How to Accept Credit Card Payments as a Small Business

The reign of cash as king is coming to an end. Today’s consumers use non-cash payment methods for 74 percent of transactions, according to a 2020 Federal Reserve study.

Thanks to their enhanced security features, generous spending limits and rewards—plus the rise of online shopping—credit cards are more popular than ever. In fact, credit card transactions account for 29 percent of all transactions, according to the study.

We’ve created this guide to help small-business owners and side hustle entrepreneurs weigh their credit card processing options. Here’s what you need to know:

How to accept credit card payments

1. Find a credit card processing provider for your small business

There are many payment processing providers that offer similar services.

Consider what portion of credit card transactions you will process in person, online and over the phone. Also, think about what type of credit cards you’ll accept: Visa, Mastercard, Discover, American Express and so on. Processing fees vary between transaction types and card networks. It’s in your best interest to find the provider that offers the most competitive fees for the type of transactions and credit cards that you’ll be processing the most.

You should also consider the volume of transactions your business will be processing, as some providers offer better rates for processing more transactions.

If you run an online-only business, make sure the payment processor you choose integrates easily with your website. For brick-and-mortar businesses, research what hardware you’ll need to purchase—like payment terminals—to see if they’ll be compatible with your current point of sale (POS) system.

Starting the research process can be overwhelming. We’ve recommended some of the best and cheapest ways to accept credit cards for small businesses later in this guide to help you get started.

2. Open a merchant account

After choosing your credit card processor, create a merchant services account with them. While you may already be using popular providers like PayPal for personal transactions, you’ll need to establish a separate business account to enable your company to accept credit card payments.

Creating a merchant account typically involves providing some information about your business and setting up a connection with your business’s bank account where money will be deposited.

3. Set up payment terminals

The final thing you have to do to accept credit card payments is set up payment terminals across your business.

If you have a brick-and-mortar shop, this step involves ordering and setting up hardware, like a card reader and a POS, if you don’t have one already. There are many card readers on the market: ones that let you accept payments via a swipe, an inserted chip or a contactless tap.

If you do any sales online, you’ll need to set up online payments. If you’re using an e-commerce platform like Shopify, their payments portal will come with their e-commerce platform. If you’ve built your own website, you may need technical support from your card processing provider or website developer to add credit card processing for small business on your website.

Don’t forget to look for training resources from the payments processing provider to understand how to make the most of your hardware and software.

Accepting credit cards in person, online and over the phone

There are three main paths to “we accept credit cards!” Businesses can choose to accept credit card payments in person, online and over the phone. These methods come with their own technology needs and incur different fees.

In-person payments

In-person credit card processing is useful for brick-and-mortar retailers, on-site service providers (like plumbers) and mobile business merchants (like food trucks or farmers’ market vendors).

These transactions involve the customer presenting the card to make a purchase. Because the cardholder and card are present for these types of transactions, they pose a lower risk of fraud, so in-person transactions typically have lower fees than the other types of transactions.

You’ll need a card reader and a POS system to process credit card payments in person.

Online payments

E-commerce shops, restaurants that accept orders online and companies that provide digital services are examples of businesses that rely on online credit carding processing.

Online transactions typically have higher processing fees than in-person transactions.

If you want to accept online credit card payments you’ll need a digital storefront, such as an e-commerce store or website, and a payment gateway.

Over-the-phone payments

Card-not-present transactions typically take place over the phone and are commonly used by restaurants to pay for takeout orders. This process involves the customer sharing their credit card number with the merchant, and the merchant manually entering that information into their card reader.

These types of transactions typically incur the highest processing fees because they pose the greatest risk for fraud.

In order to process credit card payments over the phone, you’ll need a credit card reader and a POS or an online payments gateway.

Credit card processing fees for small business

Credit card processing providers charge fees for the services they provide, like conducting fraud checks and verifying with the cardholder’s bank that funds are available. The payment terminal conducts these critical security measures in just a few seconds as soon as a customer swipes, taps or dips their credit card.

So, what’s the average fee for credit card processing for small businesses? There are usually no monthly fees for credit card processing. Instead, most providers charge fees per transaction. While fees vary based on the type of card (Visa, Mastercard, American Express or others) and processing provider (such as  PayPal, Stripe, Square), they typically range from 1.5 percent to 3.5 percent per transaction. American Express tends to charge higher fees than its competitors, which is why some businesses don’t accept Amex cards.

Average credit card network processing fees

Credit card network	Processing fee range
American Express	2.5 percent to 3.5 percent
Discover	1.56 percent to 2.3 percent
Mastercard	1.55 percent to 2.6 percent
Visa	1.43 percent to 2.4 percent

The best way to accept credit cards for small business

As a savvy merchant, you’re probably looking for the best and cheapest way to accept credit cards. The bad news is, there is no one-size-fits-all solution.

Here’s the good news: if you weigh your business’s needs—like the volume of transactions and where these transactions take place—you should be able to narrow your search down to several providers that offer convenient solutions at favorable rates.

