Society & Lifestyle

How to accept credit card payments

A step-to-step guide to entrepreneurs on accepting credit card payments

How to accept credit card payments. Source:

Nowadays, if you sell goods or services, having the ability to accept credit card payments is a must. Moreover, there are plenty of retailers and enterprises that have abandoned such things as cash transactions completely. Maybe, the major reason for such a move was the fact that the latest research has revealed that shoppers spend more when they pay cashless. This is undoubtedly good news for retailers and people who run businesses. On the other hand, it is also good to know such statistics if you are a consumer. Thus, you’ll be more attentive to your overspends (as they say, forewarned is forearmed).

Anyway, let us get back to merchants. As a matter of fact, accepting credit card payments is not as simple as you think. Furthermore, it is not so easy to choose a payment processor since there are a lot of options in 2019. What’s more, any choice comes with its own special equipment and different fee options. And if you want to have a seamless experience, you should be aware of the latest news, changes, and solutions.

Maybe it all sounds a bit complicated and incomprehensible, but it shouldn’t stop you from making the correct choice. Don’t be afraid and look on the bright side. If you have a small business and want it to be lucrative and successful, you need to decide whether to accept credit card payments. If you understand how the entire system works, you’ll be able to choose the best option.

Credit card payment process: how it works

Before we go any further, it would be wise to consider the theoretical side of the issue. If a retailer wants to use the system, it is good to know how it works, and what really happens when a seller accepts credit/debit card payments (we have to mention that this info is useful for shoppers as well).

If you understand how the entire system works, you’ll be able to choose the best option. Source:

  1. A salesman inputs the client’s credit card data into their card reader. There are some options here, and equipment/software can be different and depends on the type of transaction. Basically, we can distinguish several kinds of transactions, such as in-person, online, and over the phone.
  2. After a salesman swipes, dips, taps, or mechanically/manually inputs the info from client’s card, the payment processor sends that info to the merchant account. In case of it being an online sale, client’s info passes through a payment gateway. The payment gateway is in charge of the authorization of retailers to accept online payment. It also has instruments to file the client’s credit card info in the most accurate and secure way.
  3. A payment processor will also contact the client’s bank/issuing bank, since it needs to know whether it is possible to accept the payment data (otherwise the transaction will be denied). It depends on whether the client has enough money, has spent below their credit limit, or whether there is evidence of fraud.
  4. If the client’s bank/issuing bank approves the customer’s purchase, a retailer is able to receive the payment. Thus, the transaction will be completed. Otherwise, the client’s payment will be denied.
  5. The last step is about deducting fees by the payment processor. After that, the retailer will receive the money into their account. Normally, a merchant gets funds within a few days.

Merchant account vs. Payment service provider

Actually, it is a stand-off between the old school and the new school. PSP (the abbreviation for the payment service provider) is a representative of new school solutions, and it is more like an all-in-one system.

Merchant account vs. Payment service provider. Source:

Merchant Account

This is a conventional (if not to say traditional) way to receive payments. Essentially, a merchant account is a kind of bank account. First, money from a banking card is transferred to that account. Then, funds go straight to your bank account.

Today, you have a lot of options, when it comes to merchant account providers. Your major options are a financial institution (for example, a bank), an independent sales organization, or payment processing company. Some of them provide different needful stuff, like credit card terminals, mobile card readers, and e-commerce payments setup.

But, a merchant account usually comes with tons of additional fees, such as a setup fee, software/equipment fee, monthly fee, processing fees, etc. In addition, such things as merchant accounts sometimes are not frank about those additional fees. Thus, it can be a nasty surprise for you when you see the bill for the service provided.

Payment Service Provider (PSP)

A payment service provider is more like a rationalized option. Striре, Squаrе, РауРаl, and Shорifу are the most popular options of PSP.

In other words, PSP is an all-embracing payment processing system, which allows businesses to accept credit/debit card payments without a need for retailers to open a separate merchant account. Actually, PSP comes with an embedded merchant account. Normally, the PSP fees policy is more transparent and honest compared to conventional merchant accounts.

