Credit card processing guide for small businesses

Interested in accepting credit and debit card payments, but worried your small business is, well – too small? Afraid the whole online payments thing is a bit too complicated? That the fees are too hidden or too high, or that perhaps you lack the transaction volume to justify it?

Don’t write your business’s credit card processing efforts off just yet – at least not until you’ve dived into this article.

In it, we’re focusing on the ins and outs of credit card processing for small businesses. We’ll walk you through why it’s important, how to pick the right provider, and offer up our insider tips into sidestepping opaque markup fees – and selecting the right pricing model for you.

Best way to accept credit cards for small business

In 2023, credit and debit cards are still the USA's favorite way to pay.

Credit cards alone accounted for 40% of purchases at the point of sale (POS) in 2022, while debit cards made up another 31%. Digital wallets like Apple Pay and Google Pay made up another 12%; and, together, prepaid cards and POS financing accounted for just 4%.

Where does that leave cash, you ask? In a role that’s not only diminished, but diminishing. In 2022, cash was used for a mere 12% of POS purchases (a drop of 4% from its 2017 total).

Against this backdrop, the data paints a clear picture. That, as far debit and credit card payments is concerned, it’s not a matter of if your small business should be accepting them – but when.

Fortunately, that ‘when’ can be right now. Because, with reputable payment processors like Checkout.com in your corner, it’s never been easier to kit your business out with the insights and infrastructure it needs to accept cashless payments. (All while staying safe in the knowledge that the regulatory compliance aspects of payment processing are taken care of.)

But first, you have some important decisions to make. You’ll need to:

• Choose which payment processor is the best fit for your business
• Decide how you want to implement credit card processing
• Learn how to prevent and deal with fraud
• Be aware of pricing plans and terms
• Find out how much it’ll cost your small business to accept credit cards

They’re big tasks, but that’s why we’re here. Read on for everything you need to know about small business credit card processing – from dodging the dubious fee structures to keeping the fraudsters at bay.

Which payment processor fits my business?

A payment processor (also known as a payment service provider) is a company or financial institution that facilitates online payments for you.

There are hundreds of payment processors operating throughout North America alone – so how do you choose the one that’s the right fit for you?

We’ve summarized some of the key questions you should be asking about your potential payment processor before you make a decision.

Which payment methods do they accept?

Accepting credit and debit cards from major schemes like Visa and Mastercard is important, but it should only be the beginning of a comprehensive payments strategy.

To fully meet the needs of your customers, you’ll need to consider offering alternative payment methods, too. These include:

• Digital wallets (such as Apple Pay and Google Pay)
• Buy now, pay later (BNPL)
• Direct debits
• Real-time bank transfers
• Prepaid cards
• Cash-based payments (electronic cash, or ‘e-cash’)

By offering your customers several (but not too many) payment methods, you can decrease dithering and unnecessary friction at the checkout: increasing conversion rates, while boosting consumer confidence in your brand.

You’ll also need to ensure your brand supports processing in multiple currencies (Checkout.com, for instance, offers over 150), and that local payment methods are available, too. Local payment methods are simply the ones most popular with your audience in different, diverse corners of the globe: WeChat Pay in China, for instance, or Kakao Pay in South Korea.

Learn more: Best payment methods for small businesses to accept

What price structure do they work on?

Different payment processors operate on different price structures.

Some lump together all the costs, while others – the better ones – provide accurate, transparent fee statements that break your bill down into the different (wholesale and markup) charges involved: including per-transaction fees, flat fees, and monthly subscription fees.

It’s important to get to grips with the different price structures in payments – which include interchange-plus, flat-rate, tiered, and subscription – and understand which one is the best fit for your business’s unique circumstances and needs.

How many extra costs are involved?

Broadly, payment processing fees fall into two groups: wholesale and markup.

Of these, only wholesale costs are inevitable: they’re the non-negotiable fees levied by each party involved in the payment process, including both the issuing and acquiring bank. Markup costs, however, are the fees your payment processor adds onto your bill to cover their own costs (and, yes, to make a profit).

