Use a Credit Card System

If you run any kind of a business, you must figure out how to use credit card systems in order to process credit card payments from customers. The type of system you use and the equipment you need varies depending on how you interact with customers. If you do business in person, you need either point of sale or mobile credit card processing systems. To do business online, you need shopping cart software and a payment gateway account. Learn how credit card processing works and choose the best option for your business.

Steps

Setting Up Credit Card Systems

1. Open a Free Merchant Account. A merchant account is a bank account, but it is different from a business checking account. A merchant account communicates with your customers’ credit card issuers. It takes the customer’s credit card information and verifies and approves the sale. Your merchant account communicates with the card issuer to authenticate the user, confirming that the card is not stolen and that the customer has enough of a balance to pay for the sale. If the sale is approved, the merchant account deposits the funds into your business checking account.
   • If you already have a business checking account, you can likely get a merchant account with that bank. You will need to provide financial information about your business, including financial statements and tax returns.
2. Set up a point of sale (POS) system. A POS system is what you would find in a traditional, physical retail setting where you would accept payment in person. Lease or purchase a credit card terminal and install credit processing software. The system reads the customer’s credit card and processes the credit card payments. It communicates with your merchant account and the customer’s card issuer to authorize the purchase. You can connect the terminal to your router, cable modem or DSL line. Different models come with barcode readers, PIN pads and printers, depending on your needs.
   • The bank through which you obtained your merchant account provides you with this equipment.
   • Choose a model that is compatible with chip-enabled cards. In the past, credit cards always had a magnetic strip which you would swipe through your credit card terminal. New fraud-protection technology equips credit cards with electronic chips.
3. Set up a mobile credit card processing system. This type of system allows you to accept credit card payments from multiple locations using your smartphone or tablet. Businesses who might choose this solution include street vendors, delivery services, or repair technicians. Also, a retailers in brick-and-mortar stores might use a mobile system if they want to be able to accept payment in multiple locations in the store.
   • Download a mobile credit card processing app. Using your smartphone or tablet, download an app such as Square, PayPal Here, or Flint. Choose a version of the app that is compatible with your device.
   • Once you have the app, visit the website of the payment processor’s website. Create an account for your business. You will have to provide your bank account number so payments can be deposited into your account.
   • Get a card reader. The card reader plugs into the headphone jack on your mobile device. It will be provided to you for free from the payment processor once you sign up. Card readers can also be purchased in drug stores like Walgreens and RiteAid. If you already purchased one, the payment processor company will issue you a credit to reimburse you.
4. Set up an online credit card system for e-commerce. Obtain shopping cart software and open either a merchant account or a payment gateway account. Shopping cart software consists of many components that connect with a web host, provide tools for setting up your product pages, add a shopping cart, calculate shipping, and taxes and process payments. A merchant account or payment gateway account communicates with your shopping cart software, the customer’s credit card issuer, and your bank account.
   • Hosted shopping cart software is user-friendly and doesn’t require much technical expertise. You have to pay for a monthly subscription, but it is the most cost-effective solution for small businesses. Popular providers include Shopify and Bigcommerce.
   • Self-hosted open source shopping carts are best for big companies who need to customize their e-commerce platform. You have to install them and get web hosting services separately. The programs are usually free, but it can be expensive to pay for the services of someone with the technical expertise to use them. Popular providers include Magento and OpenCart.
   • If you already have a brick-and-mortar store and are setting up an online shopping site, you likely already have a merchant account. Work with your merchant account to set up online credit card payment processing.
   • If you don’t already have a merchant account, sign up for an online payment gateway. An online payment gateway processes your customers’ credit card authorizations. Popular payment gateway providers include PayPal, Authorize.net, and Stripe.

Processing Payments

1. Obtain the customer’s credit card information. The first step is to read the customer’s information from the credit card. Credit cards either have a magnetic stripe or embedded microchips. These store the customer’s name, account number, the card’s expiration date, and the country. Whatever system you use, you need a method of obtaining this information from the customer’s credit card.
   • With a POS system, you manually enter the product information into the system or swipe a barcode. The register totals the sale calculates tax. You then swipe the magnetic stripe or scan the microchip with the card reader on your terminal.
   • With a mobile system, you open up your app and select the products from your products page that the customer is purchasing. The app totals up the cost of the sale including tax. Then, you read the customer’s card with the card reader that plugs into the headphone jack on your smartphone or tablet.
   • For online purchases, customers visit your website and browse the product pages. They select the items they want to purchase and add them to your shopping cart. When the customer is ready to check out, the software totals up the cost of the merchandise, tax, and shipping. Your shopping cart software provides an interface where customers can manually enter their name, credit card number, expiration date, and billing address.
2. Wait for authorization. Once you have read the customer’s credit card, your payment processing system and merchant account begin the process of authorizing the sale. The payment processing system communicates the customer’s credit card information to your merchant account. The merchant account then communicates with the card issuer to approve or decline the sale. The approval or denial is sent from the card issuer to the merchant account and then back to you at the terminal.
3. Access your funds. At the end of the business day, bundle all of your approvals and send them to your merchant account. Your merchant account holder will deposit the funds into your bank account. Your funds should be in your account within two or three business days.
   • The customer’s card issuer pays the merchant bank for the customer’s purchases. Then, the card issuer bills the customer for the purchase plus any interest.

Paying for Credit Card Processing

1. Compare fees from merchant accounts or payment gateways. You will pay fees for accepting credit cards to either your merchant account or your payment gateway provider. The fees include base fees and markups. Base fees are the fees the credit card companies charge for accepting their cards. These are non-negotiable and are the same no matter what merchant account or payment gateway you use. The markup fees vary and may be negotiable.
   • Base fees include interchange fees, which are paid to the card-issuing banks, and assessments, which are transaction fees paid to Visa, MasterCard, Discover, and American Express.
   • Markup fees are the fees you should compare when shopping for a merchant account and credit card payment processor. They include transaction fees and flat fees. You pay transaction fees every time you complete a transaction. Flat fees include terminal lease fees, payment gateway fees, compliance fees, annual membership fees, monthly customer service fees, reporting fees, minimum fees, and early termination fees.
2. Compare pricing models. The pricing model is the method the merchant account or payment gateway uses to pass along the cost of the base fees and the markup fees to you. They will use one of two models. The first is called “interchange plus pricing.” The second is known as “tiered” or “bundled.”
   • The interchange plus pricing model is also known as interchange pass through pricing. This is a simple and transparent model. The base fees are clearly separated from the markup fees. They are itemized for you on your monthly statements.
   • The tiered or bundled model categorizes credit card transactions into three tiers known as qualified, mid-qualified, and non-qualified. The fees you pay depend on which tier your transactions fall into. Qualified transactions are charged the lowest rates, and non-qualified transactions are charged the highest rates. The problem with the tiered model is that there is no consistency that regulates how transactions are routed into the different tiers. That makes it very difficult to understand your monthly statements and to compare different merchant accounts.
3. Get the lowest rates. Try to find a merchant account or payment gateway account that uses the interchange plus pricing model. Since base fees are non-negotiable, look for the lowest overall markup fees. However, expect to pay higher fees for simpler services. While simpler pricing models are easier to understand, the more complicated models are generally more competitive.

Sources and Citations

See also

• Check the Balance of a Debit Card
• Turn in a Lost Credit Card
• Use a Credit Card
• Cancel a Credit Card
• Activate Your Atm Card
• Use a Credit Card Payoff Calculator
• Use a Credit Card as a Debit Card
• Transfer a Visa Gift Card Balance to Your Bank Account with Square
• Add Money to PayPal
• Use a Debit Card

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