Being able to accept credit cards as a form of payment can really help grow your business. It’s an obvious necessity for online sellers, plus is proven to increase in-store sales by 40%. This guide shows you how to accept credit cards for all types of selling needs, plus explains rates, disputes, fraud protection, and more.
Before we dive in, the credit card processing solution that tops our list for small businesses is Square. It’s quick to set up, has tons of features with no monthly fees, and works anywhere you do, in retail stores, on websites, via mobile, and more. Click here to get started today.
Credit Card Processing Terms To Know
If you’re new to accepting credit cards, here are some key industry terms that we refer to throughout this guide:
A Merchant Account is an account that lets you accept and process credit card payments and get paid by the credit card companies. You can get a merchant account from your bank, from an all-in-one payment service like Square, or through independent payment processors like Payline.
These are fees that your Merchant Account Provider charges for their services. Generally, these fees are a percentage of each transaction plus a per-transaction fee for certain types of charges.
Point of Sale (POS) System
POS systems handle payments for in-store sales and generally include a payment screen, credit card reader, receipt printer, and cash drawer. Many POS systems, like Square POS, include features like inventory and sales reporting to help you manage your business.
A payment gateway connects your online store’s checkout page to your payment processing solution. Some processors like Square, PayPal, and Payline include a payment gateway with their service. Other require you to have a separate payment gateway account. Most payment gateways also include a virtual terminal to accept payments for phone sales, invoice payments, and recurring charges.
Shopping Cart Checkout
This is the secure page in your online store’s checkout process that connects to your payment gateway to securely accept customer payment information.
Now that you know these key terms, let’s explore how to accept credit cards for various business needs, the processing costs, and the equipment you’ll need.
How to Accept Credit Cards In-Store, Online, Mobile, & More
It’s important to first understand that accepting credit cards in person differs from accepting credit cards online. Here are the three things you need to know:
- In-person (in-store and mobile) credit card payments require card reading equipment that allows you to physically swipe a card.
- Online (ecommerce and virtual terminal) credit card payments use a payment gateway that lets customers or sales staff enter credit card information into a secure online form.
- The credit card processing fees for in-person sales are lower than online sales since in-person sales carry a far lower risk of fraud.
Merchant account providers differ, too. Some, like Square and PayPal, are all-in-one solutions that support all types of payments from one central account. That means wherever you accept payments: in-store, using a mobile card reader, via an online store, or through a virtual terminal, all sales are managed within a single account and subject to simple, flat-rate fees.
Other merchant account providers require you to have one account for in-store and mobile card reader sales, and another for online store and virtual terminal sales. Having to manage two accounts to cover all of your selling outlets can be time-consuming, plus usually comes with more fees. This is something to consider when deciding on a payment solution.
Since Square does it all with very clear, simple fees, we’ll use them to quickly illustrate how processing fees and equipment differ for various types of payments:
Square’s Credit Card Processing Fees & Equipment
|Payment Type||Square Fee||Square Equipment|
|2.75% per transaction||Card reader or POS Station
(Free to $500)
|2.9% + 30¢ per transaction||Online Ecommerce Store
(Free Square Store)
|2.75% per transaction||Mobile Card Reader
(Free to $29)
|Phone Sales, Invoice & Recurring Payments|
|3.5% + 15¢ per transaction||Online Virtual Terminal
(Free with Square account)
Click the button below to check out Square’s website:
Now let’s take a closer look at how to accept credit cards in each sales scenario.
How to Accept Credit Cards for In-Store Sales
You Will Need:
- Credit Card Reader or a POS System
- Merchant Account with a retail merchant services account or all-in-one provider like Square
How it Works:
To accept credit cards in an in-store retail setting, a credit card reader lets customers physically swipe, insert (for chip cards), or tap (for eWallets like Apple Pay) credit cards to complete their payment. Your card reader is connected to the internet directly or through your POS system, like the one pictured above.
After swiping, inserting, or tapping the card, the payment information is transmitted for approval via your merchant account. Within a moment, you receive confirmation that the transaction was approved or declined. If approved, you complete the sale and your merchant account provider deposits the funds into your account, generally within 1-2 days.
What it Costs:
In-store sales generally have the lowest processing fees since you are face-to-face with your buyer, able to confirm their identity, and physically process the card. Here, the risk of fraud is relatively low. For example, Square charges its lowest fee, 2.75%, for in-store sales. We cover how processing fees and rates work in detail below.
