Small business credit card processing

Credit card processing is essential for small businesses today. In addition to being more convenient than cash and checks, card payments offer many other benefits for consumers and merchants alike. It’s for this reason that card payments continue to grow more rapidly than any other payment type.

Let's take a closer look at the advantages of small business credit card processing, and answer the following five "W" questions:

• Why should a small business accept credit cards?
• Where will customers pay?
• What do I need to know to accept credit cards?
• Who do I ask for more information?
• When should I get started?
• Bonus: How much will it cost?

Why should a small business accept credit cards?

There are several benefits for small business credit card processing, including the following.

Credit cards are easier to use than other payment types. Consumers don’t have to carry cash or checks, which are vulnerable to loss or theft, and merchants don’t have to go through the hassle of manually depositing those types of funds into their account.

Accepting cards helps improve cash flow. Unlike check payments that can be unreliable and can take days to clear, payment card transactions are deposited directly and quickly into a merchant’s bank account, offering faster access to funds to pay employees, vendors, and other bills.

Accepting cards can help boost sales. Consumers tend to spend more when paying with a credit card, make purchases more frequently, and make more impulse purchases than those using cash. More customers, more repeat customers, and customers spending more money mean more sales for your growing business.

Credit card acceptance helps legitimize your business. When you accept payment from the world’s leading financial brands like Visa, Mastercard, and American Express, you show your customers that you are serious about your business. Credit card processing brings your business into the economic mainstream, which helps build your customers’ trust and confidence in you.

Credit card payments can help streamline operations. Credit card processing offers an official record of transactions and reduces duplicate accounting effort, making reconciliation, tax preparation, and other business tasks easier. Additionally, accepting credit cards reduces the amount of cash needed on hand— cash that has to be counted, stored, and transported.

Accepting cards sets your business up for the future. Credit card processing paves the way for accepting digital wallets such as Apple Pay, Google Pay, and Samsung Pay. The latest advancement in credit card acceptance allows consumers to pay using their smartphones and is quickly gaining the interest of consumers. Crafted to be smart, fast, and secure, digital wallets are leading the charge into the future of payments.

Where will customers pay?

That may sound like a silly question. “My customers will pay at my business.” When you think about it, though, you’ll find there’s much more to it.

Consumers expect options— in the products and services they want, and in the ways they can pay for their purchases. Credit card processing providers have responded with more and more ways to pay, including via chip and contactless cards. The good news is that this means an expanded footprint for your cash register. The flipside is that your options are more complicated compared to ten or even five years ago. Let’s take a look.

In-store. There are many options to choose from, ranging from a simple standalone card terminal to a robust, fully integrated POS system. Mobile payments and EMV technology are also on the rise, and having the equipment to accept these payment types demonstrates that your business is committed to the future.

Online. Online retail sales in the US were up 15% to $517 billion in 2018, giving small businesses the opportunity to benefit from selling outside their immediate geographical area. With no slowdown in growth on the horizon, eCommerce is synonymous with commerce. If you want your fair slice of that massive and growing pie, you’ll need to set up credit card acceptance online.

On the go. Trade show? Street fair? Pop-up event? A secure mobile payment option like a virtual terminal or a mobile terminal makes it possible for merchants to accept payments offsite, offering additional customer convenience. Businesses can also use a virtual terminal to accept payments in-store but away from a dedicated checkout location. This is especially convenient for “line busting” to serve more customers during busy times, or for businesses that sell items that are not convenient to take to a checkout counter, such as a lumberyard.

Over the phone, via mail order, or even via fax. Like eCommerce, MOTO and fax transactions are another type of card not present (CNP) processing. Some consumers prefer to give their credit card details to a person over the phone when placing an order, particularly if they have other questions about the product or service they are purchasing.

And that’s just the beginning. Small business credit card processing also enables merchants to accept recurring payments for routine orders or subscription services. And innovations in ACH (eCheck) transfers offer potentially dramatic cost savings with ever-increasing processing speed.

What do I need to know to accept credit cards?

This is a broad question, so we’ll focus on three key areas: the equipment you need, the players involved, and the payment terms you should know.

The equipment you need

The equipment you need for small business credit card processing will vary by the nature of your business. For example, if you have a brick-and-mortar location, you’ll want to explore options for a point of sale (POS) terminal and an integrated point of sale system. Small retail businesses may find that a standalone terminal is sufficient, but larger retail operations or restaurants may need a more robust integrated POS system. Today’s processing devices offer more capabilities than just accepting credit cards to complement other business systems such as accounting and payroll.

If your business is not confined to a brick-and-mortar location, you may want to consider mobile payment processing options that turn a smartphone or tablet into a credit card processing terminal. Whichever type of processing equipment you choose, make sure it is enabled to accept EMV chip cards. And be sure to consult with your payment processing provider before investing in credit card processing equipment, since not all processors are compatible with all devices.

The players involved

In addition to payment processing equipment, there are a number of key players involved in credit card transactions, from the initial swipe, dip, or wave, all the way through the deposit of funds into your business bank account. It’s worth familiarizing yourself with the following:

1. A payment processor, which manages credit card payments for merchants. Payment processors offer merchant services, coordinating and integrating the payments process by routing transactions to the proper parties and networks. Payment processors sometimes offer other services that are designed to help businesses run more efficiently and grow reach and revenue.

2. A merchant account, which is like a regular business bank account that is specifically dedicated to receiving funds from credit card transactions. Often, an acquiring bank also acts as the merchant account, and sometimes the merchant account is a part of a merchant services package. Merchant accounts aren’t for everyone, however, and many merchants turn to a payment facilitator, which serves multiple merchants by boarding them under one, master merchant account.