Markup fees often appear on your statement under vague, somewhat dubious-sounding monikers, such as “service fee” or “account maintenance fee”. However, these costs are negotiable – so ensure you know what they’re called (and how much they add up to) before signing on any dotted lines.

Which payment tools are available – and do they align with my business’s needs?

When shopping around for a payment processor, make sure they can offer the payment tools most crucial to your business’s needs.

If you’re a subscription-based business, for example, you’ll need a processor that can help you handle recurring payments; and that, through enabling you to store card details on file and accept merchant-initiated transactions (MITs), facilitates smoother billing cycles.

As another example, you’ll need a virtual terminal if you’ll be needing to take payments over the phone. (Virtual terminals allow you to manually record card details and process them through a secure web-based portal). If you don’t have a website or app yet, though – and just need a simple, stripped-back way of accepting credit and debit card payments over the internet – you’ll want a tool like payment links to get you started.

How secure will my payments be?

The security of your online transactions should always come first – so you need to make sure your chosen payment processor ticks all the boxes.

Some things you’ll want to considering about any prospective payment processor include:

• Are they PCI compliant, and to what level? PCI DSS (Payment Card Industry Data Security Standard) is a set of regulations that protects sensitive cardholder data in an online transaction; level 1 is the highest.
• Are transactions tokenized? Tokenization is a form of payment security in which cardholder information is replaced by ‘tokens’ (algorithmically generated strings of numbers) to obscure the real card data, and render it inaccessible to hackers.
• Do transactions utilize security protocols and methods, such as 3D Secure 2.0 and point-to-point (P2P) encryption? P2PE ensures that each data link in the payment chain is safeguarded by encryption, and is only decrypted at its destination.

What kind of customer support is on offer?

Before settling on a payment processor, double-check what kind of support they provide.

Should your payment system crash, for instance, the quickest way to get assistance will be to call somebody – so does your provider offer phone support? Are there different phone numbers for different countries, with multiple languages available? And are those numbers clearly, transparently listed on the ‘Contact Us’ page of the processor’s website – or tucked away out of sight?

The payment processor you select should also offer live chat, social media support, and expedited email-based assistance – ideally 24/7.

Decide how you want to implement credit card processing

Once you’ve picked who will be taking your payments, you’ll need to figure out how you’ll do so. Some of the ways you can implement credit card processing include:

• Online, through your website or mobile app.
• In-store, from a mobile or countertop card reader at the point of sale.
• Over the phone or via mail order (MOTO payments).

Where do you start? Well, considering the meteoric growth of the online payments space (a market already worth $9.46 trillion in transaction value, and expected to reach $14.78 trillion by 2027), we recommend kicking things off by accepting payments online.

To do this, you’ll first need a payment gateway. Payment gateways are the digital rails that relay information in a transaction between the different parties involved, which include:

• Your bank (the acquirer)
• Your customer’s bank (the issuer)
• The card schemes (such as Visa, Discover, Mastercard, and American Express)

Payment gateways create a secure connection that, by communicating with the issuing bank, verifies whether the customer has sufficient funds to make the purchase. Depending on the outcome, the payment gateway relays this authorization (or lack of it) back to the merchant.

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At Checkout.com, we’re a payment processor. An acquirer. And a payment gateway. (Call that three for the price of one.)

Our unified payments platform takes care of all your online payment needs: bringing all the credit card processing tools, strategies, and assistance your small business needs under a single, centralized roof. And we don’t only make payments simple – but secure, too. 

Learn more: Payment networks explained

Learn how to deal with fraud

Given the myriad types of payment fraud – and the billions of dollars it costs merchants – you’ll need to make fraud detection and prevention one of your small business’s first ports of call.

Between phishing scams, social engineering, and the Dark Web, there are plenty of ways for hackers to obtain stolen credit or debit card details. But it takes two to tango, and to be able to actually benefit from these ill-gotten cards, fraudsters need to use them – which is how they end up targeting your small business.

Here, your small business has an important part to play in preventing fraudsters from making purchases from your website. Not only from an ethical standpoint either, because – should these illicit transactions slip through the net – the real cardholder will inevitably issue a chargeback when they realize the theft.

