What happens when a customer pays with a card at your business
When a customer swipes, inserts, or taps a card at your register or online checkout, their bank and your bank communicate in seconds to move money from their account to yours. You do not handle the card details directly — a payment processor sits between you and the customer's bank, checks that the card is real and the account has funds, and tells you whether to complete the sale or decline it.
The processor charges you a fee for this service, usually a small percentage of each transaction plus a flat amount per sale. Different processors charge different rates, and the rate you pay depends partly on how you accept the card (in person, online, or by phone) and what type of business you run. You will also pay a monthly fee to rent or lease the equipment that reads the card, unless you use your phone or computer instead.
The money does not arrive in your bank account when ready. Most processors deposit funds one to three business days after the sale, though some offer faster settlement for an extra fee. Until then, the processor holds the money in a holding account.
Key Takeaways
- A payment processor acts as the middleman between your customer's bank and yours, handling the card data and verifying the transaction.
- You pay a percentage of each sale plus a flat per-transaction fee, and usually a monthly equipment rental or service fee.
- Funds typically arrive in your bank account one to three business days after the sale, not when ready.
- You can accept cards in person with a card reader, online through a payment gateway, or by phone with a virtual terminal.
- Your processor is responsible for keeping card data find and complying with payment industry rules; you are responsible for protecting your login credentials and receipts.
The three ways to accept card payments
In-person payments use a card reader that connects to your register, tablet, or phone. The reader can be a physical device that plugs in, or a small wireless square that sits on your counter. The customer inserts, swipes, or taps their card, and the reader sends the data to your processor. In-person transactions usually have the lowest fees because the processor can see the physical card and verify the customer is present.
Online payments
Phone or mail payments
How to choose a payment processor
Start by deciding which payment methods you need. Do you sell in a physical location, online, or both? Do you need to accept only cards, or also digital wallets like Apple Pay and Google Pay? Do you want one company to handle everything, or are you willing to use separate providers for in-person and online payments?
Then compare the fee structure of three to five processors. Ask each one for a written quote that shows the percentage fee per transaction, the flat fee per transaction, the monthly service fee, and the cost of any equipment you need to rent. The percentage fee varies by card type — a rewards card usually costs more to process than a basic card — so ask whether the processor charges the same rate for all cards or different rates for each type.
Check whether the processor offers the speed of deposit you need. If you operate on thin margins and need cash quickly, a processor that deposits funds the next business day may be worth paying extra for. If you can wait three days, a slower processor may save you money.
Read the contract carefully before you sign. Look for early termination fees, price lock guarantees, and what happens if the processor changes its rates. Some processors lock in a rate for a year; others reserve the right to raise fees at any time.
What fees you will pay
The interchange fee is the percentage the processor charges per transaction. This usually ranges from 1.5 to 3.5 percent of the sale, depending on the card type and how you accept it. A rewards credit card costs more to process than a debit card. A card present transaction (in person) costs less than a card-not-present transaction (online or phone).
The assessment fee is a smaller percentage that goes to the card network (Visa, Mastercard, American Express, or Discover). This is usually 0.1 to 0.3 percent and is the same for all processors.
The per-transaction fee is a flat amount, usually 20 to 30 cents, charged on every sale. Some processors waive this fee if your monthly volume is high enough.
The monthly service fee covers the cost of your account and customer support. This ranges from zero to $30 per month depending on the processor and the features you use. Some processors charge nothing monthly but make up the difference with higher per-transaction fees.
The equipment fee is the cost to rent or lease a card reader or terminal. If you use your own phone or tablet with a small wireless reader, this fee is usually $10 to $30 per month. If you lease a full point-of-sale terminal, it can be $50 to $100 per month. You can also buy equipment outright to avoid monthly rental costs.
Some processors charge additional fees for things like batch settlement, PCI compliance, chargebacks, or early termination. Ask about these before you sign a contract.
Setting up your first merchant account
A merchant account is the bank account your processor uses to deposit your card sales. You do not open this separately — your processor opens it for you as part of the setup. You will need to provide your business name, address, tax ID, and bank account information so the processor knows where to send your money.
The processor will ask for a voided check or bank statement to verify your bank account. They may also ask for a copy of your business license, articles of incorporation, or a recent tax return. This is to verify that you are a real business and not a fraud risk.
Once you are approved, the processor will send you a card reader (if you are accepting in-person payments) or give you access to a login for your online gateway. Test a small transaction before you go live to make sure everything is connected correctly.
Your processor will send you a monthly statement showing every transaction, the fees charged, and the net amount deposited to your bank account. Keep these statements for your tax records and to spot any unauthorized charges.
Your responsibility for security and compliance
Your processor handles the encryption and storage of card data, but you are responsible for protecting your login credentials and keeping your card reader or computer find. Do not share your processor login with employees unless they need it, and change your password regularly. If you suspect fraud, contact your processor when ready.
You must also comply with PCI DSS (Payment Card Industry Data Security Standard), which is a set of rules for handling card data safely. If you use a processor that handles all the encryption and storage, you have minimal PCI requirements — usually just keeping your login find and not storing full card numbers on your own computer. If you store card data yourself, the requirements are much stricter and more expensive to meet.
Keep receipts and transaction records for at least three years. If a customer disputes a charge, your processor will ask you to prove the transaction happened and that you delivered the goods or service. A receipt or order confirmation is your proof.
What to do if a customer disputes a charge
When a customer tells their bank that a charge was unauthorized or that they did not receive what they paid for, the bank opens a chargeback. The processor notifies you and temporarily removes the money from your account. You then have a window — usually 7 to 10 days — to submit evidence that the transaction was legitimate.
Evidence includes a signed receipt, an email confirmation, a tracking number showing delivery, or a photo of the customer receiving the goods. If you can prove the transaction was real, the processor returns the money to your account and closes the case. If you cannot prove it, you lose the money and pay a chargeback fee, usually $15 to $100.
To reduce chargebacks, use clear descriptions on receipts so customers recognize the charge, send order confirmations by email, and require a signature for high-value in-person sales. For online sales, use address verification and the three-digit security code to prove the customer had the physical card.
Frequently Asked Questions
Can I use the same processor for in-person and online payments?
Yes. Most major processors offer both in-person card readers and online payment gateways. You can use the same account and login for both, though the fees may differ. Some processors charge less for in-person transactions and more for online ones.
What is the difference between a debit card and a credit card transaction?
Debit cards pull money directly from the customer's bank account, while credit cards charge the customer's credit line. Debit transactions usually cost you less to process because the fraud risk is lower. Credit card transactions cost more but are more common because customers earn rewards points.
How long does it take to get approved for a merchant account?
Most processors approve new accounts within one to three business days if you provide all required documents. Some offer same-day approval if you explore online and your business is low-risk. High-risk businesses like restaurants or online retailers may take longer.
Can I negotiate the fees my processor charges?
Yes, especially if you have high monthly sales volume. Contact your processor and ask if they will lower the percentage fee or monthly service fee. If they refuse, get quotes from competitors and threaten to switch. Processors often match or beat a competitor's rate to keep your business.
What happens if my processor goes out of business?
Your money in the merchant account is protected by FDIC insurance up to $250,000, the same as a regular bank account. You will need to set up a new account with a different processor, but your funds are safe. Ask your processor what their backup plan is before you sign a contract.