How to Accept Credit Card Payments

7 min read • Jun 15, 2021 • Barry Eitel

As more American consumers utilize next-generation payment methods like touchless transactions or smartphone payments, there’s a general sense that we’re headed toward a cashless world. However, there are still plenty of small businesses that operate exclusively in cash—and will continue to do so for years to come.

If you’re trying to decide whether you should accept credit card payments, it’s never been easier. While it might not be the clear choice for your business right now, you should at least be aware of the credit card process in case you want to accept these types of payments in the future.

The process to accept credit card payments will vary based on what sort of business you own, how you currently accept payments, and what type of credit card processing system you choose. This guide will help you to decide whether you should take advantage of the estimated 374 million open credit card accounts in the United States.

Why Accept Credit Cards?

Banks, credit card companies, and financial media outlets will tell you that you should definitely accept credit cards as a small business. There is a fair amount of data—and probably your own lived experience—to back up the notion that businesses that accept credit cards are poised to make more money.

Think about your own shopping—there have probably been situations where you had no cash on you or not enough cash to buy all the items you wanted. Furthermore, obtaining cash itself can often be inconvenient, costly, or impossible.  

Years of studies and polls back up the claim that credit card users make more purchases and spend more per transaction. The average non-cash—usually credit card—transaction was $112 in 2016, compared to the average $22 value of a cash transaction, according to a recent study by the Boston Federal Reserve.

Another economic phenomenon surrounding credit card use is so-called “payment coupling.” Payment coupling is the association between purchase decision-making and the actual separation of a customer from their money. A landmark 2008 study found that credit cards ease the “painful” part of shopping, i.e., seeing your wallet or bank account get reduced.

“The conceptual underpinning of our research is that payment modes differ in transparency or the vividness with which individuals can feel the outflow of money, with cash being the most transparent payment mode,” the American Psychological Association study posits. “We argue that the more transparent the payment outflow, the greater the aversion to spending or higher the ‘pain of paying,’ leading to less transparent payment modes such as credit cards and gift cards (vs. cash) being more easily spent or treated as play or ‘monopoly money.’ Further, to the extent that the transparency of paying underlies differences in spending behavior, altering the salience of parting with money should attenuate the difference across payment modes.”

Why You Might Not Be Able to Accept Credit Cards

There can be a few reasons why it could be very difficult—or even impossible—to accept credit cards. Unless you want to use a manual credit card imprinter, you need a reliable internet connection to accept credit cards. Your brick-and-mortar store might also be located where cash is common—retailers in urban or very rural areas might serve customers who are accustomed to carrying around a good amount of cash.

Why You Might Not Want to Accept Credit Cards

The biggest reason not to accept credit card payments, for many business owners, is the small fee charged to conduct every credit card transaction. These fees add up—which is why some businesses are still cash-only, especially in areas where customers carry a lot of cash. There is also a much greater paper trail with credit card payments—and there might be reasons you want to limit this trail, although these reasons are often illegitimate. It’s also possible that your business is set in its ways and doesn’t have a culture of adapting to new practices.

How Can I Accept Credit Card Payments for My Small Business?

If you decide to accept credit card payments, there are a few ways to do so. You’ll want to think about how your business operates and is structured. Shopping with a credit card is common these days because there are so many ways to conduct credit card transactions—in recent years, revenue-minded payment processors have been aggressive in making the process as simple as possible. With a little bit of planning and research, you can find a credit card payment system that works for you.

Types of Businesses That Can Accept Credit Cards

Basically, any business that sells goods or services can accept credit cards. This is true whether you are a small business with employees or a sole proprietorship with no employees besides yourself. Brick-and-mortar stores, e-commerce retailers, and mobile businesses—like food carts—can also all offer credit card payments, but there are different options depending on how you’re established.  

Different Ways Businesses Accept Business Cards

Depending on how you operate your business, there are probably several options for accepting credit cards. If you run an online-only business, for example, you might find that credit cards are the easiest way to accept payment. You might have some choice here, too—many brick-and-mortar businesses have switched to mobile payment providers instead of the traditional credit card processors.

Start With a Merchant Account

Before accepting credit card payments, you need to set up a merchant account. A merchant account is a type of bank account that processes your customers’ credit card payments and puts money into your business’s bank account.

Merchant accounts charge for each transaction, but the fee varies widely based on your situation. Expect a charge amounting to a percentage of each purchase, often between 0.5% and 5%, along with a flat fee per transaction, usually from $0.20 to $0.30. Some also charge monthly or annual fees.

In-Person Credit Card Payments

If you want to set up traditional in-person credit card transactions like you would find at a typical restaurant or retailer, you need to buy a Point of Sale (POS) system. This set of hardware and software will enable you to accept credit cards. These systems include credit card readers that communicate to your merchant account.

Mobile Payments

Mobile payments, also called Payment Service Providers (PSP), require less investment than a standard merchant account. Common examples include Square and Stripe. Many PSPs now combine a merchant account with a POS system, which is why they’ve become very popular among small businesses. As PSPs disrupt the POS field, you should look at your options’ terms and fees to make the best choice. Typically, PSPs are easy to use and inexpensive to set up, but a traditional merchant account system might be more negotiable and cheaper to use as your business ages and expands.

Online Credit Card Payments

For e-commerce operations, accepting credit cards is fundamental—there’s likely no other easy way to accept payment. Fortunately, however, no hardware is required. The website you use for your store, like Etsy, might also enable easy-to-use credit card payments. Many PSPs and e-commerce gateways, like PayPal or Shopify, offer apps or widgets that you can put onto a website. Many even allow you to sell items through social media.

What’s the Cheapest Way to Accept Credit Cards?

The cheapest way to accept credit cards depends on how you want to save money. If your business is very small or new, a PSP is probably the least expensive way to accept plastic. The basic PSP hardware is cheap, and the services usually charge a percentage of each transaction along with a flat fee per transaction. Because of this, if you operate a high-transaction business, the PSP fees can add up.

A merchant account might be more expensive in the short term—a POS usually requires a large initial investment. The per-transaction fees over time, though, are often cheaper than a PSP. You should research your options and costs before deciding.

How Much Does It Cost to Accept a Credit Card?

Each credit card company, like Visa and Mastercard, charges merchants a small percentage for every transaction. This processing fee usually ranges from 1.5% to 3.5%. On top of this, you will also pay fees to your merchant account or PSP. These range from about 1.5% to 3%, along with a flat fee of $0.10 to $0.30 per transaction. Some processors favor a flat monthly fee instead of a flat transaction fee. After all these charges, a credit card purchase likely costs you between 4% and 7% of the value of the transaction. 

Barry Eitel

Barry Eitel has written about business and technology for eight years, including working as a staff writer for Intuit's Small Business Center and as the Business Editor for the Piedmont Post, a weekly newspaper covering the city of Piedmont, California.