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How to accept credit card payments: A beginner's guide

Accepting credit cards helps businesses boost sales and meet demand. Learn how payments work and how to set up secure, flexible processing.

Updated

11 min. read

- Every credit card transaction involves a complex series of events connecting multiple financial institutions, though the entire process typically completes within seconds.
- To accept credit card payments, businesses will need a merchant services provider, a merchant account and a payment gateway, as well as ongoing compliance and fraud protection.

Learning how to accept credit card payments can be empowering for business owners. Consumers love convenience and, for in-store purchases, credit card payments are a simple, popular way to pay.^{footnote 1 1} Accepting credit card payments can help your business welcome cash-free customers, whether you run a brick-and-mortar retail business or offer products or services from an online site.

Even if your business already accepts conventional credit card payments, expanding your payment options to include digital credit card payments can offer benefits. According to McKinsey, U.S. consumers set a new benchmark for digital payments in 2024, with more than 9 in 10 completing some type of virtual transaction.^{footnote 2 2} What's more, small businesses report an 8 percent sales boost after accepting digital payments.^{footnote 3 3}

Continue exploring this article to learn more about the process of accepting credit card payments, how to choose a credit card processor and how to set up credit card payments for your business.

How credit card payment processing works

Every credit card transaction involves a complex series of events connecting multiple financial institutions, though the entire process typically completes within seconds. Note that the process will vary, depending on the financial institutions involved and whether the transaction uses a physical credit card or a digital wallet.

Here's a look at the typical steps in the process:^{footnote 4 4}^,^{footnote 5 5}

1. Initiation (Pay)

A customer swipes, dips or taps their card at a physical location, or manually enters card information to process payments online. Your card reader or payment gateway securely captures this payment data, and the payment processor transmits it to the bank that issued the card within the appropriate card network, such as VISA^® or Mastercard^®.

2. Authorization request

At the same time, the payment processor requests transaction authorization information from the card-issuing bank. The card-issuing bank then evaluates the authorization request, checking factors such as available credit, purchase price, certain merchant information and other possible fraud indicators before approving or declining the payment authorization request.

3. Approval or decline (Decision)

If the payment request is approved, you can complete the transaction with the customer. However, the funds don't arrive immediately. First, the merchant automatically or manually instructs the payment processor to request funds from the issuing bank. After deducting processing and interchange fees, you may gain access to these funds within a few business days, depending on the settlement schedule of your merchant services provider and the funds availability policy of your depository bank.

If the payment authorization request is declined, you may receive an error code indicating whether it's a "soft" decline (the customer should try the card again) or a "hard" decline (the customer must use another payment method).

4. Clearing or interchange (Process)

This complex system of communications between your in-person payment terminal or online gateway, the payment processor, card networks, and issuing banks usually takes just a few seconds. However, none of this would be possible without the appropriate infrastructure: a merchant services provider to facilitate the communications and point-of-sale (POS) hardware and software to capture and transmit payment data securely.

5. Settlement (Deposit)

Once the transaction is settled, the funds are transferred from the payment processor to the business’s depository bank account.

This infographic shows credit card payment processing in five steps: 1 pay (tap, insert or swipe), 2 authorization request (funds verified), 3 decision (approved or declined), 4 process (transaction finalized), 5 deposit (funds go into merchant account).

What do you need to accept credit card payments?

A key step in how to accept credit card payments is learning about the different components. Ready to start accepting credit card payments? Follow these steps to get started.

1. Choose a merchant services provider

There's much more to consider when selecting a merchant services provider besides basic functionality, including:

Does the provider offer 24/7 live tech support or additional troubleshooting resources?
Can it tailor its offerings to your business, and will they be able to scale them as needed?
Does the provider work with competitors or businesses in the same industry, and does it get positive reviews?

Other features to evaluate include support for different currencies, reporting tools, user-friendly interfaces, and integration with accounting software and customer relationship management (CRM) systems. At BMO, we’ve partnered with Elavon to offer merchant services to our customers.

2. Establish a merchant account

A merchant account exists to record transaction information, details and history, pricing and settlement terms from card transactions processed by the payment processor. Some merchant services providers might bundle merchant accounts with their services, simplifying setup or you could choose to work with a separate merchant account.

When creating a separate merchant account, consider providers that understand your business model and industry type. This may indicate that they can help troubleshoot potential issues that might impact sales and fraud prevention.

3. Integrate a payment gateway for online payments

Payment gateways help facilitate secure communication between your website and your payment processor, allowing the processor to accept, authorize and process payments connected to an online sale. A good gateway should prioritize security features like encryption and tokenization.

4. Choose hardware for in-person transactions

To accept in person card transactions, it can be helpful to look for user-friendly hardware that's compatible with many card types and payment methods. Payment systems can often integrate seamlessly with online platforms, synchronizing data in real time across sales channels, inventory and customer information.