To help you get started, we’ve compared five of the most popular credit card processing providers for small businesses. (Note the fees below are all based on transactions in USD. Rates vary by currency.)

PayPal

Best for in-person retail

While PayPal began as a way to send money to friends and family online, the company now offers various merchant solutions for processing credit cards both online and in person.

Pros

• PayPal is a widely trusted name that can help build confidence with your customers.
• Transaction fees are competitive with other providers.
• Many different options for processing credit cards, including PayPal Checkout for online payments, the PayPal Here point of sale system and PayPal Invoicing for billing for services.

Cons

• PayPal’s extensive offerings can make it difficult to decipher the differences and choose the one that works best for your business.
• Many account services, including chargeback protection, account monitoring and recurring billing, require additional fees.

Fees

PayPal charges the following processing fees for credit card payments:

• In-person transactions: 2.7 percent + $0.30 (e.g. $25 transaction = $0.98 fee)
• Online transactions: 2.9 percent + $0.30 (e.g. $25 transaction = $1.03 fee)

Shopify

Best for e-commerce

Shopify is an e-commerce platform that helps businesses sell products online. With Shopify Payments, they also support in-person and online credit card payments.

Pros

• Built to be used with Shopify’s signature e-commerce platform.
• Offers competitive fees for processing credit cards.
• Charges the same fee to process card-not-present transactions as it does online payments.

Cons

• You need to have a website through Shopify to access their payment processor.
• You’ll have to pay a monthly fee for the platform on top of regular credit card transaction fees.

Fees

The most basic Shopify plan costs $9 per month and delivers credit card payment processing, invoicing capabilities and the ability to turn your non-Shopify website into an e-commerce platform. If you want more robust e-commerce capabilities, you’ll need to pay $29+ per month for a different Shopify plan.

Shopify charges the following processing fees for credit card payments:

• In-person transactions: 2.7 percent (e.g. $25 transaction = $0.68 fee)
• Online transactions: 2.9 percent + $0.30 (e.g. $25 transaction = $1.03 fee)
• Card-not-present transactions: 2.9 percent + $0.30 (e.g. $25 transaction = $1.03 fee)

Square Payments

Best for mobile businesses

Square is known for its innovative, petite card reader that can be attached to smartphones, turning any device into a payment terminal. Thanks to its compact hardware offerings, Square is great for mobile businesses like food trucks, market vendors or in-home service providers like plumbers.

Pros

• Square is a leader in smartphone credit card reader hardware.
• Its mobile card reader is typically offered to its merchants for free.
• The card reader can work offline, so you can accept credit card payments in places without a reliable Wi-Fi connection.
• Contactless payment solutions are also available.

Cons

• High fees for in-person transactions.

Fees

Square charges the following processing fees for credit card payments:

• In-person transactions: 2.6 percent + $0.10 (e.g. $25 transaction = $0.75 fee)
• Online transactions: 2.9 percent + $0.30 (e.g. $25 transaction = $1.03 fee)
• Card-not-present transactions: 3.5 percent + $0.15 (e.g. $25 transaction = $1.03 fee)

Stripe

Best for online businesses that want to scale

Stripe was built with online businesses in mind and offers sophisticated payment processing solutions that can scale as your company grows. Stripe’s robust API helps you easily integrate its payment platform with other software solutions in your tech stack, like accounting and customer relationship management software.

Pros

• Competitive rates for processing online credit card transactions.
• The API gives you options to customize the software to your needs.
• A variety of financial solutions, including invoice processing, make it ideal for businesses with their sights set on growth.

Cons

• In-person transaction fees are more costly than those of other providers, making it a bad choice for brick-and-mortar retail.
• The base solution doesn’t support card-not-present transactions, so you’ll need special permission to set up that capability.

Fees

Stripe charges the following processing fees for credit card payments:

• In-person transactions: 2.7 percent + $0.05 (e.g. $25 transaction = $0.73 fee)
• Online transactions: 2.9 percent + $0.30 (e.g. $25 transaction = $1.03 fee)

Venmo

Best for online-only businesses

Venmo is known for its safe, mobile money transferring service. While Venmo primarily works by transferring money between bank accounts, it’s unrolling credit card processing solutions.

In order to accept credit card payments via Venmo, you’ll have to link your Venmo for Business account to Braintree or PayPal. Then, customers will be able to use the Venmo app to make payments through the credit cards linked to their accounts.

Pros

• Venmo is a familiar and convenient payment method for customers.
• No additional setup fees.
• Free standard transfers from your Venmo account to your bank account (usually takes one to three business days).

Cons

• Not yet available for in-person payments. (That said, customers can pay through the app while in your store.)
• Fee for instantly transferring money from your Venmo account.

Fees

Venmo charges the following processing fees for credit card payments via Braintree:

• Online transactions: 2.9 percent + $0.30 (e.g. $25 transaction = $1.03 fee)