Every small business should have a credit card processing system in place in order to accept credit card payments. But before you implement a system, there are a few crucial things to know.
Why Should Small Businesses Accept Credit Card Payments?
The reason it’s important to accept credit card payments is simple: People are more likely to buy from you if you offer their preferred payment method. The following statistics highlight just how important it is to offer the payment methods your customers prefer:
A quarter of customers will stop mid-transaction if they can’t pay with their preferred method.
- 75% of consumers say that their preferred payment methods changed during COVID and are likely to stay that way.
- 41% of consumers consider whether a business offers convenient payment methods when deciding where to buy a service or product.
- 33% of consumers prefer using traditional credit card payments (swiping or inserting) at local businesses.
- 14% of consumers prefer using tap credit card payments at local businesses.
- Consumers feel comfortable spending 43% more when they swipe their cards than paying with cash.
![card reader local business](https://cms.podium.com/wp-content/uploads/2022/12/card-reader-local-business-1024x896.png)
What Do I Need to Know to Accept Credit Cards?
To accept credit cards, you will need a payment processor and a credit card reader. This article will help you choose a credit card processing service and understand how it works.
What Is Credit Card Processing and How Does it Work?
Credit card processing is what retailers use to accept credit card payments. It refers to all types of credit card transactions, including in-person, online, over the phone, and by mail.
The process involves using a payment gateway, the technology connecting you as the merchant with the payment processor. Using the payment gateway involves sending the payment information to the merchant bank or payment processor, which then approves or declines the process.
Credit card processing involves through three main steps:
1. Authorization
- During this step, the customer gives the merchant their credit card information.
- The merchant requests payment authorization from the payment processor.
- The payment processor passes this request on to the card association (Visa, MasterCard, etc.).
- The request is approved or denied.
- That approval or denial is sent to the payment processor and then to the merchant.
- You complete the interaction with the customer and give them their goods or services.
2. Authentication
This step occurs after you and the customer complete the transaction.
- The credit card association requests the issuing bank to authorize payment.
- The bank confirms transaction approval and identifying information.
- The bank approves or denies the transaction. It holds the purchase amount in the account.
- The business day ends, and your point-of-sale terminal batches approved transactions for payment processing.
3. Settlement
- Your POS terminal sends your batched payment authorizations to your payment processor.
- Your payment processor sends those authorizations to the card association.
- The card association sends information to the issuing bank.
- The bank charges the customer’s account.
- The bank subtracts interchange fees and sends the balance to your bank.
- Your bank puts the money in your merchant account.
- All account statements are updated.