How Your Small Business Can Accept Credit Card Payments in Canada

Cash may be king, but Canada is inching toward becoming a cashless society as more Canadians make purchases with a credit card, debit card, or a digital payment solution like PayPal, Venmo, or an e-wallet like Google or Apple Pay.

It’s estimated by 2030, there will be a 70% drop in cash purchases, and only 10% of all money spent in Canada will be done in cash compared to 35% in 2014, according to Moneris Solutions. 

However, that doesn’t mean cash will disappear any time soon, as the Bank of Canada notes in a recent survey that 80% of Canadians say they have no plans to go cashless in the next five years.

Nevertheless, the monetary landscape is shifting, emphasizing the need for small businesses to adapt to accepting cashless payments more frequently from their customers at the point of sale (POS). While there are options aplenty in that regard, it’s a safe bet you need to be ready to accept credit and debit card payments.

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Why Should Your Small Business Accept Credit Cards?

Accepting credit cards can help small businesses meet consumers’ changing needs and preferences and grow their businesses.

A report by money.co.uk suggests Canada is the world’s most cashless country, with 83% of the population owning a credit card (the highest usage in the world). Our country’s high credit card issuance rate suggests numerous consumers prefer using credit cards for everyday purchases. 

When small businesses do not accept credit cards, they forego potential sales. Limited payment options can be a real pain point for customers and can even hit the brakes on closing a sale. 

Accepting credit cards is an opportunity to attract a broader customer base. And with a well-established infrastructure for processing and managing credit card transactions, it’s relatively painless for small business owners.

Moreover, the Financial Consumer Agency of Canada’s (FCAC) “Code of Conduct for the Credit and Debit Card Industry in Canada” ensures credit card companies and financial institutions are committed to responsible and ethical business practices. There are provisions for fee transparency, dispute resolution, and protection against unauthorized transactions and fraud. For small businesses, these measures help reduce the risks and uncertainties associated with accepting card payments while providing customers with more protection against fraud and other financial risks.

What Are the Benefits of Accepting Credit Card Payments?

When you accept credit card payments, you’re setting your small businesses up to succeed by attracting new customers, growing sales, and realizing better overall financial performance.

Non-fiscal benefits:

• Upgraded client experience. Credit card payments are fast and convenient for customers, increasing customer satisfaction and repeat business. Online purchases are made smoother for shoppers who save payment details on their devices. Offering flexible payment options makes it easy for your consumer, whether tapping a card or waving a smartphone.

• More robust security. Having less cash on hand diminishes the risk of theft, loss, and burglary. And credit card transactions are reasonably secure; in many instances, fraudulent charges are recoverable through your provider.

• Useful tracking and reporting. Credit card transactions can be easily tracked and reported, enabling you to manage your finances and gather valuable data. Create reports or lean on the vendor to supply reports that allow you to understand your customers better, such as how long it takes them to pay.

• Increased credibility. Businesses that accept credit cards are seen as more legitimate and professional than businesses that do not.

Fiscal benefits:

• Increased sales. You can attract more customers who prefer to pay with credit, expanding the business’s customer base and boosting sales. Another hike in sales comes from the tendency for people to spend more when using a card.

• Fast payments and improved cash flow. Credit card transactions can be accepted with a few clicks, payments are processed relatively quickly, and the money is often deposited into your account within days of the transaction. That helps improve your business’s cash flow and manage your finances more effectively. 

• Availability of financing. Some credit card companies offer small businesses the ability to access financing through their credit card processing, which can help improve cash flow and support growth.

Accepting credit card payments can give your business the tools and resources to meet consumers’ changing needs and preferences, compete more effectively, and grow the bottom line.

What Kind of Businesses Should Accept Credit Cards?

Any business can accept credit cards for payments at a brick-and-mortar location, as a mobile business, or online.

Deciding if your company should accept credit cards comes down to preferences and the unique needs of your small business. For example, if your business relies on easy transactions for the customer, consider accepting credit cards. Services like Apple Pay, Square, and PayPal make payment as easy as a tap.