5. Review compliance and security requirements

Maintain regulatory compliance by staying up to date with Payment Card Industry Data Security Standard (PCI DSS) guidelines and keeping your software current.^{footnote 6 6} One best practice to support payments security is to develop comprehensive incident response plans that detail procedures for containment, investigation and recovery. Employee education programs that focus on security best practices, emerging threats and compliance requirements can help reduce human error and foster security awareness.

Some key steps involved in accepting credit card payments include choosing a merchant services provider, establishing a merchant account, integrating a payment gateway for online payments, choosing hardware for in-person transactions, and reviewing compliance and security requirements.

Setting up credit card payments for your business

To accept credit card payments, you must establish a merchant account. Businesses have two main options: opening a traditional merchant account with a payment acquiring bank, or using a digital provider like Stripe™, Square™, or PayPal™.

Traditional merchant account providers may offer customization options and lower per-transaction costs as volume grows, making them economical for larger or more established businesses. However, they may also require some setup time and monthly fees.

Non-bank providers bundle merchant accounts, payment gateways, fraud tools and reporting into one platform, allowing quicker implementation — which is why they are popular with many smaller businesses. The trade-offs may be pooled merchant accounts and longer settlement or funding times, where other merchants' issues or the digital providers’ operation can impact fees, settlement, funding and overall user experience.

Choose the right providerWhen selecting a merchant services provider, carefully weigh fee structures. Flat-rate pricing, for example, offers simplicity, while another type, called interchange-plus pricing, may prove cheaper as you scale. For expansion into global markets, you will need to verify multi-currency support and review terms regarding fees, reserve holds and refunds.Security features are mission-critical for credit card processing. Things to look for include real-time fraud detection, tokenization (which replaces actual card numbers with tokens) and Three-Domain Secure authentication for additional checkout verification. Of course, there's no substitute for expert customer support, preferably available round the clock, to help ensure no sales are lost due to checkout problems.
Set up your payment systemYou'll want to set up POS hardware for in-store purchases and a payment gateway to transmit payment data to the payment processor. Be sure to integrate your payment system with your in-store or online POS and thoroughly test it across payment methods and platforms. Avoid common mistakes like overcomplicated checkout processes or requiring account creation — always offer guest checkout options.Extend customer service to include payment-related inquiries, not just problems with purchases. By continuously refining your checkout experience based on testing and customer feedback, you can help ensure smoother transactions and maximize conversions.
Implement security and compliance measuresEnsure you (and your employees) are ready on day one of accepting credit card payments to address fraud prevention, meet industry security standards, and comply with relevant federal, state or local regulations.

How to accept credit card payments in-store

If you're looking to accept credit card payments in-store, you will need the POS hardware to accept payments. The basic hardware is a credit card terminal that allows customers to swipe, dip or tap cards. An all-in-one POS terminal includes a card reader, cash drawer and receipt printer.

It’s not mandatory for your POS hardware to integrate with add-on software, though many business owners opt to include the software options because of its expanded capabilities that help their operations run smoothly, such as inventory management, analytics and reporting, and industry specific functions like table management and bill splitting for restaurants, loyalty programs, et cetera.

How to accept online payments

If you operate a digital storefront, you will need an online payment gateway to secure and transmit the customers' card information. You might choose a unified merchant services product that combines POS software and processing with a payment gateway and online store features. Or you might opt for a stand-alone payment tool that can be integrated with an existing website.

If your business accepts card payments online and in-store, you might consider using the same merchant services and POS software provider for both, so you can analyze sales data across multiple channels.

How to accept credit card payments on a smartphone

If your business mainly operates at pop-up events, farmers' markets, or in multiple third-party sites at once, you might want to opt for a mobile card reader to accept credit card payments. POS system providers and payment processing companies will likely offer a portable version of their credit card reader that works with a free mobile app on a smartphone. You also may be able to forgo the card reader and use a payment app that accepts and captures contactless payment information on your phone or tablet.

At their most basic, over-the-phone card payment acceptance typically entails manually inputting the card number into a POS terminal.

Considerations when choosing and setting up payment processing

While learning how to accept credit card payments, there are many factors that might influence how you choose a payment processor and set up your system. Here are some things to consider:

Sales channels

Does your business need to accept transactions in person, online, via mobile or through some combination of channels? The channels you plan to use will help determine the best processor for your business.

Types of payments

Given the wide range of payments from in-store to online to contactless, you will need to make sure your payment processing system will support the types of payments you plan to accept. For example, will you accept all major credit cards or limit options to certain ones, like Visa and Mastercard?

To accept payments online, payment options might include Automated Clearing House (A C H) payments, digital wallets such as Google Pay™ or Apple Pay^®, buy-now-pay-later tools, and recurring billing. Depending on the type of business you operate, these options may be more cost effective or may help broaden your appeal to certain demographics. Is your processor ready to handle the full menu of payment options you want to provide?

