2018, four million new consumers started using credit cards, and that same year, they were used by 62% of U.S. households. What’s more, 36% of consumers say that credit cards are their preferred payment method, while 33% prefer debit, and only 18% prefer cash.
Accepting credit card payments provides obvious benefits for consumers, from the convenience of not carrying cash to better trackability and the extra incentive of rewards points.
But for small business owners, it’s not always obvious what accepting credit and debit card payments will mean for their business. Professional and consulting firms, home service businesses, retail, restaurants, and many other types of companies that Kabbage works with say that accepting credit card payments is essential to serving their customers, building trust, encouraging repeat business, and increasing your bottom line.
Small business owners would benefit by doing a little research about how to accept credit card payments. This information will help provide customers with an intuitive, convenient, secure experience. Below, we’ve answered some of the most common questions we receive from business owners about diving into the world of accepting credit card payments.
What are the benefits of accepting credit card payments for small businesses?
Accepting credit cards and getting paid faster
Credit card payments are great for customers, but what’s in it for business owners? For one thing, credit cards provide the flexibility to accept payments online, in stores, or via an app. Credit card payments are received more quickly and easily, because there’s no need to mail an invoice and wait for a check or track down cash. Additionally, since payments are processed electronically, it means less physical cash to manage, reducing the risk of money being stolen, and increasing employee safety. Meanwhile, business owners have fewer billing processes to handle and greater visibility into their cash flow.
However, different credit card processing services deposit your funds in different timeframes, so make sure you research various products — like Kabbage Payments, which has next-day deposits* — so you can get your funds faster.
Growing your customer base and your bottom line
Accepting credit card payments can also broaden your customer base. One survey found that 83% of businesses saw increased sales after accepting credit cards. Also, research has found that customers tend to spend more with credit or debit cards. Beyond convenience, offering this payment option can encourage customers to trust your business, particularly when it comes to bigger transactions. More than 80% of customers report feeling safer after seeing trustworthy credit card logos prominently displayed at checkout.
It’s likely most of your competitors are already accepting credit cards, and even if they’re not, adding this capability can be an essential way to differentiate your business. Making payments more accessible will mean more customers and ultimately more sales. But there are some important things to know before getting started.
What types of credit card fees should I expect?
There are some costs associated with accepting credit card payments. Most of these costs come from the processing fees a business owner must pay in order to accept credit card payments. Average processing fees accessible to small businesses range from 2-3% for cards swiped in person, while payments accepted online or via invoice have a higher average processing fee of 3.5%. Typically, this is in addition to a flat cost per transaction and any necessary hardware costs. While the cost will differ depending on the payment service provider you choose, there are a few common types of processing fees to be aware of.
Credit Card transaction fees
These fees consist of 1) a percentage of each sale and 2) a flat fee per transaction. For example, a typical transaction fee may be around 2.9% of the sale plus $0.30 per credit card transaction. They are charged each time your business processes a credit card purchase. Transaction fees don’t all go to the company providing you services directly; they are split between the various entities that are involved in credit card processing, including:
- The issuing bank (your customer’s bank, which charges the receiving bank every time a customer uses their credit card)
- The credit card network (American Express, Visa, MasterCard, Discover, etc., which charges a fixed assessment fee for every transaction)
- The receiving bank (the bank that receives funds on your behalf and deposits them into your account)
- The payment processor is the service between the issuing bank and receiving bank that handles issues like transactional disputes and cardholder verification. This can often be a merchant service provider or payment gateway, which we’ll talk more about later.
Payment processing monthly or Account Fees
Some providers and merchant services charge monthly or annual account fees or charge a monthly fee if you don’t meet a required minimum amount of charges processed each month. Other potential flat fees include fees for paper or online billing statements, payment gateway provider fees (which we’ll talk about in more detail below), or IRS reporting fees. Make sure to do your research or ask a potential payment provider which fees they charge and how often and compare your options before choosing a credit card processing company or service to work with.
However, some companies, like Kabbage, don’t charge monthly credit card processing fees. Kabbage Payments makes it easier for your business to get paid faster with transparent, straightforward pricing. You’ll pay just 2.25% per transaction1 , and you never have to worry about monthly fees, additional fees, or long-term contracts.
Additional incidental fees may also be charged by your payment processor and vary based on the situation. Some providers charge cardholder dispute fees when a customer disputes a transaction. Other times, if you process a large refund or receive a large dispute, your processor may need to pull the funds from your account. If you don’t have enough available to cover the refund, they may charge you a fee similar to an overdraft fee. These fees depend on which provider you work with, so again, be sure to review all applicable fees during your vetting process.
Many business owners will also need to pay to lease or buy a physical device if they want to accept credit card payments in person. There are many different hardware options you can consider. One of the first decisions you’ll need to make is whether you need a mobile device or credit card reader, which connects through a mobile device for mobile credit card processing to accept cards on-the-go or whether you’d like a credit card terminal to use in a physical location. Prices can vary widely based on the type of device, the number of devices you need, and the functionality, anywhere from less than a hundred dollars to over a thousand dollars per device.
