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Small Business Credit Card Processing: What You Need to Know

Julianna Lopez
Julianna Lopez

If you have a retail storefront, you need to understand credit card processing.

As a small business owner, you have a lot of decisions to make, including whether or not you want to accept credit and debit card payments. If you do, you'll need to work with a credit card processing company. 

Finding the right card processor for your small business can be daunting, but here are three questions to ask potential partners to make your decision easier: 

  1. Does my business need to accept credit cards, debit cards and digital payment methods?
  2. Why do businesses need credit card processing companies?
  3. How much will it cost me to accept credit cards? 

Should your small business accept credit cards?

If you run a small business, it's almost impossible not to accept credit cards, but the decision is ultimately up to you. 

The number of people who carry cash on them daily is rapidly shrinking. Phillip Parker, founder of CardPaymentOptions.com, said, "People prefer to pay with cards, and fewer people are carrying sufficient cash for all of their purchases." If you don't accept credit and debit card payments, you risk losing out on a large percentage of sales. 

Editor's note: Looking for a credit card processor for your business? If you're looking for information to help you choose the one that's right for you, use the questionnaire below to have Business.com, provide you with information from a variety of vendors for free: 


According to the 2017 Federal Reserve Payments Study, total credit card payments increased from 103.5 billion in 2015 to 111.1 billion in 2016 with 22% of those credit card payments being remote. The number of mobile wallet users increased, too. The number of Apple Pay users jumped from 15 million in 2015 to 86 million in 2017

Accepting digital payment methods – including contactless card payment – is just as essential as accepting credit and debit cards. More small businesses and merchants have implemented the near-field communication (NFC) technology required for these types of payments. 

Digital wallets such as Venmo and PayPal are fast becoming customers' preferred payment option. Because this payment process connects directly with a customer's banking information to send and receive payments, it's an ideal payment option for e-commerce businesses. 

With the low cost of processing these payments (much lower than processing credit and debit card payments) and the ease of integration into most websites and payment gateways, it's a great mobile payment option to offer.  

How much does it cost to work with a credit card processing company?

There are costs involved with using a credit card processing company, including:

  • Setup fees – Depending on the processing company, you might have to pay a setup fee.
  • Interchange fees – These are the fees the processor charges for each transaction, which typically range from 2-3%. Many processors charge 2% for purchases made in-person and 3% for purchases made online or over the phone.
  • Monthly minimum fees – If you don't meet the minimum monthly requirement – usually between $10 and $25 – you'll have to cover the difference.
  • Monthly statement fees – Many processors charge a fee to send you a monthly statement; check whether the processor has an electronic alternative that you can opt into.
  • Early termination fees – Canceling your contract early could incur an expensive early termination fee, sometimes amounting to thousands of dollars. To avoid this fee, look for processors that offer flexible month-to-month service options rather than long-term contracts. 

The amount of money you'll be charged to accept credit card payments depends on a few factors, but on the whole, credit card processing fees are on the rise

Visa and Mastercard increased their card processing fees in April of this year. 

Other factors that influence the fees you pay include the transaction amount, how the payment was processed, and, ultimately, the credit card processor's pricing model. Some processing companies charge a flat rate plus a percentage of the sale, while others only charge a percentage of the sale. 

If your small business sells big-ticket items, being charged a flat-rate fee and a percentage of the sale might be more beneficial than if you only sell lower-priced items, in which case, forking over a percentage of the sale to the processor might be better for your business in the long run. 

When you're researching card payment processing options, ask for a sample bill to give you an idea of how much you'll spending monthly on fees for their service. 

In addition to the above-mentioned fees, consider whether or not it's more cost-effective for you to rent or purchase the necessary processing equipment. Some processors provide the equipment for free. Others may charge you a monthly rental fee or an upfront fee for using their equipment.  

Is there a difference between processing in-person credit card transactions and mobile credit card transactions?

The type of business you run (brick and mortar, e-commerce) dictates the type of payments you process. Ideally, you want a credit card processor that accepts all major credit and debit cards; prepaid and gift cards; and digital wallet payment methods, including Apple Pay, Samsung Pay, and Google Pay. If you have a physical store, your processing system should allow customers to insert and swipe cards or tap their smartphone to complete the transaction. 

If you run an ecommerce business, your payment processing solution should work on both mobile and desktop devices. For B2B companies, the most common form of payment accepted, according to the Federal Reserve Payment Study, is ACH electronic bank transfers. 

Which credit card processor is the cheapest for small business?

Finding the cheapest credit card processor possible might not wind up being the most cost-effective option for your small business. 

If your small business processes less than $2,500 per month, payment facilitators – or mobile credit card processors – like PayPal, Square or Stripe are the best options for you. While payment facilitators charge a higher percentage compared to other rates, you'll save money in the long run because there aren't any other fees, including setup fees and annual PCI compliance fees, associated with using a payment facilitator. [Are you looking for the right credit card processor for your business? Check out our reviews and best picks.] 

If your small business processes more than $3,000 per month or has large sales totals, you'll want to work with an ISO/MSP – independent sales organizations (ISO) and merchant service providers (MSP) processing companies – such as Helcim, Flagship Merchant Services, Fattmerchant or Payline

These companies can set up a merchant account for your business, and although they charge additional fees that payment facilitators don't, you'll save money because of the lower rate they charge for processing transactions at a higher volume. 

If your small business processes a low volume of credit card payments each month, look for a processor that won't charge you a monthly minimum fee, which is the minimum dollar amount of credit card processing fees you must meet each month. If you don't hit the minimum requirements, you'll have to pay the difference. 

For more information about accepting credit card payments and finding the right credit card processor for your small business, check out our guide for accepting credit card payments and our comprehensive review of credit card processors.

Image Credit: Simon Kadula/Shutterstock.com
Julianna Lopez
Julianna Lopez
Business News Daily Contributing Writer
Julianna Lopez is a freelance writer, editor, and social media marketer. She loves all things New York, books, movies and theater. If you're interested in her services, you can reach her at lopez.julianna6@gmail.com.