How to Accept Credit Cards for Online Sales
You Will Need:
- Ecommerce Platform with a secure checkout
- Secure Payment Gateway (if not using an all-in-one provider)
- Merchant Account that supports online payments or an all-in-one provider like Square
How it Works:
To accept credit cards in an online store you need an ecommerce platform that, ideally, supports a secure checkout, as shown above. If you choose Square for your credit card processing, you get a free Square online store with your account. Or, Square and other payment solutions work with most top-rated, low-cost ecommerce platforms including BigCommerce, Shopify, and Ecwid.
Depending on your merchant account solution, you might need a payment gateway to accept and process payments in your online store. However, all-in-one solutions like Square, PayPal, and Stripe include a built-in gateway with their service, so they’re often the simplest choice.
When an online customer enters their credit card information into your online store’s checkout page, the gateway encrypts (secures) the information and sends it over the internet for approval via your merchant account. The purchase is instantly approved or declined. If approved, your online store automatically completes the sale and your merchant account provider deposits the funds into your account, generally within 1-2 days.
What it Costs:
Online sales have higher processing fees than in-person sales since you aren’t face-to-face with your buyer. Since you’re not able to confirm their identity in person or physically process the card, the risk of fraud is higher. For example, Square’s processing fee for online sales is 2.9% + 30¢ per transaction, which is higher than their in-store and mobile payment fees. We’ll look at processing fees and rates in detail below.
How to Accept Credit Cards for Mobile Sales
You Will Need:
- Mobile Credit Card Reader
- Smartphone or Tablet
- Merchant Account that handles mobile payments, like Square
How it Works:
To accept credit cards in a mobile sales setting, you need a mobile credit card reader that connects to your smartphone or tablet, like the Square reader shown above. Readers can accept every type of credit or debit card and simply swipe, insert (for chip cards), or tap (for eWallets like Apple Pay), to complete the payment.
The payment information is sent through your cellular or wifi connection via your merchant account for approval. You instantly receive confirmation that the transaction was approved or declined. If approved, you complete the sale and your merchant account provider deposits the funds into your account, generally within 1-2 days.
What it Costs:
Like in-store sales, mobile sales generally have the lowest processing fees since you are face-to-face with your buyer, able to confirm their identity, and physically process the card. Here, the risk of fraud is relatively low. For example, Square charges the same low 2.75% fee for mobile sales as it does for in-store sales. We explore how processing fees and rates work in detail below.
How to Accept Credit Cards Over the Phone & for Invoices and Recurring Payments
You Will Need:
- An Online Virtual Terminal
- Merchant Account with a secure payment gateway or an all-in-one provider like Square
How it Works:
To accept credit cards for phone sales or invoice payments, or to set up automatic recurring charges for memberships or services, you need a virtual terminal. Most payment gateways include a virtual terminal in their service. It allows you to log into a secure screen, enter or key-in your customer’s payment information, and process the charge over the internet. The charge is instantly approved or declined. If approved, your merchant account provider deposits the funds into your account, generally within 1-2 days.
Here’s a look at Square’s virtual terminal in action:
Most virtual terminals provide important features like online invoicing and recurring payments. Online invoicing helps you get paid quickly by allowing customers to conveniently pay invoices online using their credit card. Recurring payments are a handy way to set up automatic credit card billing for all sorts of business needs, from sales and service payments to subscriptions and lessons.
What it Costs:
Like online sales, virtual terminal payments have higher processing fees than in-person sales since you aren’t face-to-face with the buyer. Since you’re not able to confirm their identity in person or physically process the card, the risk of fraud is higher. For example, Square’s processing fees for virtual terminal payments is 3.5% + 15¢ per transaction, which is higher than their in-store and mobile fees.
That sums up the many different ways you can accept credit cards for all types of sales and other business needs. Next, we’ll examine how credit card processing fees work in detail, plus how to handle refunds, charge disputes, and fraudulent activity.
Understanding Credit Card Processors, Rates, & Fees
Above, we touched on the different types of merchant account providers you can use and mentioned that their fees can differ greatly. Now we’ll take a closer look at these differences.
