A beginner’s guide to small business payment processing

What is payment processing and why it matters for small business

Payment processing is the behind-the-scenes sequence that lets you accept and receive money from your customers. Whether you're running a café, a clothing boutique or a service business, seamless payment acceptance helps keep your operations flowing and your customers coming back.

You may accept payments in person, online or via mobile devices. Each of these methods connects your customer to your business through a series of secure, timed steps. Smooth payment experiences can mean the difference between a sale completed and one abandoned.

How payment processing works: step by step

Transaction initiation to settlement

Every payment starts when a customer initiates a purchase. From that moment, the transaction flows through a structured path:

1. Payment initiation – The customer chooses a payment method and confirms the amount. This could be tapping a card, entering details online, or scanning a code in-store.
2. Data transmission – The transaction data is encrypted and sent through the payment gateway to the payment processor.
3. Authorisation request – The processor sends the request to the issuing bank (the customer’s bank) to check for available funds and potential fraud.
4. Authentication – The customer may be asked to confirm their identity. This could involve a PIN, password, biometric check, or a code sent to their device.
5. Authorisation response – The issuing bank approves or declines the transaction and sends a response back through the same channel.
6. Clearing – The payment data is batched and exchanged between institutions. This includes final transaction details and fees.
7. Settlement – Funds move from the customer’s bank to the merchant’s acquiring bank and are deposited into the merchant account. Depending on the provider, this can take from a few hours to a couple of days.

Each step is designed to be fast, secure, and accurate, reducing the chance of errors while maintaining a smooth customer experience.

Key players in the payment ecosystem

Several entities work together to complete each transaction:

• Payment gateway: securely sends transaction data.
• Payment processor: routes the transaction between parties.
• Merchant account: holds funds before they are settled into your business bank account.
• Acquiring bank: authorises and facilitates transactions on your behalf.

Payment processing options for small businesses

There are a few common ways small businesses can set up payment processing. Each one varies in setup effort, cost structure, and how much control or flexibility it offers. Here's a simplified comparison to help you assess what might suit your needs best:

Types of transactions: in-person, online and mobile

Small businesses today accept payments in a variety of ways. The setup you choose depends on how and where your customers buy from you; face to face, over the phone, or through your website.

In-person payments

These are face-to-face transactions, typically processed using:

• Card readers (chip, swipe, tap)
• POS systems with integrated software
• Mobile readers connected to smartphones or tablets

This setup is popular with cafés, retail shops, and mobile vendors who need quick and reliable in-store payment acceptance.

Online payments

Online transactions take place through your website or app. These include:

• Checkout pages for one-time purchases
• Embedded payment forms for service bookings or orders
• Hosted links that you can share by email or chat

Recurring billing, such as subscription models or auto debit, also falls into this category and is ideal for memberships or regular service fees.

Mobile and remote payments

Customers can also pay using:

• QR codes scanned in-store or from a screen
• Payment links sent by SMS or social apps
• Virtual terminals where you manually enter card details for phone orders

These flexible options help small businesses serve customers wherever they are—without the need for expensive hardware or complex integrations.

Cost breakdown: what you’ll pay and why

Costs can vary depending on the type of setup you choose, the payment methods you offer, and how your customers pay. While every business is different, here are the common cost components small businesses are likely to encounter:

Transaction fees (swiped, keyed, online)

Most providers charge per transaction. This fee often includes a percentage of the sale and a fixed fee per transaction:

• Swiped or tapped transactions (in-person): usually the lowest rate due to lower fraud risk.
• Keyed-in transactions (e.g., over the phone): higher rates as they carry more fraud risk.
• Online transactions: typically similar to or slightly higher than in-person due to the added layers of security and processing.

Pricing models

Different providers use different fee structures:

• Flat-rate pricing: one simple rate for all transactions. Easy to predict, great for lower volumes.
• Interchange-plus pricing: a base fee (interchange) plus a provider markup. Transparent, often better value at higher volumes.
• Tiered pricing: rates grouped by transaction type or risk level. Can be harder to decode and compare.

Monthly, setup and hidden fees

In addition to per-transaction costs, you might encounter:

• Monthly service fees for account access or support
• Gateway fees if using a separate payment gateway
• PCI compliance fees to cover security standards
• Chargeback fees if a customer disputes a charge
• Early termination or contract fees in more traditional setups

Some providers roll these into a single monthly rate, while others itemise each one. Always ask for a full breakdown in writing.

The bottom line

Your actual costs will depend on the tools you use, the volume and value of your sales, the types of payment methods you support, and the level of service you need. While there’s no one-size-fits-all number, understanding these categories will help you compare providers with confidence. We’ve written more about payment gateway fees here.

Essential payment hardware and software

Your payment setup depends on how you serve your customers, i.e. in person, online, or remotely. The right mix of tools can help you take payments efficiently and reduce friction at checkout. Here's a simple comparison of the main options:

Integration with e-commerce, accounting and booking tools

The right provider should work with tools you already use, from your ecommerce platform to accounting or booking software. Many small businesses benefit from providers offering plug-ins for platforms like Shopify, WooCommerce or Xero, or APIs and SDKs for more sophisticated setups.

Popular payment methods and customer expectations

Today’s consumers choose convenience, familiarity, and speed. If your business doesn’t support the methods your customers prefer, you risk losing sales at the final step.

Credit/debit cards, wallets, contactless and cross-border options

Most small businesses start by accepting major credit and debit cards such as Visa, Mastercard, and American Express. But many customers also expect to use mobile wallets like GrabPay, PayPay, GCash, or Alipay+.

Contactless payments are increasingly common, especially for low-value, in-person purchases. QR code payments and tap-to-pay functionality add speed and reduce friction. For online transactions, saved card details, one-click checkout, and secure redirects improve the user experience.

As digital payments evolve, it's also helpful to support bank transfers, buy-now-pay-later (BNPL) options, or country-specific e-wallets if your audience demands it.

Supporting international and multi-currency payments

If you serve international customers consider accepting multiple currencies and local payment methods. Multi-currency pricing allows buyers to see prices and pay in their home currency, which can boost trust and reduce cart abandonment.

Many payment providers offer currency conversion and settlement features that simplify this process for small businesses, letting you expand into new markets without building separate infrastructure for each one.

Choosing the right provider for your business

What to consider: fees, features, scalability and support

Look for transparent pricing, scalability, responsive support, and availability of preferred payment methods. Ask about uptime guarantees, onboarding speed and dispute handling.

Checklist: what to ask when comparing payment providers

• What payment methods are supported?
• Do they offer fraud prevention tools?
• Is analytics reporting included?
• Are there contract minimums or cancellation fees?

Security, compliance and fraud prevention

Understanding PCI DSS, encryption and tokenisation

PCI DSS is a security standard required for handling cardholder data. Tokenisation replaces sensitive data with encrypted tokens, making it harder for criminals to exploit. Antom handles tokenisation and secure APIs on your behalf.

Dealing with chargebacks and disputes

Chargebacks can be time-consuming. A provider with clear dispute resolution processes and fraud monitoring can help reduce losses and save time.