The three main ways to accept credit card payments
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 are: a point-of-sale (POS) terminal if you take payments in person, a payment gateway if you take them online, or a mobile reader if you use a smartphone or tablet.
Each route connects to a merchant account, which is where the money lands after the card company takes its cut. You do not need to open a separate bank account; the processor deposits funds into your existing business checking account, usually within one to three business days.
The processor charges you a fee for each transaction — typically 2.2% to 3.5% of the sale amount, plus a flat fee of 20 to 30 cents per transaction. Some processors charge a monthly fee instead of or in addition to per-transaction fees. The exact rate depends on your industry, sales volume, and the processor you choose.
Key Takeaways
- You need a merchant account and a payment processor to accept credit cards; most processors set up both at the same time.
- In-person payments use a POS terminal or mobile reader, online payments use a payment gateway, and each has different hardware and software needs.
- Transaction fees range from 2.2% to 3.5% plus 20 to 30 cents per sale, and rates vary by processor, industry, and your sales volume.
- The processor deposits money into your existing business bank account, not a separate merchant account you have to manage.
- Setup takes one to five business days after you choose a processor and provide your business license, tax ID, and bank account details.
Accepting payments in person with a POS terminal or mobile reader
A point-of-sale terminal is a physical device that sits on your counter. The customer inserts, taps, or swipes their card, and the terminal connects to your processor to complete the sale. Most terminals also print receipts and store transaction history on the device itself.
A mobile reader is a smaller device that plugs into your phone or tablet's headphone jack or charging port. It works the same way as a terminal but is portable, so you can take payments anywhere — at a market stall, a client's home, or a pop-up event. Popular mobile readers include Square Reader, PayPal Here, and Clover Go.
Both options require you to have a merchant account with a processor. Most processors that offer terminals or readers — such as Square, Clover, Toast, or Stripe — handle the setup themselves. You provide your business license, tax ID, and bank account details, and they issue you the hardware within three to seven business days.
The hardware itself is often free or costs $50 to $300 upfront, depending on the processor and terminal type. You pay transaction fees on every sale, and some processors charge a monthly subscription ($0 to $50) if you want advanced features like inventory tracking or employee management.
Accepting payments online with a payment gateway
A payment gateway is software that lets customers enter their card details on your website or in an email invoice. The gateway encrypts the information, sends it to your processor, and displays the result on your screen — approved or declined — in seconds.
You do not need any physical hardware. You integrate the gateway into your website using code (if you have a developer) or a plugin (if you use Shopify, WooCommerce, or another platform). Some gateways like Stripe, Square Online, and PayPal also let you send a payment link via email or text, so customers can pay without visiting your website.
Setup is faster than in-person payment methods. Most gateways let you start taking payments within 24 hours of signing up. You provide your business details and bank account information, and the processor verifies them in the background while you begin accepting transactions.
Online gateways charge the same per-transaction fees as in-person terminals — usually 2.2% to 3.5% plus 20 to 30 cents — but rarely charge a monthly fee unless you want premium features. Some gateways charge an additional 2% to 3% if the customer enters their card details manually rather than inserting or tapping the card, because manual entry is riskier for fraud.
What information you need before you start
Every processor requires the same basic information to set up a merchant account. Have these documents ready before you explore:
- Your business license or sole proprietor ID
- Your federal tax ID (EIN) or Social Security number if you are a sole proprietor
- Your business checking account number and routing number
- Your business address and phone number
- The names and Social Security numbers of any owners with more than 20% stake in the business
If your business is brand new, some processors ask for a business plan or proof of funding. If you have been in business for less than two years, they may ask for bank statements or tax returns to verify your sales history.
The processor uses this information to verify your identity and run a background check. They also check your business against fraud databases. This process usually takes one to five business days, though some processors approve you when ready and complete verification in the background.
