How to accept credit card payments

Ecommerce has opened up all sorts of possibilities, but credit cards remain one of the world’s most popular payment methods for making online purchases.

So, if you’re just starting out as an ecommerce business, setting up the functionality you need to accept credit cards online should be one of the first things you do. 

Accepting credit card payments is one of the easiest ways to increase sales, grow your revenue, and provide an optimized customer experience. 

This article will take you through how card payments work, what you need to do to start accepting them online, and how much it will cost you to accept card payments. 

How credit card payments work

When a customer makes a purchase on your website, all they’ll see after they’ve submitted their card details is a notice informing them that the payment has been accepted, usually within seconds. 

But behind the scenes, an intricate network of processes and providers is operating to verify their identity, validate the payment request, and ensure the correct amount is moved from their bank to yours. 

The key parties involved are:

The customer who initiates the payment

• You, the merchant
• The payment gateway
• The payment processor
• The card network (Visa, Mastercard, American Express)
• Your acquiring bank, which enables you to accept credit card payments 
• The customer’s issuing bank, which provides the credit card used for the payment

Here’s how credit card payment processing works:

• The customer enters their card details at checkout and clicks pay
• The payment gateway securely captures this information and sends a payment request to the acquirer or payment processor 
• The acquirer transmits this request to the card network, which passes it on to the issuer
• The issuer authenticates the cardholder and, after checking they have sufficient funds in their account, authorizes the payment 
• The card network lets the acquirer know that the payment has been approved
• The acquirer sends the approval message to the merchant and the merchant confirms the payment with the cardholder
• The funds are transferred from the customer’s bank account to the merchant’s account, minus fees, typically within a couple of business days 

How to accept credit card payments online

To accept credit card payments online, you’ll need to do the following:

1. Create your digital storefront and open a merchant account

Firstly, you’ll need a website to act as your digital storefront. This is where the customer will discover your products and services and initiate their credit card payment. You could use a website builder or ecommerce platform to create this yourself, or use a website designer if you’re looking for something more bespoke. 

You’ll also need a merchant account, which is a type of payment holding pen that acts as an intermediary between the issuing and acquiring banks. When a customer makes a purchase, their funds are transferred from their account to your merchant account and held there until the transaction has been approved. Once approved, the funds can be moved to your business bank account. 

However, you won’t need to open a separate merchant account if you choose a payment provider that also offers merchant account services. More on this below.

2. Choose a payment gateway and processor

Next, you need to choose a payment gateway and a payment processor. To accept payments online, you’ll need both. 

To recap: 

• A payment gateway is software that captures, encrypts, and verifies credit card information and acts as a bridge between your business and the customer’s bank. It must be integrated with a processor
• A payment processor is a financial institution that facilitates the transfer of funds by connecting acquirers, issuers, and card networks. A processor often provides additional services like fraud prevention, chargeback management, and payment reconciliation  

When choosing the right gateway and processor for your needs, you should consider:

• Compatibility - any software and services must be compatible with your website to ensure everything functions correctly
• Security - you need robust fraud detection to combat financial crime, as well as strong authentication procedures to verify cardholders
• Fees - find a fee structure that aligns with your business model so that you can keep processing costs down
• Customer support - ideally, you should find a provider that offers 24/7 support so that you can rectify any credit card processing issues promptly

The best option by far is to choose an end-to-end payments solution that combines processing, acquiring, and payment gateway capabilities. An all-in-one platform is cost-effective, streamlined, and easy to optimize.

3. Decide how to accept card payments  

Credit cards might be just one payment method, but there are many ways to accept them, including:

• Hosted payments page - a hosted payments page is a third-party webpage where you send your customers to enter their card details. This means you don’t have to design or host a payments form on your own website, and that the responsibility for PCI compliance (data security standards) remains with the third party 
• Full API - a payments Application Programming Interface (API) allows you to seamlessly integrate third-party credit card processing software into your own website. This allows you to offer a frictionless checkout experience to your customers, who don’t have to leave your website to complete their card payment. APIs are highly scalable and also incorporate authentication and security features, which helps you to comply with regulations like PCI, AML, and KYC  
• Payment links - payment links are a straightforward way to accept card payments that take the form of a URL, QR code, or button that you can send to your customers. The link will take them directly to a secure checkout page where they can complete the purchase. Payment links are fast, simple, and secure, and also act as an alternative to hosting your own payments page

Learn more: Credit card authorization explained

How much does it cost to accept credit cards?

The fees associated with credit card processing typically range from 1.5% to 3.5% of the transaction amount. 

These fees are not fixed and can vary based on several factors, including the type of card used, your merchant category code (MCC), and the volume of transactions processed.

The three main credit card fees are:

• Interchange fees - interchange fees are paid to card issuers and cover the cost of processing the transaction. They generally fall within the range of 0.3% to 2% of the transaction amount, along with a fixed charge for each transaction. The specific rate depends on the card network and the merchant's location
• Assessment fees - assessment fees are what card networks deduct from each payment in exchange for allowing you to accept their card brands. Assessment fees are typically a small cut, usually around 0.12-0.15% of each transaction
• Payment processing fees - payment processing fees are what your processor charges you to handle your transactions and to deal with the other parties in the payment chain so you don’t have to. Unlike the other two fees, you may be able to negotiate your processing fees, as providers offer various fee structures based on a range of factors. These include your business type, your average order amount, and your refund and chargeback rates

You may also qualify for lower interchange fees if you are able to meet level 2 or level 3 data processing requirements. 

Learn more: What is a credit card account updater?

Do I need a merchant account to accept credit card payments?

Yes, you do need a merchant account to accept credit card payments. However, many payment service providers (PSPs) also offer merchant account services. 

That means, if you choose a PSP, you don’t have to set up a separate merchant account in order to accept payments - it’s all bundled in together. PSPs aggregate funds from multiple merchants into one account and then transfer the amount you’re owed into your business bank account. This can be a much easier and more cost-effective option for smaller merchants who are just starting out.

However, larger merchants or those with a high volume of sales might find it more cost-effective to work directly with a merchant account provider. Additionally, some high-risk businesses with high fraud or chargeback rates might need to open a specialized high-risk merchant account.

How to start accepting credit card payments with Checkout.com

Checkout.com acts as a merchant account, payment gateway, payment processor, and acquirer all in one.

As a new business, rather than navigating the complexity of working with multiple payment providers, choosing a PSP like Checkout.com is the easiest and most cost-effective way for you to start accepting credit card payments.

As we manage the whole process, it’s easy to streamline your operations, and we give you access to a wealth of data from across the payment lifecycle that can inform strategy and optimization.

Find out how to accept credit card payments with Checkout.com.