How To Choose Credit Card Processing for Your Small Business


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Credit cards are ubiquitous in the United States. Approximately 83 percent of Americans between the ages of 30 and 49 had a credit card, and millennials owned three credit cards in 2020.

Having a credit card makes sense because it’s a convenient way to pay, eliminating the need for cash in hand while making a purchase. However, credit card processing often comes at a cost.

Key Takeaways

  • More than a third (38%) of all retail purchases are made via credit cards.
  • About two-thirds (64%) of small business customers don’t have the cash to pay for purchases.
  • Credit card processing fees for small business owners depend on the processor and needs of the business.
  • Critical factors for choosing a credit card processor include transparency in pricing, versatility in accepting payments, and security.
  • Mobile credit card processing companies might be the best option for small businesses.

Why Is Credit Card Processing Important To Your Business?

Customer at the checkout paying with credit card on the payment terminal.

The success of small businesses hinges on many factors. One factor that many business owners might not think too much about at the start is payment options, perhaps assuming that cash is good.

However, a survey shows that only 36% of small business customers carry about $80 in cash, which means 64% don’t. If you have a cash-only establishment, that means 64% of your customers won’t make a purchase, which isn’t the desired result.

More to the point, 38% of point-of-sale (POS) transactions in the U.S. used credit cards and only 12% was cash. Therefore, it would make sense for a small business to offer credit cards as a payment option.

However, small business owners worry about paying credit card processing and merchant fees, thus cutting their profit margins. Meanwhile, the significant loss of sales and revenue from not offering credit cards as an option is a bigger problem. A small business that doesn’t provide credit card options essentially rejects customers who want to pay using a credit card.

In a nutshell, you should offer the option of credit card payments for the following reasons:

What Do Credit Card Processors Do?

Payment processing cycle graphic.

Generally, credit card processing goes through a bank, independent sales organizations (ISO)/merchant services providers (MSPs), or mobile credit card processors. However, banks typically don’t process credit card payments in-house, except for American Express and Discover.

A credit card processor serves as the go-between for the consumer and the issuing bank in the credit card payment process. Put simply, credit card processing goes through the following steps:

  1. The credit card processor sends the information of a credit card transaction electronically to the credit card company.
  2. The credit card network ― typically Visa, Mastercard, American Express, or Discover ― communicates with the issuing bank to get the authorization.
  3. The issuing bank approves or declines the transaction.
    In most cases, the MSP requires the business owner to purchase software and hardware, such as a POS system, to process the transaction. The POS is also the system that collects all transaction details.
  4. At the end of the day, the business owner, also known as the merchant, sends authorized transactions to the MSP.
  5. The MSP collects the funds from the issuing bank that, in turn, charges the consumer’s account.
  6. The MSP sends the funds to the merchant’s bank, minus any fees.
  7. The merchant’s bank credits the funds to the merchant’s account.

What Are Typical Credit Card Processor Fees?

  • Setup fees
  • Interchange fees
  • Assessment fees
  • Early termination fee
  • Monthly minimum fees

As might be expected, all this processing comes at a cost and has a name: credit card processing fees. Typically, the merchant pays a flat fee per transaction plus 1% to 3% of the transaction amount.

In some cases, the credit card processor or MSP may also charge a monthly fee. Fees that the merchant may be expected to pay include:

  • Setup fees: Typically required for brick-and-mortar businesses, the setup fee is to install the hardware and software needed for processing credit card transactions. The cost may range anywhere from $50 and $100 and may include a monthly equipment lease charge.
  • Interchange fees: The interchange fee represents the biggest chunk of credit card processing fees ― often between 2% and 3.3% of the purchase amount ― and goes to the issuing bank, such as Citi or Chase. The interchange fee depends on the issuing bank and how you processed the payment, such as card-present vs. card-not-present.
  • Assessment fees: The assessment fee goes to the credit card network, such as Visa or Mastercard.
  • Early termination fee: Some credit card processors impose a fee between $295 and $495 if they set you up with a merchant account and you terminate the contract, which is typically three years. However, many mobile credit card processors like Square don’t impose contracts on their merchants.
  • Monthly minimum fees: Some credit card processors require a minimum amount in credit card processing fees each month, typically between $10 and $25.

What Should You Look for in a Credit Card Processing Company?

  • Transparency
  • Versatility
  • Integration
  • Promptness
  • Security
Various credit cards all in a pile including Visa, MasterCard, and American Express.

A credit card processing company does essential work for your small business, but it doesn’t do it for the laughs. The costs can be high so, at the very least, the processor you choose should provide you with the services your business needs. When selecting a credit card processing company, what should you consider?


The first thing to look for in a credit card processor is transparency in their fees, including equipment leases, termination, and chargeback fees. Many factors affect processing fees, and you need to clearly understand how much you have to pay at the end of the day.

If you have any questions, their customer service should be able to supply you with clear and detailed explanations. If they cannot, you might want to consider another service.


The credit card processor should support all types of credit cards, such as Visa and American Express, and transactions from physical swipes to online payments like Apple Pay. The idea is to be able to accept all credit cards and continue with the same system even if you add an online component to your brick-and-mortar store and vice versa. It would be ideal if it would also accept debit cards, gift cards, and reward cards.


While your ability to accept a credit card is important, it’s not a standalone system. You should be able to integrate it with existing systems, such as accounting and inventory. The system should also be easy to use.


Cash flow is critical for a small business, so you want a credit card processor to turn over the funds to you as quickly as possible. While that might involve slightly higher fees, it would be worth it in the long-term if you could use the funds to generate more revenue.


You want to avoid any security issues when processing credit card payments as that’ll rebound on you as a business even if the breach isn’t on your end. Choose a provider with Payment Card Industry (PCI) compliance to ensure the safety and security of your customer’s personal and financial information.

Your best choice for a credit card processor depends on your specific needs. You can check our picks for the best credit card processing services for one that’ll satisfy all your requirements.

Frequently Asked Questions (FAQs) About Choosing Credit Card Processing

How Can You Secure Credit Card Payments?

You can take two steps to make credit card payments at your business as secure as possible. The first is to use a credit card processor that’s PCI-compliant. The second is to use card readers that accept Europay, Mastercard, and Visa (EMV) chip cards for physical terminals to avoid card skimming.

Can You Avoid Merchant Fees?

Not entirely, but you can reduce them somewhat by accepting card-present (swipe) payments instead of card-not-present like online and over the phone as much as possible. You might also want to consider mobile credit card processors instead of ISO or MSPs to avoid setup fees, equipment rental fees, termination fees, and monthly minimum fees.

Can You Pass on Merchant Fees to Customers?

Yes, unless your state doesn’t allow it. If it’s legal in your state, you can add a credit card surcharge to a purchase provided you follow the rules imposed by the credit card network. Be aware that most customers avoid sellers that apply a surcharge to credit card purchases.

How Long Before You Get the Funds?

The turnaround time from a credit card sale to funds in your account depends on your credit card processor, but it typically takes between 24 hours and three days.

What Should You Do Next?

Given the benefits of accepting credit cards for your small business, you should get cracking on finding a credit card processor. You might want to start with exploring mobile credit card processors because they don’t require special equipment except for a card reader to get started and are an excellent option to test the waters without having to jump in with both feet.

Additionally, you pay as you go with no monthly fees or contracts. If you don’t like the service or think the fees are too high, you can always look for another alternative as you don’t have to shell out early termination fees. Also, keep in mind that while mobile credit card processors typically charge higher rates than ISOs or MSPs, that usually evens out in the end because there are no monthly fees.

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