What a credit card processor does and why you need one
A credit card processor is the company that handles the technical side of accepting card payments—they connect your business to the customer's bank, check that the card is valid, move the money from the customer's account to yours, and handle the security requirements. You cannot accept credit cards without one, whether you take payments in person, online, or over the phone.
The processor is separate from your bank account. Your bank holds the money once it arrives, but the processor is the middleman that makes the transaction happen. Some processors are owned by banks; others are independent companies. Either way, you will pay a fee for each transaction, usually a percentage of the sale plus a small flat fee.
Choosing the right processor matters because the fees add up quickly, the setup process varies widely, and some processors work better for certain types of business—a restaurant has different needs than an online store or a service business that invoices clients.
Key Takeaways
- Credit card processors charge a percentage of each transaction (typically 1.5 to 3.5 percent) plus a per-transaction fee, and these costs vary significantly between providers.
- You will need a business bank account and an Employer Identification Number (EIN) or Social Security Number to open a processor account.
- In-person processors (like Square or Clover) require a card reader; online processors (like Stripe or PayPal) integrate with your website; and phone-based processors work for mail orders or phone sales.
- Setup usually takes one to three business days for approval, though some providers offer same-day set up for basic accounts.
- Monthly fees, statement fees, and chargeback fees vary by processor and can add $10 to $50 or more per month on top of per-transaction costs.
The three main types of processors and how they work
In-person processors are designed for brick-and-mortar businesses or anyone who takes payments face-to-face. Square, Clover, Toast, and Block are the most common. You plug a card reader into your phone, tablet, or computer, and customers tap or insert their card. These processors are straightforward to set up—often in under an hour—and the hardware is inexpensive or free. Fees run about 2.6 percent plus 10 cents per transaction for card-present payments (when the customer is in front of you), which is lower than card-not-present rates.
Online processors handle payments on your website or through invoices you send by email. Stripe, PayPal, Square Online, and Shopify Payments are the main ones. You do not need special hardware; the processor integrates with your website or invoicing software. Fees are typically 2.9 percent plus 30 cents per transaction. Setup takes longer because the processor needs to verify your business identity, and approval can take one to three business days.
Phone and mail processors are for businesses that take orders by phone or mail and do not have the card in front of them. These are usually the same companies as in-person processors (Square, Clover, PayPal) but you enter the card details manually. Fees are higher—usually 3.5 percent or more—because the processor takes on more fraud risk when the card is not physically present.
What fees to expect and how to compare them
Every processor charges a per-transaction fee, which is the main cost. This is almost always a percentage of the sale plus a flat fee. A typical rate is 2.6 percent plus 10 cents for in-person, or 2.9 percent plus 30 cents for online. On a $100 sale in person, you would pay $2.70. On a $100 online sale, you would pay $3.20. These rates vary by processor and by your sales volume—larger businesses often negotiate lower rates.
Beyond per-transaction fees, watch for monthly statement fees (usually $5 to $15), chargeback fees (typically $15 to $25 per dispute), and batch fees (charged when you settle your daily sales, though many processors waive this now). Some processors charge a monthly minimum or a monthly fee instead of per-transaction fees—this works only if your sales volume is very high.
To compare processors fairly, calculate the total cost on your expected monthly sales. If you expect $5,000 in monthly sales at 2.6 percent plus 10 cents per transaction, that is roughly $130 in fees. At 2.9 percent plus 30 cents, it is roughly $145. Over a year, that $15 difference matters, but so does whether the processor integrates with your accounting software or whether they offer the hardware you need.
Documents and information you will need to provide
When you sign up for a processor, you will need to provide your business name and address, your business bank account number and routing number, and either your Employer Identification Number (EIN) or Social Security Number. If you are a sole proprietor, you can use your SSN; if you are an LLC or corporation, you need an EIN.
You will also need to provide information about your business type (retail, restaurant, services, online store, etc.), your expected monthly sales volume, and sometimes your average transaction amount. The processor uses this to assess fraud risk and set your account limits.
For in-person processors, you may need to provide a photo ID and a recent business license or tax return. Online processors often ask for the same, especially if your business is new or your sales volume is high. Some processors will ask for a voided check to verify your bank account. Have these documents ready before you start the process—it speeds up approval.