Comparing processors by industry and sales volume
Different processors are built for different types of businesses. Retail stores and restaurants often use Clover or Toast because those platforms include inventory and staff management. Online sellers use Shopify or WooCommerce because those platforms are built into website builders. Freelancers and small service businesses often use Square or Stripe because they are straightforward and have low monthly costs.
Your sales volume also affects which processor makes sense. If you process less than $1,000 per month, a mobile reader like Square Reader or PayPal Here is usually cheapest because there is no monthly fee — you only pay per transaction. If you process $5,000 to $20,000 per month, a POS terminal with a flat monthly fee ($20 to $50) often costs less overall than paying per-transaction fees. If you process more than $20,000 per month, you can negotiate custom rates with larger processors like First Data or Global Payments.
Before you choose a processor, calculate your expected monthly fees under each option. Multiply your average transaction size by your expected number of transactions per month, then multiply that by the processor's per-transaction rate. Add any monthly fees. The processor with the lowest total is usually the right choice for your volume.
How money moves from the card to your bank account
When a customer swipes or enters their card, the processor sends the transaction to the card network (Visa, Mastercard, American Express, or Discover). The card network checks with the customer's bank to confirm the card is valid and the account has enough money. The bank approves or declines the transaction and sends the result back to the processor in seconds.
If approved, the processor holds the money temporarily in a settlement account. Once per day — usually at night — the processor batches all your approved transactions from that day and deposits the total into your business checking account. This deposit usually arrives within one to three business days, depending on your bank and the processor.
The processor deducts its fees from the deposit before it hits your account. So if you processed $1,000 in sales and the processor's rate is 2.9% plus 30 cents, you receive $970.70 in your bank account, and the processor keeps $29.30.
Some processors let you choose when to settle — daily, weekly, or monthly. Others settle automatically once per day. Check the processor's settlement schedule before you sign up if timing matters to your cash flow.
Security and fraud protection
Every processor encrypts card data so it cannot be read if intercepted. Most also comply with PCI DSS (Payment Card Industry Data Security Standard), which is a set of rules that card networks require all merchants to follow. PCI compliance means you do not store full card numbers on your own computer or phone — the processor stores them securely on their servers.
Processors also offer fraud protection. If a customer disputes a charge, the processor investigates and either refunds the customer or sides with you. If you lose a dispute, the processor charges you a chargeback fee (usually $15 to $100) in addition to refunding the customer. To reduce chargebacks, keep clear records of what you sold, when, and for how much, and respond quickly to customer disputes.
If you take payments in person, use a terminal or reader that requires the customer to insert or tap their card rather than swiping. Inserted and tapped cards are encrypted and harder to counterfeit. If a customer's card is later used fraudulently, the card network is more likely to hold the customer's bank responsible rather than you.
Frequently Asked Questions
Can I accept credit cards without a business license?
Most processors require a business license or proof that you are operating as a sole proprietor. If you do not have a license yet, you can usually still open a merchant account using your Social Security number and a business address, but the processor may limit your transaction volume or charge higher fees until you provide a license.
What happens if a customer disputes a charge?
The processor investigates the dispute by asking you for proof of the transaction — a receipt, invoice, or email confirmation. If you provide proof that the customer received what they paid for, the processor usually sides with you and the customer's bank refunds the dispute fee. If you cannot provide proof, you lose the money and pay a chargeback fee.
Do I have to use the processor's bank account, or can I use my own?
You use your own existing business checking account. The processor deposits money directly into whatever account you provide during setup. You do not open a separate merchant account or give the processor control of your money.
How long does it take to get approved?
Most processors approve you within 24 hours and let you start taking payments when ready. Full verification of your business details usually takes one to five business days in the background. Some processors approve you when ready if you have good credit and a clean background check.
Can I accept credit cards if I work from home?
Yes. You can use a mobile reader to take payments anywhere, and you can use a payment gateway to take payments online. Most processors do not require a physical storefront. You just need a business address, which can be your home address, and a way for customers to reach you.