The three main ways to accept credit cards
You can accept credit cards through a payment processor — a company that handles the transaction between your customer's bank and yours. The three routes differ in cost, setup time, and what equipment you need.
A payment gateway lets customers enter their card details on your website or invoice, and the processor handles the rest. A point-of-sale (POS) system is hardware and software that reads physical cards in person — a card reader plugged into a tablet or a standalone terminal. A mobile payment app lets you accept cards through your phone using a small reader attachment. Most small businesses use one or a combination of these, depending on whether they sell online, in person, or both.
Each method charges a fee per transaction, usually between 2% and 3.5% of the sale, plus sometimes a monthly subscription or per-transaction flat fee. The processor you choose affects which cards you can accept, how fast you get paid, and what support you receive if something goes wrong.
Key Takeaways
- Payment processors charge a percentage of each transaction (typically 2% to 3.5%) plus sometimes a monthly fee, so compare total costs across providers before signing up.
- A payment gateway works for online sales; a POS system or mobile reader works for in-person sales; many businesses need both.
- Your bank may offer its own payment processing, which can be cheaper than third-party processors but often has fewer features.
- Settlement time — how long before money lands in your account — ranges from same-day to three business days depending on the processor and your bank.
- You will need a business bank account and a way to prove your business identity; sole proprietors may need a Social Security number or EIN.
Payment gateways for online and invoice-based sales
A payment gateway is software that sits on your website, email invoice, or sales platform and collects card details securely. The customer enters their information, the gateway encrypts it, and the processor charges the card. You never see the full card number — the gateway handles that part.
Common gateways include Stripe, Square Online, PayPal, and Authorize.Net. Each integrates differently depending on your sales method. If you sell through Shopify, WooCommerce, or another e-commerce platform, the gateway is often built in or easily added as a plugin. If you send invoices manually, you can use a gateway that generates a payment link you paste into an email. Some gateways also let you create a straightforward checkout page without a full website.
Setup usually takes a few hours to a day. You provide your business information, bank account details, and sometimes a government ID. The processor verifies your identity and your bank account, then activates your account. Fees typically run 2.2% to 3.5% per transaction, sometimes with a small flat fee per transaction as well (like $0.30). Monthly fees are rare for basic plans.
Point-of-sale systems for in-person sales
A POS system reads physical credit cards and processes them in real time. It consists of hardware — a card reader, a screen, and sometimes a printer — and software that tracks sales, inventory, and customer data. The reader connects to your tablet, phone, or a standalone terminal.
Square, Toast, Clover, and Block are the largest providers. A basic setup costs between $0 and $500 for hardware, depending on whether you use your own device or buy a terminal. Monthly software fees range from $0 to $100 or more if you add features like inventory management or employee scheduling. Transaction fees are similar to gateways: 2.6% to 3.5% per card transaction, sometimes plus a flat fee.
POS systems are useful if you need to track inventory, manage multiple employees, or run a physical location. They also generate reports on sales trends and customer behavior. If you only occasionally take cards in person and do most sales online, a mobile card reader (described below) may be cheaper and simpler.
Mobile card readers for occasional in-person payments
A mobile card reader is a small device that plugs into your phone's headphone jack or charging port and lets you accept cards anywhere. You swipe or insert the card, the reader processes it through an app on your phone, and the money goes to your account. Square Reader, PayPal Here, and Stripe Terminal are common options.
Hardware costs $10 to $50. There is usually no monthly fee. Transaction fees are the same as other methods: around 2.75% per card transaction. This route works well if you are a freelancer, contractor, or small-business owner who takes occasional payments in person but does not need a full POS system.
The main limitation is that you depend on your phone's internet connection. If your signal drops, the transaction may fail or be delayed. For high-volume in-person sales, a dedicated POS terminal is more reliable.
What your bank can offer
Many banks offer their own payment processing services, sometimes called merchant services. Your bank may process cards at a lower rate than a third-party processor because they already know your account and business. Some banks bundle payment processing with a business checking account.
The downside is that bank processing is often less flexible. You may have fewer options for integrating with your website or POS system, and customer support can be slower. Bank rates are not always lower once you add all fees together — compare the total cost (percentage, flat fees, monthly fees, and settlement time) against at least two third-party processors before deciding.
If you already have a business bank account, ask your bank what payment processing options they offer and what the full cost would be. Then compare that quote to Stripe, Square, or PayPal using their pricing calculators.
Settlement and security considerations
Settlement time is how long it takes for the money to land in your bank account after a customer's card is charged. Most processors settle within one to three business days. Some offer same-day settlement for an extra fee. If you need cash quickly — for example, if you run a retail store and need to restock inventory — faster settlement matters and is worth paying for.
Security is handled by the processor, not by you. All payment processors must comply with PCI DSS (Payment Card Industry Data Security Standard), which means they encrypt card data and protect it from theft. You do not store full card numbers on your own computer or server. The processor stores the encrypted data and you receive only a confirmation that the charge went through.
Fraud protection varies by processor. Some flag suspicious transactions automatically, others let you set rules (like blocking cards from certain countries), and some offer fraud insurance. Read the processor's fraud policy before signing up, especially if you sell high-value items or internationally.
Comparing processors: what to check
Before choosing a processor, list what you need: Do you sell online, in person, or both? Do you need inventory tracking or employee management? How fast do you need the money? What is your average transaction size and volume?
Then compare at least two processors on these points: total monthly cost (add up the percentage fee, flat fees per transaction, and any monthly subscription), settlement time, integration with your website or POS platform, customer support availability, and fraud protection. Many processors offer a free trial or a low-cost first month, so test the software before committing.
Check reviews from other small-business owners in your industry. A processor that works well for a coffee shop may not work well for a consulting firm. Look for complaints about hidden fees, slow payouts, or poor support — these are common problems that show up in reviews.
Frequently Asked Questions
Do I need a business license to accept credit cards?
No, but you do need a business bank account and a way to prove your business identity. Most processors require an EIN (Employer Identification Number) or Social Security number, a government ID, and proof of your business address. Sole proprietors can often use their Social Security number instead of an EIN, but policies vary by processor.
What happens if a customer disputes a charge?
The customer's bank investigates the dispute, and the processor notifies you. You have a window (usually 7 to 10 days) to provide evidence that the charge was legitimate — an order confirmation, shipping receipt, or email from the customer. If you cannot prove it, the money is returned to the customer and deducted from your account. Repeated chargebacks can result in higher fees or account closure.
Can I accept credit cards without a website?
Yes. You can send payment links via email, text, or invoice. Processors like Square, PayPal, and Stripe let you generate a link that customers click to enter their card details. You can also use a mobile card reader to take payments in person. A website is not required.
Which processor is cheapest?
It depends on your sales volume and method. For low-volume online sales, Stripe and Square have similar rates around 2.9% plus $0.30 per transaction. For in-person sales, Square and Clover are competitive. For high volume, negotiate directly with the processor or use your bank. Calculate your expected monthly volume and compare total costs across three processors before deciding.
How long does it take to set up a payment processor?
Most processors set up your account within 24 to 48 hours after you submit your information. If they need to verify your identity or bank account, it may take a few extra days. You can usually start taking payments as soon as your account is active, though some processors hold your first few payouts to reduce fraud risk.