Moreover, their POS systems are more versatile and have more functions. For example, the Square POS application allows you to track inventory, manage staff, and accept payments even if you do not have an internet connection at the moment.

Their POS systems are more versatile and have more functions. Source:

Processing fees

Most fees depend on the specific payment processor and the kind of equipment if offers. Nonetheless, there are two major, hence inevitable fees you’ll have to pay somehow: the interchange rate and markup fee.

Interchange Rate

There are four most significant financial services/credit card companies — Visа, МаstеrСаrd, Disсоvеr, and Аmеriсаn Еxрrеss, and all of them charge a fee if you use their products. This fee is also known as the interchange rate.

The rate of the fee usually depends on the specific company. Besides, the level of risk of a transaction counts as well. For example, in-person transactions are considered to be less risky than online, since there is less likelihood of scam when merchants are able to verify the client’s identity. In addition, card companies can consider some businesses/industries less risky than others, and vice versa. This fact can also affect the fee rate.

Markup Fee

Markup fee is actually a markup (excuse us for the tautology). In other words, it is an overhead/overprice. This is how processors make money from each transaction.

Like interchange rates, markup fee rates depend on the risk of fraud. Source:

The rate situation here is quite similar to the previous fee. Like interchange rates, markup fee rates depend on the risk of fraud, and on the payment plan of a processor you work with. There are major kinds of payment plans you should know about:

Tiered Plans

This kind of plan implies that a processor will charge different fees, and the rate of the fee will depend on the kind of transaction you carry out. If a transaction is considered to be a risky one, you’ll pay more. The method of payment also affects the fee rate.

However, it is hard to predict what fee rate waits for you, so you never know how much you will pay. Thus, such a plan can become an expensive burden for your budget, especially if you are not a very experienced entrepreneur.

Interchange-Plus Plans

Such a plan combines interchange rate and the processor’s markup fee, so as a result, you have one unified fee.

Flat-Rate Plans

Flat-rate plan is when the fee rate is fixed and is counted per transaction. It is normal practice for payment service providers.

For instance, Square charges:

  • 2.75% of the total transaction amount for transactions made in person
  • 2.5% + $0.15 for in-person payments processed through the Square Register
  • 3.5% + $0.15 for manually entered payments
  • 2.9% + $0.30 for online payments

Flat-rate plans are more transparent, thus you can plan your budget more precisely. On the other hand, if you have a large number of card transactions (or amounts are extremely high), then you should calculate the total sum since it can be quite large.

A client will swipe/tap/dip their card. Source:

The acceptance of credit card payments

We’ve considered the theoretical side of the credit card payment process, so now you are ready for the tech side of the issue. The main question is the equipment you need to accept payments.


If you run a physical store and want to accept credit card payments, you will need a merchant account along with a conventional credit card terminal, or a point of sale system.

Anyway, it doesn’t matter which kind of system you have opted for. A client will swipe/tap/dip their card, and this is how the process (we’ve considered in previous parts) is set off.


There is no need for a credit card terminal or POS (physical equipment) if you run an online business. In this case, you’ll need a merchant account with the ability to carry out online payments along with a payment gateway, or a payment service provider (all-in-one solution).

There is another option, and it is called a virtual terminal. This is software that turns your computer into a (you won’t believe) virtual terminal, where you can manually input client’s bank card info.

Through a Smartphone or Tablet

In case you don’t have a physical store (for example, you sell hot dogs in a food truck), but you still want to accept in-person credit card payments, then you can opt for a solution compatible with your mobile phone or tablet. It is a mobile card reader, which can be plugged into your smart device.

A lot of POS providers have such equipment and offer a special app for your seamless experience.

The Bottom Line

Now it all seems to be not so frightening. All you need to do is to calculate the volume and average price of your transactions, decide whether you’ll be selling your goods in a physical store or just from a website, and choose the appropriate equipment.

SEE ALSO: 12 best online payment services for your business

Pay Space

6916 Posts 0 Comments

Our editorial team delivers daily news and insights on the global payment industry, covering fintech innovations, worldwide payment methods, and modern payment options.