There are basically two types of credit card processing services you can use to accept credit cards. To make it easy, we’ll refer to them as:
It’s important to understand how each works so you can make the best choice for your specific business. Here’s a quick comparison:
How to Accept Credit Cards: Your Processor Options
|Type of Processor||Fee Structure||Best For|
|All-in-One Processors||Simple flat-rate fees||Sellers needing a simple all-in-one solution|
|Traditional Merchant Accounts||Interchange Plus Pricing||Businesses looking to lower processing fees and that don’t need all-in-one simplicity|
|Tiered Pricing||Very large businesses with high sales volumes. Rarely a good choice small businesses|
Let’s explore each in detail to see which is the best solution for your business.
All-in-One Credit Card Processors
All-in-one processors, like our recommended provider, Square, are the simplest way to accept credit cards anywhere you sell. Most all-in-one credit card processors handle in-store, mobile, online, and virtual terminal payments all in one convenient account. Even better, they have transparent, no-surprises fee structures and just a few simple-to-understand processing fees.
For example, here are Square’s simple flat-rate processing fees for any type of payment you might process:
Square Credit Card Processing Fees
|Payment Need||Square Payments Fee|
Mobile payments & in-store POS sales
|2.75% per transaction|
Online store sales & online invoice payments
|2.9% + 30¢ per transaction|
|Virtual Terminal & Recurring Payments|
Phone orders, automatic & keyed-in payments
|3.5% + 15¢ per transaction|
Unlike the traditional merchant accounts, all-in-one providers process all types of cards, credit or debit, under the same fee structure. That way you always know what you’re being charged and why. All-in-one processors also tend to be very easy and fast to set up compared to traditional merchant services. For all of these reasons, most startups and small businesses find all-in-ones to be the best way to accept credit cards.
Traditional Merchant Services Credit Card Processors
Traditional merchant services providers are a great option for higher-volume sellers since their credit card processing fees tend to be lower than all-in-one options. Generally, you’ll see worthwhile savings when your sales reach about $18K/mo.
If you want to go this route, it’s important to understand the different fees they charge because they’re not as straightforward as the all-in-ones. Along with the credit card processing and transaction fees, you might have an account fee, a gateway fee, fraud prevention fees, and more. They sometimes charge different fees and rates for credit vs debit cards and add fees for rewards cards, corporate cards, and so on. So always make sure you’re clear on both the processing fees and any added fees when considering a traditional merchant services provider.
Traditional merchant services providers fall under two different types of fee structures:
1. Interchange-Plus Merchant Services Providers
The banks that issue credit cards and the credit card companies themselves charge a base processing rate to use their service called the Interchange Rate.
Interchange-plus providers charge a fixed markup above that interchange rate. For example, our recommended interchange-plus provider Payline charges:
Interchange Rate + 0.2% & 10¢ per transaction
This means that the merchant services provider (in this case, Payline) adds .2% to the card companies’ interchange rate, plus charges $0.10 per transaction. Interchange rates can vary, but based on an average Visa retail rate (1.51% + $0.10 per transaction), your fee using this type of provider generally will run:
Interchange Rate + 1.71% & 20¢ per transaction
2. Tiered Pricing Merchant Services Providers
Tiered pricing providers charge a different markup for every single type of card you process. Credit and debit cards each have different fees, but that’s not all. Rewards cards, corporate cards, and even airline miles cards have different fees as well, and you never know how much you’re being charged until you receive your bill.
This makes it very hard to understand how much you’re paying to process credit cards. Plus it makes it very easy for the merchant account provider to overcharge your business since tiered billing is confusing to sort out. We don’t recommend tiered pricing providers for small businesses since there are many better options with all-in-one and interchange-plus providers.
How to Know Which Merchant Provider is Right For You
Since tiered pricing is not a very practical solution for small businesses, you really have two main options for accepting credit cards: all-in-ones like Square, or a traditional merchant services interchange-plus provider like Payline.
To decide if an all-in-one or traditional merchant account is best for your business, you need to consider three factors:
- How and where do you sell?
- What is your average monthly credit card revenue?
- What is your average sale amount?
Now let’s explore these factors to help you decide which solution is best for your business.
1. How and where do you sell?
Most credit card processors can handle all types of credit card sales: in-store, mobile, online, and more, but some make it easier to accept credit cards in certain scenarios than others.