Then there's the evolving realm of contactless credit and debit cards, including tap-to-pay, mobile wallets, Q R codes and wearable devices — these are especially key for businesses such as food trucks and festival vendors that operate as pop-ups or at locations that vary by day, week or month.

Volume and frequency

It's important to estimate the number of transactions and average amounts you anticipate accepting. A service business that accepts transactions that average $1,000 or more several times a week, for example, will have different needs than a retailer that handles dozens of daily transactions totaling $50 or less.

Third-party integrations

Even if you're planning to use a unified solution that combines credit card processing with your POS system, you will want to ensure it works with your accounting software and e-commerce platforms.

Industry risks

Certain industries, including online sales of regulated products, may face a higher risk of fraud or chargebacks or be required to meet certain regulatory requirements. These could pose additional challenges for setting up merchant accounts or require more intensive security measures.

Costs

Businesses that accept credit card transactions have to consider the potential costs of acceptance and whether to pass them on to their customers. These costs include authorization fees, card network assessments, interchange fees, foreign transaction processing, currency conversion and more.

A key question is whether your merchant services provider offers payment optimization solutions, which can help businesses manage and reduce card acceptance costs through credit card surcharging, commercial card optimization and other acceptance cost strategies. These approaches may allow merchants to offset fees or qualify eligible transactions for lower interchange rates, while also improving transaction efficiency and complying with industry rules.

Security features and regulatory compliance

Payment data security is paramount for any payment processor or merchant service provider. You may want to not only review fraud detection and prevention tools but also ask whether they meet regulatory requirements and/or industry standards, as well as whether they have a mechanism in place to update policies and features as conditions change.

For more information on credit card payment processing, explore BMO’s Merchant Services.

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Footnotes

^{Footnote 1 details 1} Visit the YouGov page to learn more about consumer payment preferences

^{Footnote 2 details 2} Visit the Visa page to learn more about accepting payments

^{Footnote 3 details 3} Visit the Visa page to learn more about accepting payments

^{Footnote 4 details 4} Visit the Mastercard page to learn more about payment solutions for small and medium-sized businesses

^{Footnote 5 details 5} Visit the Visa page to learn more about credit card payment processing

^{Footnote 6 details 6} Visit the PCI Security Standards Council page to learn more about payment data protection

^{Footnote 7 details 7} Merchants with an annual processing volume of $25,000 to $499,999.99 will receive a merchant services statement credit based on their annual processing volume as indicated by merchant on the Elavon Merchant Processing Application.

Merchants with $25,000 to $99,999.99 in annual processing volume are eligible for a $100 statement credit
Merchants with $100,000 to $499,999.99 in annual processing volume are eligible for a $300 statement credit

Merchants with an annual processing volume of $500,000 or more will receive a merchant services statement credit based on their demonstrated annual processing volume, as supported by three consecutive months of payment processing statements within the last six months from their current processor.

Merchants with $500,000 to $999,999.99 in annual processing volume are eligible for a $600 statement credit
Merchants with $1,000,000 or more in annual processing volume are eligible for a $1,200 statement credit

To qualify for the statement credit, merchants must (1) be approved and open a new Merchant Services account with Elavon between November 1, 2025, and October 31, 2026, and (2) activate their merchant services account within 30 days of account approval. A new merchant services account is activated by authorizing and settling a $10 minimum payment transaction. The statement credit will be applied to your Merchant Services account in two equal installments. The first installment will be applied within 60 of account activation. The second installment will be applied within 180 days after account activation, if your merchant account open, active and in good standing. All merchant account applications are subject to underwriting and approval by Elavon. Limit one (1) incentive offer per Merchant Business Entity, regardless of the number of business locations or merchant accounts established. Offer available for new merchant services customers only. Offer excludes talech Mobile solutions. This offer may be extended, modified or discontinued at any time without notice and is subject to applicable laws, rules and regulations.

VISA is a registered trademark of Visa in the United States and other countries.Mastercard and the circles design are registered trademarks of Mastercard International Incorporated.Google Pay is a trademark of Google LLC.Apple Pay is a trademark of Apple Inc., registered in the U.S. and other countries and regions.Stripe is a registered trademark of Stripe, LLC.Square is a trademark of Block, Inc.PayPal is a registered trademark of PayPal, Inc.

Merchant Services are made available by Elavon, Inc. and its affiliated entities which may be involved in providing any portion of the service (together, “Elavon”). BMO Bank N.A. (BMO) and Elavon are separate legal entities, which are not affiliated companies by common ownership, management, or control. BMO makes no representations or warranties either express or implied, of any kind with respect to the Merchant Services or any other products and services made available by Elavon, including, without limitation, those of merchantability and fitness for a particular purpose. Products and services made available by Elavon are subject to its management and credit approval. Elavon’s governing agreements contain the complete terms and conditions that apply to Elavon’s products and services. All product and service features are subject to change at any time without notice. Elavon is a registered trademark in the United States and/or other countries.

Banking products are subject to approval and are provided in the United States by BMO Bank N.A. Member FDIC