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Digital payment options have become more sophisticated and accessible over the past decade, while cash transactions have, in turn, become less common.
- According to a 2022 Pew Research Center study, 41% of Americans typically don’t use cash to pay for any transactions per week, up from 29% in 2018.
- As of the third quarter of 2022, there were approximately 526 million credit card accounts across the country, an increase of 31.7 million from 2021, according to research by Experian.
With the rise in credit card usage, accepting credit card payments is now a vital part of increasing sales and improving customer satisfaction if you are a small business owner. This is especially true if your business is partly or wholly online, as paying in cash is not an easy option for online purchases or payments. Accepting credit cards can also help streamline your business finances and reduce administrative costs, which is a beneficial benefit for any type of business owner.
Accepting credit card payments is pretty easy, no matter what kind of business you run. However, before you get started, it’s important to understand the steps to accept credit card payments, the fees associated with processing credit cards, and the different ways you can receive credit card payments.
How to set up business credit card payments
While the correct type of credit card processing may vary depending on the type of business you have, the steps to set up credit card payments are generally the same for everyone. Here are the steps you can take when setting up your business to accept credit card payments.
Step 1: Set up a seller account
Start the process by opening a merchant account with an acquiring merchant bank. The trading account withdraws funds for transactions made by clients and acts as an intermediary between the client’s credit account and the company’s current account. Instead of businesses having to wait to receive funds, commercial banks allow businesses to immediately access money from customer transactions.
Step 2. Choose a payment system.
You will then need to select a credit card processing service provider, also known as a merchant service provider, that will allow your customers to make electronic payments. The credit card processor provides the infrastructure to move funds from a customer’s credit card account to a business bank account.
There are many credit card processing providers out there, and choosing the right one for you will largely depend on whether you intend to process transactions in person, online, or over the phone. Internet companies should choose processors that can easily integrate with their websites and provide payment gateways. Businesses with personal presence require point-of-sale (POS) systems and, in some cases, payment terminals. Once you have identified the right option, your processor will provide you with services and equipment to process credit card transactions.
Step 3: Set up payment terminals
The last step is choosing and setting up payment terminals for your business. Payment terminals are hardware, such as a credit card ATM, that customers use to swipe or tap to pay for a transaction.
Most credit card processors offer their own hardware. If you have a physical store, you usually order and set up your own hardware, which is usually a POS system and credit card readers. Many consumers prefer to touch their card or phone when paying, so it may be beneficial for you to choose an RFID-compatible machine.
If your business is primarily online, make sure your website is fully integrated with your credit card processor, either by hosting your website entirely on an e-commerce platform or by having a web developer help you integrate your merchant service provider into your web. -website. .
Various types of payment
Credit card payments are made mainly in three ways: in-store, online, and over the phone. Each of them presents a different level of risk and requires different technologies for processing. Each type of payment also has its own processing fee.
Payments in the store
Most conventional businesses such as clothing boutiques, cafes and food trucks accept payments at the store. To process personal transactions in physical stores and other in-person services, there is usually a POS system and a card reader or similar system such as a phone app that can process payments.
For in-person payments, the cardholder and credit card are present, and the payment terminal authenticates the transaction with the cardholder’s bank and conducts fraud checks within seconds. These transactions are considered relatively low risk, and credit card processors typically charge a lower transaction fee in return.
E-commerce websites, software-as-a-service companies, and even restaurants with online ordering systems process online transactions. Online payments require a payment gateway to protect information as payment details move between the cardholder, merchant, acquiring bank, and card issuer.
These transactions are considered more risky than personal payments due to the ease with which a fraudulent transaction can be made using a stolen credit card number. Therefore, the fees for processing online payments are usually higher.
Transactions without presenting a card are quite risky, since the buyer must provide his credit card information over the phone to the merchant, who enters the information into a card reader. A lot can go wrong with these types of transactions.
To make transactions without a card, you will need either a card reader and a POS, which is necessary if you are making a transaction in a store, or a payment gateway if you are receiving an order for your online store through your customer service line. Since this type of payment carries a high risk, credit card processing providers tend to charge higher fees. Your business must also keep a record of your transactions to prevent fraud and chargebacks.
Credit card processing fee
Credit card processing providers will charge you for their services, which include checking for sufficient funds at the cardholder’s bank and fraud. Fees may be higher for some payment processors than others, and may also be higher for some types of credit cards.
The processing fee is usually between 1.5% and 3.5% of the value of each transaction. Fees can usually be divided as follows:
- Exchange fee: These fees are charged by card issuing banks on a per-transaction basis towards the cost of approving and authorizing transactions. They also differ depending on the type of card.
- Evaluation fee: The four major credit card networks — Visa, Mastercard, Discover, and American Express — charge these fees on every credit card transaction.
- Payment processor fee: These fees cover the cost of connecting and transferring payment data between merchants and banks. This includes monthly fees, hardware fees, wireless access fees, bundle fees, and transaction fees.
Accepting credit card payments is a key component to running a successful business. It is convenient for your customers to pay with a card, as many do not carry cash with them, and this can also help increase sales. While it’s usually easy to set up your business to accept credit card payments, it’s important to understand the different types of payments and their associated processing fees before choosing an option. Explore the various credit card processors and their services to get your business set up for success.