Furthermore, you can speed up transactions and increase sales while meeting customers’ needs by accepting credit card payments. 

For restaurants – from fast food to fine dining to food trucks – accepting credit cards, especially tap, is commonplace. Likewise, service-based businesses like salons or professional firms must offer the convenience and security of credit card payments. And in the case of e-commerce businesses, it’s all about providing customers with a secure and convenient payment option.

What Fees Does a Small Business Pay for Accepting Credit Cards?

According to the Retail Council of Canada, about $2 from a $500 transaction goes to the credit card companies and processors, $8 goes to the banks, and about $2 goes back to consumers as rewards.

Businesses can expect to pay the following fees when accepting credit cards:

• Processing and transaction fees. Every time a customer pays with a credit card, a fee is charged by the payment processor (such as a bank or a payment service provider) to handle the credit card transaction. At the same time, fees are charged by the credit card company to cover the cost of processing and settling the transaction. Depending on the type of card and the processing company, these fees typically range from 1.5% to 3% of the transaction amount. On top of the above fees, your credit card processing company may charge a monthly or annual fee for their services, ranging from another $10 to $50 or more per month. 

• Chargeback fees. When a customer returns a purchase, fees can apply. Furthermore, if a customer disputes a charge, there may be a fee charged for the chargeback. This fee can range from $20 to $100 or more.

• Terminal or equipment fees. You may be charged for purchasing or renting a credit card terminal or other processing equipment.

• Gateway fees. Accepting credit card payments online requires paying fees for using a payment gateway, ranging from $10 to $50 per month.

As of late 2022, businesses in almost all provinces are now allowed to charge a surcharge to consumers to offset the cost of credit card processing fees. However, there are restrictions on the surcharge amount that can be applied (it must not exceed the actual cost of the credit card processing fee incurred by the business for the transaction). Additionally, surcharges cannot be imposed on prepaid cards.

The cost of credit card processing fees can represent a larger portion of the total sale for business-to-business (B2B) transactions, and it’s expected that B2Bs will be most likely to surcharge for credit card usage. Consumer-facing businesses are less likely to consider it out of fear of losing business. The inconvenience or unexpected additional cost could lead to a negative perception of your company and a decrease in loyalty and repeat business.

Are There Different Ways to Accept Credit Card Payments?

As Canadians spend their hard-earned money — in-person, mobile, or online — they want to enjoy the convenience of various payment options. From swiping the actual plastic to tapping and waving their mobile wallet or smartwatch, collecting payments while accommodating your customers’ needs is one of the most important things your business needs to do.

There are several ways businesses can accept credit card payments, and the right option for each small business will depend on its specific needs and requirements. Carefully evaluate the alternatives and choose the most effective and efficient way:

• In-person payments. For those customers shopping in person at your physical business location, you can accept credit card payments using a POS system and a credit card reader or terminal with an internet connection. Contactless payment options like Stripe, Mastercard PayPass, Visa payWave, and Square have become customary for in-store consumers.

• Mobile payments. Mobile credit card apps and readers put payments into your hands, making it easy for small businesses to accept credit card payments on the go using a mobile card reader and a smartphone or tablet. The most common mobile app services are PayPal, Apple Pay, Google Pay, and Square.

• Online payments. Accept credit card payments through your website using a virtual terminal or payment gateway (PayPal, Stripe) to process the credit card payment and deposit the funds into your account. An established e-commerce platform, such as Shopify, allows businesses to set up an online store and a gateway payment to process the credit card payment and deposit the funds into your account.

• Over-the-phone payments. Accepting credit card payments over the phone using a virtual terminal allows you to manually enter the customer’s credit card information.

5 Tips for Choosing a Payment Service Provider

When choosing a credit card payment provider for your small business, compare multiple options to find the package of services that best meets your needs at the best value for the services you receive.

Consider the following tips to help make the decision:

1. Define what your business needs

Do you need your payment processing to be in-person, online, or mobile? Do you want to accept all major credit cards and alternative payment methods like e-wallets and digital currencies? Make sure the provider you choose has the options you need.

