What is Credit Card Processing?

In order for a business to accept credit or debit transactions, they’ll need to work with a credit card processor. Credit card processors (unrelated to credit card companies) provide the software, hardware, and payment processing services needed for a business to accept credit or debit cards as payment–whether in-person, over the phone, or online.

To delve a little deeper, check out our Credit Card Processing 101 article:

Introduction to Credit Card Processing

How Does Credit Card Processing Work?

Credit card processing companies offer three types of services: hardware, software, and payment processing. Let’s explain each:

• Hardware: If your business needs to accept credit cards in-person (whether in-store or on-the-go) or over-the-phone, you’ll need equipment to insert, tap, or swipe customers’ cards.
  
  
• Software: If your business is partially (or wholly) online, credit card processing companies also offer card-accepting software that can be implemented into your business’ website, turning your homepage into a powerful e-commerce site.
  
  
• Payment Processing: There are a lot of steps between your customer tapping their card and receiving money in your business account. Credit card processors take care of the complex communication chain between banks, networks, and gateways for you.

What Payment Processing Technology Do You Need?

Whether hardware, software, or a combination of both, the technology used to read and record a customer’s credit card information is called a payment gateway.

There are multiple types of hardware payment gateways, with designs and functionalities varying to fit nearly any business model.

Online (Software)

Credit card processors offer e-commerce services, enabling you to accept credit cards via your website or app. It’s an essential part of running an online business, but is also a useful tool to keep in mind even for a brick-and-mortar business. If expanding to a market beyond your doors is a possibility for future growth, you’ll want to choose a credit card processor that also offers an online payment gateway.

In-store

Often used at a traditional retailer or service-based business, in-store card readers are fixed (i.e. immobile) touchpads, registers, or computers that accept card payments. If you’re looking to set a cashier at the front of your store to manage the majority of transactions, an in-store card reader is the right solution for you.

Mobile

Perfect for wait staff, traveling businesses, or sales made at satellite markets, mobile devices are handheld card readers used for pick-up-and-go transactions. If you want employees to accept customers’ cards at various touchpoints within a large marketplace, or otherwise make sales while on the road, mobile gateways are essential.

Over-the-phone

Typically used for a takeout order at a restaurant, over-the-phone devices are card readers that allow employees to manually enter customers’ credit card information. In most scenarios, a customer will dictate their card information over the phone while an employee enters the information manually into an applicable card reader, such as an in-store device.

Fees and Rates

There are two major fees to keep in mind when shopping for a credit card processing company: transactional fees and hardware/software fees.

Transactional fees vary from processor to processor, but they almost always take a small percentage of each sale you make. They’re usually made of three parts: the interchange fee, the assessment fee, and the markup fee. In total, the average fee is around 1.5%–3.5% of each sale.

Hardware and software fees are the prices associated with renting or purchasing payment gateways from a credit card processing company. Keep an eye for promotions and discounts, as some companies may temporarily offer hardware at a reduced price or even for free.