All-in-ones like Square provide hardware that makes processing credit cards anywhere a seamless process. Plus, every card you charge is managed in one central account. Most all-in-ones use their own branded readers and point-of-sale hardware, so you tend to have fewer technical or connectivity issues. They also tend to work with many online shopping carts or, like Square, include a free online store.
Traditional merchant services often contract with third-party providers for readers and point-of-sale equipment. This can lead to a more difficult setup, plus getting tech support when needed can take longer. Also, for online sales, you’ll need to connect your merchant account to your online store using a payment gateway, which can add yet another fee.
To sum it up, if you sell in-store, mobile, and online, an all-in-one like Square can be the better choice. But if you sell in high volume in just a retail location, the savings from an interchange-plus merchant services provider might be ideal.
2. What is your average monthly credit card revenue?
Generally speaking, if your average credit card revenue is below $18K/mo., a flat-rate provider like Square is the best choice. If you sell over $18K/mo., an interchange-plus provider like Payline can be more economical.
Comparing Credit Cards Fees by Monthly Revenue: Flat-rate & Interchange-plus
|Credit Card Revenue||Merchant Account Provider||Processing Fees per month*||Service Fees per month||Cost of POS Software per month for in-store sales||Total Annual Cost|
|$12,500 per month||www.SquareUp.com||$343.75||None||None||$4,125|
|$25,000 per month||www.SquareUp.com||$687.50||None||None||$8,250|
*The example uses a Visa retail swipe rate with an average order value of $35.
As shown above, Square is more economical if you’re charging $12,500/mo. in credit card payments. However, Payline is more economical at $25,000/mo. This is because Square charges slightly higher processing fees (2.75%), but doesn’t have any monthly charges. Payline has lower rates (1.71% + $0.20 for Visa) but charges a $15 service fee every month.
The takeaway here is that after a certain revenue point, Payline’s lower rate beats Square’s flat-rate, but under that, Square is the more affordable option.
3. What is your average sale amount?
Overall monthly charges are just part of the equation. Your average sale amount also plays a role in your credit card fees, as you can see in this comparison:
Comparing Credit Cards Fees by Sale Amount: Flat-rate & Interchange +
|Merchant Account Provider||Processing Fee per Purchase||Monthly Processing Fees (at $25,000/mo in revenue)
|$10 average purchase value||www.SquareUp.com||$0.275||$687.50|
|$100 average purchase value||www.SquareUp.com||$2.75||$687.50|
As shown above, Square charges the same rate regardless of the sale value. This is because they charge of a fixed fee of 2.75%.
Payline charges both a percentage rate of 1.71% plus 10¢ per transaction (for Visa payments, the fee is 20¢ in addition to the 1.71%) This makes Payline far more expensive for low-cost items. As the table shows, Payline charges nearly 10¢ more than Square on a $10 purchase. This can add up tremendously over time.
On the other hand, Payline can be significantly cheaper for high-value purchases. The fee was 84¢ lower than Square on a $100 purchase, and this becomes even more pronounced as the sales values increase.
Clearly, you need to consider more than just the processing rates and fees when choosing a merchant account. It pays to do some homework and run your numbers to see which credit card solution offers the best range of services at the best cost for your unique needs.
So, we’ve discussed many ways to accept credit card payments, how rates and fees work, and what to look for in a credit card payment provider. Next, let’s look at how you can handle common credit card processing issues and prevent costly losses.
Tips for Handling Refunds, Disputes & Chargebacks
Like it or not, refunds, disputes, and chargebacks can occur when you accept credit cards. You can minimize them by being upfront with your return policies and, if selling online in particular, having detailed product descriptions for every item you sell. Here’s a look at how to handle all three:
Part of providing great customer service is offering hassle-free refunds for returned, damaged, or defective merchandise.
How it Works:
Refunds are processed using the same system that you originally used to process the sale. Basic in-store credit card processing equipment may require you to swipe the card for a refund, but most modern POS systems just let you reverse the charge via the onscreen dashboard (so it’s okay if your customer didn’t bring the card they used for the purchase). Mobile payments, online sales, and virtual terminal refunds all can be processed onscreen, too.
Most payment processors have a time limit on refunds, often between 60 days to 120 days. This is important to note for your return policies. If you have an unlimited timeframe for returns, you won’t be able to credit the payment back after a certain date. But, you can always offer a store credit instead.