2. Pay attention to the fees

Ensure you understand all the fees involved and choose a provider offering sustainable rates. You’re committing to transaction fees, monthly fees, equipment, and setup costs.

3. Review contracts thoroughly

Never sign a contract under pressure. Read it thoroughly, and ask questions about anything unclear. Consider having the contracts reviewed by a trusted associate. Service providers may offer you a package that includes agreements with multiple providers. As outlined by the FCAC, you must receive documents summarizing each contract’s key details. Keep these for your records in the event of discrepancies or disputes.

4. Seek a user-friendly solution with support

Don’t make things more complicated than they need to be. Look for a provider that offers an easy-to-navigate system and customer support that is responsive and always available. Ask other business owners, your financial institution, or a business association you belong to for recommendations — you want a provider with a reliable track record and good reputation.

5. Choose a service that integrates with your existing systems

You likely have multiple other systems in your business, such as a POS system, accounting software, and an e-commerce platform. The provider you choose will need to integrate easily with your existing systems.

How Can You Prevent Fraud When Accepting Credit Card Payments?

When accepting credit card payments in your small business, be aware of the risk of fraud and online scams. 

Some cards are safer than others, but you will be vulnerable if a fraudulent payment occurs and could ultimately face a hefty price. Take action to prevent fraud by being proactive and following these steps:

• Be informed. Stay on top of the latest fraud trends and techniques, and take steps to educate your staff about how to recognize the common signs of credit card fraud and how to prevent it.

• Bolster your cybersecurity. No small business is immune to the risk of a cyber-attack. Investigate where your cybersecurity defences are at today and explore ways to enhance your company’s cybersecurity measures. Implement encryption, firewalls, and other security measures to protect your systems from hackers. Keep your password policy on steroids.

• Verify, verify, verify. Verify the cardholder’s identity and address when possible. Address Verification Systems (AVS) can verify transactions by comparing the customer’s address with the information on the file. If offline, the cardholder must provide a signature and a photo ID.

• Security check. Look for security features on the card, such as a chip, a hologram, or a CVV number, to ensure the card is valid.

• Be watchful. Monitor your transactions regularly to identify suspicious or fraudulent activity and immediately report any concerns to your credit card processor, financial institution, and insurance broker.

• Use an EMV-compliant terminal. Chip cards are more secure than magnetic stripe cards, which contain static information that can easily be replicated. The EMV (Europay, Mastercard, and Visa) card chip creates a unique, one-time code for each transaction, a significant improvement towards reducing fraud from counterfeit cards. Many credit card companies now hold merchants responsible for fraudulent transactions if they do not have EMV-compliant terminals.

• Use CVV2 codes. Use CVV2 (the code on the back of the card) and dynamic CVV2 (an initiative by Visa that generates a new code for online purchases through the Visa app, protecting online merchants from accepting cards whose information was stolen in hacks).

What Type of Business Insurance Protects Against Credit Card Fraud?

Protecting your small business from threats requires a sound risk management strategy that includes a comprehensive business insurance policy.

Commercial property insurance supports businesses that suffer damages or losses from burglary or vandalism. But as it pertains to the risk of electronic fraud or internal theft, you can get broad coverage for crime-related financial losses with a policy that includes:

• Commercial crime insurance. Commercial crime coverage offers financial support if your company experiences internal theft, including employee dishonesty, fraud, forgery, and inventory theft.
• Cyber liability insurance. Cyber liability protection is essential in our online, digital world. It helps businesses recover from the impacts of cybercrime, such as phishing attacks, data breaches, and other types of cyber-attacks.

Get the insurance coverage your small business needs quickly and easily through Zensurance. Fill out our online application in a few minutes for a free quote. Our friendly, licensed brokers are always available to answer your questions and help you explore options to protect your finances and company.

– Reviewed by Justin Tisdale, Team Lead, Professional Lines, Zensurance.