3. The card brands including Visa, Mastercard, American Express, and Discover make all the magic of credit card processing possible. The card brands, along with all other parties, give their stamp of approval on the credit card payment.

4. An issuing bank, which provides credit cards to consumers. Funds for approved transactions are removed from the issuing bank account and deposited into the merchant account before arriving at its final destination, your business banking account. The process that once always took several days to even weeks is getting shorter all the time, with the holy-grail of next-day or even same-day availability now within reach.

Payment terms to know

acquirer: a financial institution—typically a bank or credit union—that processes credit and debit card payments for a merchant. The acquirer allows merchants to accept credit and debit payments from issuing banks within an association network (such as Visa). An acquirer is also known as an acquiring bank, merchant bank, or merchant acquirer.

assessment fees: charges associated with each credit and debit card transaction paid to the respective card associations (Visa, Mastercard, American Express, etc.).

card present (CP) transactions: credit and debit card purchases that involve the presentation of a physical credit card by the customer to the merchant. Card-present transactions are significantly more secure now that more and more merchants have integrated EMV technology, significantly reducing the rates of in-store fraud.

Card not present (CNP) transactions: credit and debit card purchases in which a merchant honors the account number associated with a card account without the physical plastic card being present. All eCommerce transactions are CNP.

digital wallet: a system that stores payment information (e.g. a credit or debit card) in a smartphone and allows the user to make purchases without a physical card, such as Android Pay and Apple Pay.

integrated payments: when the payment processing solutions is built into the point-of-sale solution in order to work with other business systems such as accounting, customer relationship management, and inventory management.

mobile point of sale (mPOS): a smartphone, tablet, or dedicated wireless device that functions as a mobile cash register terminal by accepting credit cards, either with an attached dongle to swipe/dip or via a virtual terminal.

Near Field Communication (NFC): a set of standards for smartphones and other devices to establish radio communication with each other by bringing them into close proximity.

payment gateway: a hosted payment software service that connects merchants to their acquiring bank’s processing platform.

point of sale (POS): refers to the location(s) where a transaction is consummated by payment for goods or services received. Once fixed, given the new mobility in credit card acceptance methods the point of sale is now a more fluid concept. Point of sale also refers to the actual device or integrated system performing the transaction.

Who do I ask for more information?

When you’re searching for the right credit card processing option for your business, it makes sense to do your research and ask other professionals for advice and recommendations. Your business is unique, but you don’t need to reinvent the wheel. Learn from real-life experts.

Other business owners as well as business community associations can be helpful resources. Find out what merchant services providers they use and what they like (and don’t like) about their provider and processing equipment. Ask about their experience with payment processing pricing and fees and pricing transparency. Find out about payment security, customer service and support, as well as options for mobile and online processing.

Another good source of information is your financial institution where you have your business accounts. Many banks and credit unions offer payment processing services so you can take care of all your business in one place. Be sure to ask all the same types of questions that you’ve already asked your colleagues.

You can also turn to a reputable POS dealer for referrals on both equipment and payment processors. Ask the same questions mentioned above regarding rates, customer support, and processing options. Don’t forget to ask about security, too.

Another option is to go directly to an experienced and established payments technology company like Worldpay.

You can put your top choices to the test by using our payment processor comparison checklist. This simple checklist helps you narrow down the aspects of payment processing that are most important to your business.

When should I get started?

There is no time like the present. If you need more information or have all your questions answered and are ready to get started, contact Worldpay. If you know what your business needs, chances are we have a customizable solution for your situation. Once you’ve made your decision, getting set up for small business credit card processing is fast and easy.

Bonus: How much will it cost?

Now that you know the five Ws of processing credit cards, you may be wondering how much it will cost. While you want the most transparent pricing possible, the short answer is that it depends. The good news is that you don’t have to be an accounting whiz to understand exactly how it depends.

There are fixed and variable costs to credit card processing. Fixed costs are the same for each class of transactions, like a rate structure for a utility. These fees include interchange rates, which are set by Visa, Mastercard, Discover, and American Express. Accepting debit, gift, and pre-paid cards also carry fixed costs.

Variable costs depend on a number of things including the type of business, the average dollar amount per transaction, the expected volume of transactions, and other factors. Variable costs are also based on risk factors specific to the business, similar to how consumers pay different interest rates depending on their personal risk factors.

The bottom line is that the cost of small business credit card processing can vary considerably.

But there are ways to manage the overall costs. Here are three steps you can take to get a better handle on the cost of accepting cards:

1. Shop around.There are many options when it comes to credit card processors. Like most things, the least expensive service may end up costing more in the long run. Leading merchant service providers offer a variety of services including security and fraud protection, transaction reporting, and comprehensive customer service.
2. Review your service regularly.Managing the costs associated with accepting credit and debit cards is not a one-time event. As your business grows and evolves, you may be able to negotiate better rates. Periodic reviews of your business’ payment processing service are as important as getting an annual physical for yourself.
3. Understand your risk tolerances.Work with your processing partner to establish a risk tolerance that’s right for you. Sometimes there are tradeoffs. You want to create easy checkout experiences for your customers, but everyone needs the transaction to be safe. Your processor can help you dial in the right balance.

When selecting a credit card processor, be sure to evaluate each option based on the entire package including price, service, and reputation. A little due diligence can go a long way to make sure you are getting the best protection at the best price.