A chargeback is essentially a credit card dispute that the customer opens with their bank. If the bank rules this dispute in the cardholder’s – which, in most cases of legitimate theft, they do – your small business will be eligible to refund the purchase, as well as pay a chargeback fee. (This on top of losing out on the goods or services you’ve already provided, and the potential costs of fighting the dispute.)

It sounds a little scary, but there are already plenty of payment fraud prevention measures in place to back you up. These include:

• AVS (Address Verification Service) checks, which compare the address details the cardholder has entered with the ones their bank has on file.
• CVV (Card Verification Value) checks, which – by asking for the cardholder to enter the small three-digit code on the back of the card – help prevent card-not-present fraud.
• 2FA (Two-Factor Authentication), which requires the cardholder to verify their purchase via two different aspects of their identity: including something they own (such as a device), something they know (like a PIN or password), and something they are (a physical characteristic, like fingerprint or facial pattern).

Your job, as a small business? To understand what these fraud-fighting strategies mean. And educate you and your team around what fraud looks like and how it happens.

Be aware of pricing plans and terms

As we touched on earlier, not all payment processors play fair when it comes to fees.

Sometimes, the providers that appear to be the most affordable only seem so because of how they’ve advertised their pricing. And even though some pricing plans can appear straightforward – ones that provide a single flat rate or per-transaction fee, for example – this often makes it impossible to tell the mandatory fees from the markup.

Your first step, then? Learning about the industry’s pricing structures.

Common rate plans include:

• Flat-rate pricing: often a fixed percentage plus a per-transaction fee (1.9% + 50 cents, for example), regardless of card type.
• Interchange-plus pricing: charges you the interchange fees set by card schemes, plus a markup.
• Tiered pricing: categorizes the transactions you accept into different risk tiers, with higher rates for higher levels of risk.
• Subscription pricing: levies a monthly or annual subscription fee, which includes a set number of transactions (you’ll pay a fee on every transaction beyond this cap).

All have their respective merits, but there’s no single ‘best’ pricing plan for any business. While flat-rate pricing can make it difficult to know exactly where your fees are going, its easy-to-understand structure and lack of monthly fees will suit businesses with a smaller sales volume (such as seasonal traders, micro-merchants, and market vendors).

Similarly, interchange-plus pricing offers the most granular take, while the subscription model provides predictability: allowing you to forecast your finances and plan cash flow. However, be aware that this subscription fee can often be unjustifiably high – particularly if you’re not getting any value-adding features thrown in.

Some other questions to ask when selecting a processor and pricing plan include:

• How easy is it to leave the contract early? Many processors will allow you to get out of a contract early, but only by paying an exorbitant fee. Avoid locking yourself into a long-term deal to remain flexible, and beware of auto-renewal policies.
• Is there a monthly transaction volume commitment? Some contracts require you to commit to a minimum number of transactions per month, which can be hard for small businesses new to accepting card payments.
• Can you negotiate a discount? Remember, all markup fees are negotiable – so be sure to enquire about any promotions or incentives on offer for small businesses.
• Is it scalable? As your business and transaction volume evolves, you need your payment processor to follow suit. How easy is it, then, to upgrade (or downgrade) your plan should you need to? Does the platform make use of payment orchestration to efficiently route payments?

How much does it cost a small business to accept credit cards?

For small businesses, the cost of accepting credit cards varies. And exactly how much you’ll pay depends not only on the payment processor and pricing structure you selected, but on a range of other factors, too.

These include:

• Your industry and business type: some sectors (such as gambling, adult entertainment, and cryptocurrency) are considered inherently high-risk. If your business operates in these spaces, you’ll likely face higher processing fees and stricter requirements.
• How you take payments: card-not-present transactions (which include those made through the internet or via phone, where the cardholder isn’t physically present at the point of sale) tend to incur higher fees than those made in store.
• Your transaction volume: as a general rule, the more credit and debit card transactions you accept, the better rates you’ll qualify for. Low-volume businesses, by contrast, may face higher per-transaction fees – or be required to pay a monthly minimum fee.