Some card reader costs are bundled with a subscription for the provider’s point-of-sale services. As we describe later in this post, the terminal type you use determines what kinds of credit card payments you can accept, from magnetic stripe or chip payments to mobile wallets. Other features worth considering are tipping capabilities, digital receipts, security features, or sales analytics. You’ll also want to consider the quality of customer support you’ll receive.
It may sound like a lot of fees, but processing credit card transactions is a necessary part of your business. Since accepting card payments can increase the number of customers who use your product or the amount they spend, growth in revenue often offsets these fees. Accepting card payments can also open the doors to customers who no longer have a checkbook, carry cash, or want to manage all their payments online. The range in fee amounts and structures underscores the importance of choosing the right payments provider.
Do I need a payment gateway and a merchant account to accept credit card payments?
Merchant accounts and payment gateways are essential to accepting most online payments, but the role of each and the differences between them can be confusing. Here are the basics:
What is a payment processing or merchant account?
A merchant account gives small businesses the ability to accept card payments and is connected to the processor and service provider that obtains authorizations for the transactions. Merchant accounts receive the funds and then transfer them into your business bank account according to a predetermined payout schedule. When you partner with a processor or payment facilitator, this type of account will be included in their services. You may want to consider a processor who won’t charge extra fees.
What is a payment gateway?
This feature is necessary for ecommerce businesses who want to accept online credit card payments on their own website with a shopping cart. The payment gateway connects your online store with your merchant account and serves as a mediator for all the third parties involved, including your and your customer’s bank. Just like merchant accounts, there are fees associated with payment gateways. Some payment providers specialize in online payments and can handle this feature for you and other services like secure payment processing and customer account storage.
What are the different ways I can accept card payments?
Whether you do business in person or online, you’ll want to understand the various ways your business can accept credit card payments and decide what’s best for your customers.
- Swipe credit card machine: Swipe payments, which occur in person and use the card’s magnetic stripe, are the traditional way for customers to use their credit cards in stores. Most card reading equipment allows you to accept swiped payments.
- Chip: The chip feature in modern credit cards has become popular in recent years because chip payments are less vulnerable to fraud than magnetic strip payments when processing in-person payments. If you want to offer this option to your customers, you’ll need an EMV chip card payment terminal. Note that if you accept in-person payments with chip cards and do not have an EMV chip card payment reader, you will be responsible for any fraudulent transactions that would have been caught with a chip reader.
- Mobile wallets and tap payments: One downside of chip cards is that the process can take longer than a swiped card. Mobile wallets and tapped cards offer a speedier alternative by using NFC (near field communication) to quickly translate payment information from a phone app or physical card. With mobile wallets, such as Apple Pay; customers can pay through an app connected to their credit cards. Tap-to-pay cards, where the customer just holds the card near the reader, is another NFC option that also avoids the need to insert a card into the reader. In order to accept these payment options, you’ll need a reader equipped with NFC.
Online credit card processing options:
- Electronic invoicing: If you are a mobile business or accept payments based on jobs completed, the ability to send invoices that can then be paid with a credit card is still crucial. Advances in the invoicing process have solved headaches like paperwork, handling checks, or taking credit card information over the phone. Electronic invoicing options ease the process by allowing businesses to send invoices from their computer or a mobile app, enabling customers to pay with their credit card.
This makes the payment process faster and allows business owners to track an invoice at every step. There will be costs associated with this service — some providers will charge for sending the invoice itself, while others only charge you for the payments you process using the fee structures discussed above.
For example, Kabbage Payments accepts payments in two simple ways: through professional invoices or a custom pay link where customers can make card payments up to $10,000 online. However, there are no monthly fees, additional fees, or long-term contracts you’ll have to endure.
- New credit cards on e-commerce: Accepting “new” credit cards, in this context, means requiring customers to input their card information during each checkout on an e-commerce site. It is a standard option and can be done through most payment gateways and merchant services.
- Stored credit cards: A second option involves enabling repeat customers to store their credit card information for future use. Also known as a “card-on-file payment,” it offers a more seamless experience for repeat customers, who don’t have to re-type their information each time they pay. It also can enable automatic recurring orders and invites your customers to put their trust in your business. To offer a stored credit card option, you will need to work with a secure third-party platform as part of your payment gateway.
What’s the best option for your business?
When thinking about how to accept credit card payments — whether it’s the various fees, account set-up, or security considerations — it can be overwhelming. The process itself doesn’t need to be painful, but it’s important to choose a payment provider you trust. A good vendor should be transparent about all fees, explain exactly what’s required of your business, and help you address your company’s unique needs. Take the time to find a reliable partner for the long haul.
If you are looking at accepting credit card payments for small business, consider partnering with Kabbage Payments so you can better maximize your cash flow and manage your invoicing. With customizable professional invoices to custom pay links, you can send your invoices via email, text, or even the web and get paid up to $10,000 online as soon as possible with next-day deposits.*
*Transactions that are processed by 5 p.m. ET will be deposited in your bank account the following banking day. Any transactions that are processed after 5 p.m. ET will be deposited in your bank account within 2 banking days. Settlement to your bank account may be delayed if transactions are flagged for review.
1. Transaction pricing is subject to change.