Once you process a refund, your merchant provider removes those funds from your daily deposit. If the refund exceeds that day’s deposit, your processor deducts the difference from your bank account the following business day. After that, it takes about 2-4 business days for the refund to appear in your customer’s credit card account.
What it Costs:
Most processors will charge you a transaction fee to process a refund, but a few, like PayPal, actually refund some or all of your original transaction fees. This is something to consider when selecting a payment provider, especially if you sell products with a high return rate, like apparel.
Disputes & Chargebacks
Every so often a customer will dispute a charge. Here are a few of the reasons you may encounter this:
- They don’t recall the purchase
- They didn’t receive the item (in the case of online sales)
- A family member made the purchase without permission or knowledge
- The customer is unhappy with the item or service but doesn’t want to go to the trouble of returning it or requesting a refund
How it Works:
When a customer disputes a charge, your merchant account provider sends a notification with all of the details and provides you a form to document and submit key transaction information. How a dispute is resolved depends on several factors, but you never want to ignore a notification. If you do, you’re guaranteed to lose money through a chargeback, which we detail below.
If a customer disputes a charge because they don’t recognize the transaction, a quick call to your customer usually clears up any confusion. In this case, the customer contacts their card provider and clears the charge. However, it’s always best to respond on your end as well and note your conversation with your customer on your dispute form.
In cases where a customer claims an item did not arrive (for online sales), that it was defective, or that the charge was fraudulent, you need to submit information to defend the charge. But know that many times these cases are decided in the buyer’s favor. Sometimes it’s best to just refund the charge in question so you don’t have a chargeback.
A chargeback happens when the customer’s credit card company sides with the customer in a dispute and deducts money from your account to refund the charge. If you have a high rate of chargebacks, you risk paying higher processing fees or having your account suspended altogether. So it’s important to understand why chargebacks happen and how to minimize them. Chargeback services can help too if you’re encountering many disputes.
What it Costs:
Usually, the funds in question are removed or frozen for the duration of the dispute. Plus, you’re billed a chargeback fee of around $25.00. If you win the dispute, the funds are released to you and the fee usually is refunded. If you lose the dispute, the funds in question and the fee are deducted from your account. If you don’t respond to the notification promptly and provide all details, you may also be charged an additional fee or risk account suspension.
Handling refunds, disputes, and chargebacks in a timely manner is important to maintain a healthy merchant account, but that’s not all. You also need to protect yourself from thieves who use credit cards to steal in many creative ways. Here’s how.
How to Protect Yourself From Credit Card Fraud
Credit card fraud is another reality you face when you accept credit cards, but there are ways you can protect yourself. Most top merchant account providers and all-in-one solutions offer powerful fraud detection tools and you should put these in place per their direction. Plus, always be sure to do the following:
For In-store and Mobile Transactions:
- Verify identification with a photo ID for in-person transactions
- Visually check the signature and name on the card against the ID provided
- Don’t offer cash refunds for credit card charges, refund the amount only to the original card
For Online and Virtual Terminal Transactions:
- Use a secure ecommerce solution with a secure checkout
- Use a secure payment provider and gateway that requires Address Verification Service (AVS) with ZIP code and street address match
- Use Card Identification Number (CID) verification that requires customers to enter the 3-digit code on back (Visa and MasterCard) or the 4-digit code on front (American Express)
- Require contact information including phone and email
- Follow applicable PCI-security standards and don’t store any payment data on your own computer
These steps can help protect you and your customers from fraudulent credit card activity. If you suspect that a fraudulent charge has occurred, report it to your merchant account provider immediately and refuse the sale.
The Bottom Line
Most people find the subject of credit card processing complicated and difficult to understand. However, it’s essential that you understand the basics to avoid putting the wrong solution in place and paying more than you should when you accept credit cards.
When your monthly card sales exceed $18K per month, you might consider an interchange-plus model. We recommend Payline because they provide one of the lowest processing rates in the industry. At this point, we also suggest trading-up from free to paid POS software, to benefit from more advanced inventory, employee management, and CRM modules.
If you are just starting up, your monthly card sales are less than $18K per month, or most of your purchases are low-value (below $25), then we recommend using Square. It’s quick to set up, comes with many free features like POS software, an online store, and business management tools, and works anywhere you want to sell. Swipe readers are free, or you can spend $29 on a reader that processes swipe, chip, and eWallet payments.