How does accepting credit cards work

A POS system includes hardware like a credit card reader and software to process credit card payments in person. Customers can insert or swipe their credit or debit card using the card reader and the transaction will quickly either be approved or declined. If a transaction is approved your merchant account will then receive the funds and transfer them to your business bank account within a matter of days.

Accepting credit card payments offers flexibility and convenience to your clients and can also benefit your business. The benefits of accepting credit card payments for small businesses include:. Accepting credit card payments is a benefit that can help you attract new clients to your business, improving your sales. A recent study found that people spend between 12 and 18 percent more when they use credit cards rather than cash. Offering flexible payment options that include credit card payments gives your clients a better experience and encourages loyalty.

Many clients prefer to pay using a credit card because they can quickly and easily process the payment online, rather than having to fill out and mail a check. Unlike checks, which often take between five and ten business days to clear through your bank, credit card payments are processed relatively quickly.

Often, credit card payments are cleared and the money appears in your business bank account within a day or two of the transaction. Most credit card processors allow you to accept credit card payments with a few simple clicks, saving you time.

Accepting credit card payments can mean your business has less cash on hand, which lowers the risk of theft or loss. The best processor for your business will depend on how you want to accept online payments, which tools and systems you already have in place think about integrations with your current website or other tools like accounting or CRM software , and the size of your business. Accepting credit card payments comes with a fee, which varies depending on your choice of processor.

However, credit and debit cards were the preferred in-store payment method of more than two-thirds of North Americans in So going cash-only significantly shrinks your pool of potential customers. We have a list of the best free merchant accounts to help you choose, and you can also check out our guide to the best merchant services providers for more options. As a bonus, many processors that offer a mobile POS mPOS also accept digital payments other than credit cards from mobile devices.

Digital and mobile wallet payments were the leading POS payment methods globally in and are set to become even more popular by Image source. Mobile payment processors will offer small mobile card readers that are usually much more flexible and affordable than traditional countertop terminals. The best mobile payment processors include:. Accepting credit cards in-store and through a mobile app and credit card reader is pretty straightforward. But when it comes to accepting credit card transactions online , there are about a million different ways to do that—online store or ecommerce platform checkout, invoices, and payment forms are probably the most popular.

In the next four years, digital wallets like Apple Pay are set to make up more than half of online purchases.

Some of the best online payment processors include:. Whether you want to primarily focus on in-store, mobile, or online purchases, there are a few other points to consider when processing card payments.

Credit card processors use the following pricing structures: interchange-plus, flat-rate, tiered, and subscriptions. See our full guide to credit card processing fees for details on what goes into processing fees.

Interchange-Plus Pricing Interchange fees refer to the fees a merchant bank account charges for accepting card payments. This fee is dependent on the type of card and transaction being processed. In this sense, the interchange-plus pricing model is the margin percentage your payment processor will charge for each transaction on top of the variable interchange rate. It might seem a little confusing at first, but this pricing structure because can save high-volume business money thanks to payments that are eligible for a lower interchange rate.

Flat-rate pricing is a set processing fee for all payments—the fee amount remains the same regardless of the transaction amount. Many small businesses like the simple and predictable nature of flat-rate pricing. But simplicity comes at a cost. If your processor charges a flat fee, you lose out on any potential savings from transactions that are eligible for lower interchange fees.

Plus, flat fees can add up if you have high-ticket purchases. Tiered pricing is very common in the US and involves having lower qualified rates for certain cards or transactions and higher non-qualified rates for others. A lot of small businesses will sign up for a contract with a processor with these low fees in mind, but end up paying more than they thought because of the small number of qualified major credit cards and associations like American Express, Visa, and MasterCard.

Debit cards typically have the lowest fees in this pricing structure, while high rewards credit cards have higher processing rates.

A tiered approach can work in your favor if you have a good grasp on what types of cards your customers most typically use. You'll get a notification that the payment has been made by credit card, and you won't have to worry about a late payment or a check lost in the mail.

One downside to accepting credit card payments is the cost of processing fees. Business owners have the upper hand when selecting a credit card processing company with so many options available.

Even small business owners and online merchants can use competition to their advantage to get the best deal on payment processing services. The increased sales and wider demographic provided by accepting credit cards can easily pay for the additional cost of merchant services. Setting up a merchant account is easier than it used to be. Once you've selected a payment process and negotiated your fees and terms, you're ready to set up your point-of-sale system or payment gateway.

For small businesses, a credit card reader may be the right move until you have enough volume to justify the additional cost of a terminal. There are several benefits of accepting credit cards for your business. Impulse buyers purchase more when they aren't paying cash. Some will see your business as more legitimate in their eyes, and it offers customers more convenience when shopping with you. If your business sells products or services online, taking credit cards will significantly improve your bottom line.

For business owners, there are some disadvantages of accepting credit cards, like a higher risk of credit card fraud or chargebacks and the costs for merchant services. For consumers, high fees and interest can add up quickly, causing you to pay much more than the original cost of products or services you charged on the card.

Using a credit card can also make you overspend more than you normally would if you used cash. The main motivation for retailers to accept credit cards or debit cards is increased sales per person.

Consumers are more likely to spend more when they aren't restricted by the amount of cash they bring to the store. It also gives retailers a larger demographic of people who use credit cards more for everyday purchases to receive perks and bonuses. Best Wells Fargo credit cards in You agree to receive updates, promotions, and alerts from ZDNet. You may unsubscribe at any time. By signing up, you agree to receive the selected newsletter s which you may unsubscribe from at any time.