How to Start Accepting Credit Card Transactions
Payment processing is a key component of any retail business. If you’re here, you’re probably getting ready to open your own business, or you’re looking to start accepting credit card transactions.
As a payment processor ourselves, we know how to set up payment processing and what to look out for when you’re on the hunt for a provider. That’s why we’ve put together this handy guide to help you get transactional with your customers that want to pay with a credit card.
In this blog, you’ll learn:
- What you need to start processing credit card transactions
- How to process credit card transactions
- Important payment processing concepts to understand
Looking for a complete payment processing solution?
With Lightspeed, your payment processing is integrated with your POS system. Talk to one of our retail experts today and wave goodbye to complicated third-party agreements once and for all.
What you need to start processing credit card transactions
In order to start processing payments, you’ll need to have specific tools and systems in place. A point of sale, payment processor, merchant account and payment terminal are the systems and terms you need to be familiar with before embarking on your journey.
Point of sale
A point of sale (POS) system is the software you use to run your retail business—ring up sales, accept payments, manage inventory, run reports and more. If you don’t already have a POS system, it’s important that you get familiar with the key features to look for in one.
Your POS helps you manage your store and enables you to accept payments. A payment processor is what allows you to process those payments (beyond cash). Your POS and your payments processor may or may not be integrated—more on that later.
In short, a merchant account is a bank account that will allow you to accept credit (and debit) card payments.
A payment terminal is the hardware that enables you to process payments by debit or credit card, and now by virtual wallets.
Make sure that whatever terminal you install is compatible with your payment processor. For security purposes, you should order hardware directly from your processor if you can.
How to process credit card payments
Now that you have a better understanding of the systems you need to have in place, it’s time to pick your POS system and your payment processor.
1. Pick your POS system
Your POS powers your entire business, so picking the right system should be your top priority.
Depending on the POS provider, there may be an in-house integrated payment processing solution available to you. An integrated solution is ideal and will save you lots of time every day. In the United States, Lightspeed Retail POS users can process their payments with Lightspeed Payments.
If you’re not planning to use an all-in-one integrated POS and payment processing solution, you’ll need to also sign up for a merchant account at this point. This can be done at any bank.
Once you have your POS selected, you need a payment processor to start selling.
2. Pick your payment processor
If your chosen payment processor is integrated directly into your POS system, you can skip to point 3.
If you’re not going with an integrated payment processor, you’ll need to shop around for the best offering for your business. To help you find a payment processor, take a look at our article on the seven questions you should ask during your search.
Be careful not to get caught in a plan with a lot of hidden fees—for tips on how to get the best rate from your payment processor, see our guide here.
3. Purchase equipment compatible with your payment processor
This should be your last step. Your payment processor should have recommended hardware that you can purchase directly from them or a partner.
Never try to use unsupported card readers with your payment processor. At best, you’ll run into security concerns—at worst, it simply won’t work.
Important payment processing concepts to understand
Picking your payment processor is a crucial step toward retail success. Don’t rush it—always be sure you fully understand what you’re signing on for and that you’re getting the fee structure and features that will work best for your business.
Integrated vs non-integrated payments
Integrated payments means your terminal communicates directly with your POS, while non-integrated payments is the opposite. Some retailers may prefer unintegrated payments, but as a rule, integrated payments will be more convenient, and they significantly reduce your risk of fraud and manual entry errors. Unintegrated payments may mean that you can keep taking payments if your POS goes down, but the amount of work and time needed to keep an unintegrated system running smoothly is rarely worth it.
Monthly vs. yearly contracts
When you’re shopping around for a payment processor, take a look at their fee structure. Yearly plans lock you into working with one payment processor for an entire year—and that might be a costly mistake if the processor ends up being wrong for your business.
Monthly contracts mean you can try a payment processor out without making long-term commitments. You remain in control of the relationship.
Choosing your payment processor also means choosing from a myriad of different pricing models. Understanding what each of them entails and the types of fees you’ll be charged will give you a clearer idea of what your bill will look like month-to-month.
Lightspeed Payments uses a predictable, one-rate pricing model—you know that every time someone uses their credit card to make a payment, you’ll pay a fee of 2.6% + $0.10 for card-present (CP) transactions, or 2.6% + $0.30 for card-not-present (CNP) transactions.
Payment processors that use an Interchange Plus pricing model do things a little differently. Credit card companies like Visa and Mastercard charge merchant account and financial service providers and those fees are then passed on to retailers who sign up with the payment processor. Your month-to-month bill is unpredictable, as your Interchange fees can change depending on the cards used to make purchases in your store.
Typically, payment processors who offer Interchange Plus pricing have a fixed markup added to your fee. Be careful when selecting your payment processor—you will be paying the unpredictable Interchange Plus fees as well as their advertised fixed markup.
Tiered pricing is another model you might see. With tiered payment processing, all transactions you take are sorted into one of three tiers: either qualified, mid-qualified or non-qualified. Typically, merchants sign up for tiered pricing expecting most of their transactions to be processed with the favorable qualified rate. In reality, most of their transactions are pushed to the much more expensive mid- and non-qualified tiers, and rarely are merchants told why a card is processed on the tier it is.
With processing power, comes security responsibilities. If you want to start taking credit cards, you also have to ensure you stay compliant with security measures. The PCI SSC—Payment Card Industry Security Standard Council—outlines minimum requirements for PCI compliance.
Getting up to speed on PCI requirements is important because you could be in for some costly fines if you don’t. Our article on PCI compliance will give you all the information you need.
Luckily, some payment processors handle the fiddly details for you—Lightspeed, for example, is a level 1 provider that includes PCI compliance for all our merchants right out of the box.