How to set up an account step by step
For in-person payments: Go to the processor's website (Square, Clover, PayPal, or Toast), click "Sign Up" or "get your free guide", and enter your email and business name. You will be asked for your business address, phone number, and bank account details. read the app or software to your phone or tablet, plug in the card reader, and process a test transaction. Most in-person processors set up within a few hours.
For online payments: Visit the processor's website and click "Sign Up". Enter your email, business name, and website URL. You will be asked for your business address, phone number, bank account number, and either your EIN or SSN. The processor will send you an email asking you to verify your identity—this usually means uploading a photo ID and sometimes a business license or tax return. Approval typically takes one to three business days. Once approved, you will receive login credentials and can integrate the payment form into your website or start sending invoices.
For phone or mail payments: The setup is the same as in-person, but you will manually enter card details into the processor's portal or software instead of using a card reader. Some processors charge a higher rate for this method because fraud risk is higher.
After approval, test the system with a small transaction before you go live. Make sure the money lands in your business bank account and that you can see the transaction in your processor's dashboard.
Processor features that matter for different business types
Restaurants and retail: Look for processors that integrate with point-of-sale (POS) systems like Toast, Square, or Clover. These let you track inventory, manage staff, and see sales reports in one place. In-person rates are lower, so prioritize processors with strong in-person payment options.
Online stores: Stripe and Shopify Payments integrate directly with e-commerce platforms. If you use Shopify, WooCommerce, or BigCommerce, use the processor built into that platform—it is simpler and usually cheaper. PayPal and Square also work but require extra setup steps.
Service businesses (plumbers, consultants, contractors): You need a processor that handles invoicing and recurring payments. Square Invoices, PayPal, and Stripe all offer this. Look for one that lets you send invoices by email and automatically charge a card on a schedule if you have retainer clients.
High-ticket or low-volume sales: If you sell expensive items or close only a few deals per month, per-transaction fees matter less than monthly fees. Some processors charge $0 per transaction but have a $15 monthly fee—this works better for you than 2.9 percent per transaction.
What happens after you are approved
Once your account is active, money from card sales will land in your business bank account. The timing varies: most processors deposit funds within one to two business days, though some offer same-day or next-day deposits for a small fee. You will see a line item on your bank statement for each deposit, and you can log into your processor's dashboard to see a detailed breakdown of every transaction, fee, and deposit.
You will receive a monthly statement from your processor showing all transactions, fees, and your net deposit. Keep these statements for your tax records and accounting. If a customer disputes a charge (a chargeback), the processor will notify you and deduct the amount from your account while they investigate. If you lose the dispute, you pay the chargeback fee on top of the refund.
Most processors let you change your rates or features as your business grows. If you reach a higher sales volume, you can often negotiate lower rates. If you add a new payment method (like ACH transfers or digital wallets), you can usually enable it in your account settings without reapplying.
Frequently Asked Questions
Can I use multiple processors at the same time?
Yes. Many businesses use one processor for in-person payments and another for online payments, or they use different processors for different sales channels. There is no rule against it, but managing multiple accounts means multiple logins, multiple statements, and potentially higher total fees. Start with one processor and add another only if the first one does not meet your needs.
What is the difference between a processor and a payment gateway?
A payment gateway is the software that encrypts and transmits card data; a processor is the company that receives that data and moves the money. Many companies do both—Stripe and PayPal are both gateways and processors. For your purposes, you only need to choose a processor; the gateway is built in.
Do I need a separate merchant account?
Not anymore. Older processors required you to open a separate merchant account through a bank, which was slow and expensive. Modern processors like Square, Stripe, and PayPal handle everything in one account. You just need a business bank account to receive deposits.
What happens if my processor goes out of business?
Your money is safe—it goes into your business bank account, not the processor's account. If a processor shuts down, you will need to switch to a new one, but your existing deposits are yours. Set up a new processor account before you close the old one so there is no gap in your ability to accept payments.
Can I negotiate lower fees?
Yes, but usually only if your monthly sales volume is high (typically $10,000 or more per month). Contact the processor's sales team and ask if they offer volume discounts. Smaller businesses rarely get rate reductions, but it never hurts to ask. Switching to a different processor is sometimes cheaper than negotiating with your current one.