Manage my business

How to accept credit cards at your small business

Cash is no longer king. As digital payments evolve and credit card usage soars, having the power to accept credit cards is critical for any small business. Giving customers the option to pay with credit cards is a big step toward simplifying their world and yours. 

Why small businesses should accept credit cards 

The numbers speak for themselves: cash represented just 26% of all payments in 2018, according to a study conducted by the Federal Reserve. Not a surprise when you consider more than 70% of U.S. households now have a credit card. 

Small businesses are responding. Some are even opting to go entirely cashless in states where it’s legal. If that’s an option for your business, the benefits are many, including:

  • A boost in operating efficiency
  • Shorter wait times for customers
  • Decreased risk of theft due to a cashless environment

If you’re not ready to go completely cash-free, don’t worry. You’re not alone. The majority of small business owners (83%) say they will never stop taking cash. Still, giving customers the option to pay with credit cards is a big step toward simplifying their world and yours. Here’s how to get started.

Setting up credit card processing

Whether you operate an online business, a brick-and-mortar shop or a mix of both, credit card processing comes with a few requirements depending on your situation:

  • Physical shops. Setting up a merchant account, which is simply an account with a bank that allows you to accept credit or debit cards, is critical. You’ll also need a credit card machine, which you can usually receive as part of a bundle when opening your account.
  • Online operations. In addition to setting up your merchant account, you’ll need a secure website and a pay gateway. A vendor provides a service that automatically and securely sends a customer’s credit card information from your website to the credit card payment network. After processing, it delivers transaction details and responses from the payment network back to your site.
  • Physical and e-commerce businesses. For this situation, you’ll need a merchant account and a credit card machine, as well as a secure website and a pay gateway. Additionally, you’ll require a business bank account, a routing number and an Employer Identification Number (EIN) from the IRS.

The significant differences primarily come down to the need for a physical credit card machine rather than a gateway. 

In both cases though, the process looks more or less the same. The customer comes to your shop, chooses what they like, and starts the checkout process. At that time, your customer will swipe his or her card in your processing machine or enter their credit card information into a secure section of your site. 

Then, your processing machine or your website will send information to the processing entity and receive an “approved” or “denied” message from the credit card issuing bank. Assuming the card is accepted, you’ll then complete the transaction and give the customer their goods or services.

Know the facts before choosing a credit card processing option

It’s essential to do your research and talk to your merchant account and pay gateway providers about a few central subjects before taking any action, including:

  • Fees. Whether you’re setting up a merchant account, a pay gateway or working with any credit card processing provider, there will be fees. Ask about periodic charges (monthly, annually or transaction-based), how fees are calculated, whether based on your products or services and if or when your fees may increase.
  • Accepted cards. Not all merchant accounts and pay gateways accept every type of credit card. Visa and Discover cards are generally accepted, but others, like American Express, may cost more to process or may not be accepted by some service providers.
  • Set up and support. When looking at credit card processing for your small business, try to make it easy on yourself. Look into the setup and support included with your merchant account and pay gateway. 
  • Reporting. Make sure the processing service you choose offers reporting features that can help streamline what you do. Consider how seamlessly the payment system can integrate with your tax system, whether it’s easy-to-build business reports or systems that can pull data from in-person and online purchases. 
  • Security. In the day of data breaches, it’s crucial to choose a merchant account or pay gateway that is at the forefront of cyber security. Even if it means paying a little extra for their service, try to find a provider that:
    • Is EMV compliant and allows you to accept chip cards or smart cards. They are now the global standard and enable cryptographic processing, which helps improve data safety. 
    • Adheres to Payment Card Industry (PCI) data security standards.
    • Supports tokenization, which allows you not to collect or store sensitive information on your operating system. By using tokenization, your system replaces sensitive data with randomly generated characters that can be linked back to the original data only by an authorized party. 
    • Uses end-to-end encryption and Secure Sockets Layer (SSL) protocol. By doing so, your credit card processing system can help ensure data security as it goes from a card reader or order form to its destination, where the transaction will be approved or denied. 
    • Includes a biometric field to make a payment. This feature can mean using fingerprint scanning, retina scanning, facial imaging, vein patterns, voice recognition and more. And while it might seem extreme, some banks and payment companies are already using fingerprint recognition as part of their practices. 
    • Allows you to add users and lock down your credit card processing system quickly and easily. This way, if a problem arises, you can prevent any additional actions from being taken until resolution of the issue.

Point-of-sale processors (PSPs)

What if you don’t have a storefront or a website, and you tend to sell at street fairs, pop-up shops or festivals? You can still accept cards without setting up a merchant account or a pay gateway. 

Several point-of-sale processors allow you to use an attachment on your tablet or smartphone to initiate credit card payments. They won’t have all the security (though many are EMV compliant) or reporting features, but with their low prices and ease of use, they can be a boon if you’re not ready to open a traditional store or dive into the world of e-commerce.

As cash becomes less-and-less popular, giving your customers the ability to pay with credit cards will not only boost your business, it will also help simplify your world.

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Microsoft 365 Team

The Microsoft 365 team is focused on sharing resources to help you start, run, and grow your business.

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The Growth Center does not constitute professional tax or financial advice. You should contact your own tax or financial professional to discuss your situation.