How to take card payments

The four main steps to taking card payments are:

1. Decide how you want to take card payment and which payment methods you require – face-to-face with a card reader, online with a payment gateway, and/or over the phone with a virtual terminal, etc.
2. Research merchant account providers – look into what providers are out there and which will offer you the payment services you require for the best transaction fee. Our merchant services cost comparison tool can make this daunting, time-consuming part of the process quick and easy.
3. Link with your point of sale system and website hosting platform as needed – make sure the devices and services you choose are compatible.
4. Set up your card reader, payment gateway, and/or virtual terminal – start taking payments face to face, on your website, over the phone, and through payment links.

Taking card payments for your small business really is that simple – however, if you want to learn more about how card payments actually work and the different types of card payments available, then read on.

What happens when you take a card payment?

The diagram below follows the journey a transaction takes once a customer enters their card information.

Let’s put this in a scenario to make things clearer:

1. Amit walks into Coast Roast, a new coffee shop that’s just opened up near his local beach. He orders a cappuccino and gets out his card to pay
2. The barista makes Amit a deliciously frothy cappuccino, then grabs the card reader for Amit to tap with his card
3. Amit taps his card and the transaction travels from the card machine to Coast Roast’s merchant account, where it waits for approval
4. Amit’s card company is alerted of an attempted purchase and contacts his bank to make sure there’s enough money in his account
5. Amit’s bank tells the card company that he can afford to purchase the cappuccino
6. The card company approves the transaction and the transaction remains in the Coast Roast merchant account while it’s being cleared
7. Amit heads down to the beach to enjoy his coffee

Taking card payments and merchant accounts

Card payments and merchant accounts go hand in hand, as merchant accounts are where transactions go to be processed once a card transaction has taken place.

Merchant accounts can be:

1. Supplied by a bank
2. Supplied by a payment facilitator

Merchant accounts supplied by banks incur fees that are dependent on the volume of card transactions you take per month. They usually involve contracts, and set monthly fees to cover costs like PCI (Payment Card Industry) security standards.

Merchant accounts supplied by payment facilitators incur a set fee per transaction that’s only cost-effective up to a certain volume of transactions per month. Arrangements with payment facilitators are usually contract-free, and fees are inclusive of all charges.

For more information on merchant accounts, head on over to our what is a merchant account page.

Merchant accounts can also be:

3. Low risk
4. High risk

Both banks and payment facilitators supply low risk merchant accounts. They’re offered to businesses that deal with low risk transactions – ones that aren’t classed as high value or don’t usually run the risk of expensive refunds. Most retailers and service providers use a low risk merchant account.

Businesses that are at risk from frequent high value refunds (e.g travel companies) or sell high value products (e.g car dealerships) must apply for a high risk merchant account. High risk merchant accounts fees are higher and deposits take longer to process. If you require more information, read our guide on high risk merchant accounts.

Different ways to take card payments

There are three main types of card payment: card machine (card present), payment gateway (card not present), and virtual terminal (card not present).

Merchant account providers usually charge less to process card-present payments over card-not-present payments.

For example, Zettle and Square are two popular merchant account providers.

They charge businesses 1.75% for card-present transactions and 2.5% for card-not-present transactions.

So, how and when are the different types of card payment used?

1. Card machines are mainly used for face-to-face payments. However, some card machines take card-not-present payments, too. For example, a customer can ring and pay by giving you their card number, expiry date, CSC (card security code) number, and the digits from their billing address postcode. You key these details into your card machine.
2. Payment gateways are built into ecommerce websites. To have all payment methods provided by a single provider, you’ll need to check which payment gateways your ecommerce site is compatible with – or indeed, check compatibility before you choose your ecommerce provider.
3. Virtual terminal platforms are used by you if a customer phones up to pay. Virtual terminals work in exactly the same way as if you were keying a payment into your card machine. You’ll require a card number, expiry date, CSC (card security code) number, and the digits from the customer’s billing address postcode.

How to take card payments with a card reader

To take card payments with a card reader, you’ll first need to decide on whether you want to use a bank or a payment facilitator. They’ll be able to offer you card readers that are compatible with their payment system. The table below outlines the main differences:

To take card payments using a card reader, you’ll need to make sure you have wifi or mobile internet connection. Just make sure you check with your provider as to which method of connectivity you need before you commit.

Instructions for configuring your card reader with your payment software are usually fairly simple. Once it’s configured, all payments will be processed through the software, meaning you’ll have access to data on all of your payments.

The majority of payments taken with a card reader will be taken using contactless payment methods – the transaction limit of contactless payments is currently £45. After £45, customers will need to input their pin number.

If you need more information on card readers in general, head on over to our guide to chip and pin machines.  We explain the differences between traditional and mobile card readers in more detail and clue you in to how they work.

If you’re ready to start comparing card readers, take a look at our pick of the best card readers for small businesses. You can read about card readers from a range of providers and discover the best way to find the right one for your needs.

How to take card payments with a payment gateway

To take card payments via your website, you’ll need a payment gateway. If your website is hosted by a website builder like Wix or Squarespace, you’ll need to check which payment gateway providers are compatible with your chosen platform.

You can also set up a website through your payment processing provider. These websites are typically very simple and use your payment provider’s payment gateway to take card payments.

So what do you need to consider when taking card payments online?

Choosing the right payment gateway service

Your payment gateway provider doesn’t have to be the same as your card reader provider.

For example, you could choose SumUp for your card reader payments, but use Stripe as your payment gateway provider for your hosted website.

Using one platform to host all payment processing

Starting an online store through your payment processor is usually free. Instead, charges occur on a per transaction basis. For example, SumUp charges 2.5% per transaction made through its online platform, which is more cost-effective than Stripe, which charges 1.6% + 20p to process a transaction on a hosted website platform.

In essence, to take card payments online, think about your return on investment potential.

Do you want to take card payments with a simple, cost-effective set up? Or, do you want to take card payments online with a sophisticated, more costly website and payment gateway provider that could generate more revenue in the long run?

How to take card payments with a virtual terminal

A virtual terminal offers the same function as a card reader – you just type your customer card credentials into an online platform, rather than a physical device.

Because virtual terminal card payments are classed as card-not-present payments, payment processing companies charge more to process these transactions.

Most payment processors offer virtual terminals alongside their card reader and payment gateway services, meaning you can keep all of your payment processing with one provider.

Our payments expert, Robert Binns, goes into great depth about how to take card payments with a virtual terminal in his guide to taking payments over the phone.

How to take card payments over the phone

Here’s a step-by-step guide to taking a card payment over the phone, as instructed in our virtual terminals guide:

1. Open the virtual terminal interface from your web browser, and log in.
2. Enter the price of the sale, and hit ‘manual card entry’ (or your terminal’s variation of this).
3. Have the customer read out their card details, and enter them straight into the portal.
4. Key in the address associated with the card (this is also crucial, as virtual terminals use AVS (Address Verification Service) to verify transactions).
5. Hit ‘confirm’ to finalise the sale.

How to take credit card payments

Taking credit card payments largely involves the same processes as with other cards.

You will still need to decide how you want to take payment, which merchant account provider you will use, and set up your point of sale system.

One of the main differences however is the processing costs.

Credit card processing fees differ depending on the provider. For the majority of merchant account providers transaction fees cost on average 1-3% per transaction.

However with companies like American Express (Amex) you would be charged more like 4-5% per transaction.

Always do your research when it comes to card processing fees.

What's the best way to take card payments as a small business?

Out of the three methods for taking card payments, the cheapest will depend entirely on the type of business you are running.

• Payment gateways are ideal for ecommerce businesses with online stores. There is no need to purchase a card reader or hardware if your business is based entirely online and this can greatly reduce costs. Although keep in mind the costs of running a website.
• Card readers are perfect if you are operating a face-to-face, physical business. In particular hospitality or retail businesses. To find out more check out our review of the best card readers for small businesses.
• Businesses with contact centres or no face-to-face customer interaction might find taking payments via virtual terminals a good option.

Some providers are more tailored to a particular method than others. For example, Zettle is ideal for card reader payments, as it offers affordable hardware and free point of sale software.

Taking card payments: key takeaways

1. There are three ways to take card payments – by card reader, by payment gateway, and by virtual terminal
2. Card payment services can be supplied by banks or payment facilitators
3. Typically, you can mix and match card payment service providers or use the same one for all three methods
4. The card payment taking process involves several parties, including your merchant account provider, and the customer’s card association and bank
5. There are so many different card payment processing companies out there all offering different services at different rates
6. A quick way to find out which card processing company is right for your business is to compare providers through our online tool