The three ways to take card payments, and which one fits your business
You can take credit card payments three ways: through a payment processor that handles the transaction and deposits money into your bank account, through a payment gateway that connects your website or app to your existing merchant account, or through a point-of-sale system that combines hardware, software, and processing into one package. Most small businesses start with a payment processor because it requires no setup with a bank and no technical integration — you just sign up, get a card reader or link, and start accepting payments the same day.
The processor takes a cut of each transaction (usually 2 to 3 percent plus a small flat fee per transaction) and handles the compliance work that banks require. The gateway is cheaper per transaction but demands more from you: you need a merchant account with a bank, you need to integrate the gateway into your website code or point-of-sale software, and you handle more of the compliance yourself. The point-of-sale system is best if you have a physical location and want one tool that rings up sales, tracks inventory, and processes cards all at once.
Key Takeaways
- Payment processors like Square, Stripe, and PayPal are the fastest way to start: you sign up online, get a card reader or payment link, and can accept cards within hours.
- Each transaction costs you a percentage (usually 2 to 3 percent) plus a small flat fee, and the processor deposits money into your bank account daily or weekly.
- You will need a business bank account, a tax ID or Social Security number, and basic information about your business to set up any processor.
- Point-of-sale systems add inventory tracking and receipt printing but cost more per month and work best for retail stores or restaurants with a physical location.
- Payment gateways are cheapest per transaction but require technical setup and a separate merchant account, so they suit businesses that already have developer support.
What you need before you can accept cards
Every processor requires the same core information: your legal business name, your address, your tax ID (EIN) or Social Security number if you are a sole proprietor, and your business bank account number. They also ask what you sell, how much you expect to process per month, and whether you have taken card payments before. This information helps them assess risk — processors are liable if a cardholder disputes a charge, so they screen new merchants.
You will also need to choose how you want to receive payments. If you sell in person, you need a card reader that plugs into your phone or tablet. If you sell online, you need a payment link or a form embedded in your website. If you run both, you need both. Most processors let you switch between them on the same account, so you do not have to choose one forever.
The entire signup process usually takes 15 to 30 minutes online. Some processors approve you when ready; others review your process and email you within a few hours. Once you are approved, you can start taking payments when ready.
How payment processors work and what they cost
When a customer swipes, taps, or enters their card, the processor sends the information to the card network (Visa, Mastercard, American Express, Discover), which checks with the customer's bank. The bank approves or declines the charge. The processor then deposits the money into your business bank account, minus their fee.
The fee structure varies by processor and by how the card is used. If the customer is physically present and you read the card directly (called card-present transactions), the fee is usually 2.6 percent plus 10 cents per transaction. If the customer is not present — they give you their card number over the phone or online — the fee is usually 2.9 percent plus 30 cents per transaction. Card-not-present costs more because the risk of fraud is higher.
Some processors charge a monthly fee ($0 to $50 depending on the plan) on top of per-transaction fees. Others charge no monthly fee but take a slightly higher percentage. A few charge a flat monthly fee instead of per-transaction fees, which makes sense only if you process a very high volume. Compare the total cost for your expected monthly volume, not just the per-transaction rate.
Deposits usually arrive in your bank account within one to three business days. Some processors offer next-day deposits for an extra fee, and some hold back a small percentage of each deposit as a reserve for the first few months.
The difference between in-person, online, and hybrid setups
If you take payments in person — at a farmers market, a salon, a repair shop — you need a card reader. Most processors offer a small wireless reader that connects to your phone via Bluetooth and costs $20 to $50 to buy. You tap the customer's card on the reader, the processor handles the rest, and a receipt prints or emails automatically. This is the simplest setup and the one most small businesses use first.
If you take payments online only — through a website, an invoice, or a social media message — you need a payment link or a form. A payment link is a URL you send to the customer; they click it, enter their card details, and the payment goes through. A form is code you embed in your website so customers never leave your site. Both work with any processor, though the setup differs slightly.
If you do both — you have a physical location and a website — you can use the same processor account for both. You just add a card reader for in-person sales and a payment link or form for online sales. The fees are the same either way, and the money goes into the same bank account.
Point-of-sale systems for retail and restaurants
A point-of-sale system (POS) is a combination of hardware, software, and payment processing designed for businesses with a physical location. It includes a tablet or terminal, a card reader, a receipt printer, and software that tracks inventory, manages staff, and records sales. Square, Toast, Clover, and Shopify POS are the most common for small businesses.
The advantage is that everything is integrated: when you ring up a sale, the inventory updates automatically, the customer gets a receipt, and the payment is processed. You do not have to use separate tools for payments and record-keeping. The disadvantage is cost — most POS systems charge $50 to $300 per month in software fees on top of payment processing fees, and the hardware (terminal, printer, scanner) can cost $500 to $2,000 upfront.
A POS system makes sense if you have multiple employees, need to track inventory in real time, or want detailed reports on what sold and when. If you are a solo operator taking a few payments a day, a straightforward card reader and a spreadsheet or accounting software will cost you less and do the job.
Payment gateways and merchant accounts
A payment gateway is software that connects your website or app to a merchant account at a bank. Instead of a processor handling everything, you handle the merchant account relationship with the bank, and the gateway just moves the data back and forth. Authorize.net, Stripe, and Braintree are common gateways.
The advantage is lower per-transaction fees — often 2.2 to 2.5 percent instead of 2.6 to 2.9 percent — because you are dealing directly with the bank and the gateway is just a middleman. The disadvantage is that you have to open a merchant account with a bank (which takes longer and requires more paperwork), you have to integrate the gateway into your website code or use a shopping cart plugin, and you handle more of the compliance and fraud prevention yourself.
Gateways are best for businesses that already have a developer on staff, that process high volume and want to save on per-transaction fees, or that need to integrate payments into custom software. For most small businesses starting out, a processor is simpler and faster.
Compliance and security when taking card payments
Every business that takes card payments must follow PCI DSS (Payment Card Industry Data Security Standard), a set of rules designed to protect customer card information. The rules cover how you store data, who can access it, and how you handle breaches. If you use a processor or gateway, they handle most of the compliance for you — that is one reason you pay them a fee.
The main rule for you: never store a customer's full card number, expiration date, or security code. Let the processor or gateway handle that. If you take payments over the phone or email, use a payment link instead of asking for card details directly. If you must take card details manually, use a PCI-compliant form or service, not a spreadsheet or email.
Most processors offer fraud detection built in — they flag suspicious transactions and can decline them automatically. You can also set rules (like declining cards from certain countries or transactions above a certain amount). If a customer disputes a charge, the processor investigates and either refunds them or sides with you, depending on the evidence.
Frequently Asked Questions
How long does it take to get approved to accept card payments?
Most processors approve you when ready or within a few hours. You can start taking payments the same day you sign up. Some processors review your process more carefully if you are new to business or if your industry is considered high-risk (like e-cigarettes or gambling), which can take a few days.
What happens if a customer disputes a charge?
The processor investigates by asking you for proof that the customer authorized the charge and received what they paid for (an order confirmation, a receipt, a tracking number). If you provide proof, you keep the money. If you do not, the processor refunds the customer and you lose the money plus a chargeback fee (usually $15 to $100).
Can I accept American Express and Discover, or just Visa and Mastercard?
All major processors accept Visa, Mastercard, American Express, and Discover. The fees are slightly different for each card type (American Express and Discover usually cost a bit more), but you do not have to set up separately for each one.
Do I need a separate bank account for card payments?
Yes, you need a business bank account. Processors deposit money into a business account, not a personal one. If you do not have one, you can open one at most banks in a few days with your tax ID and a piece of mail showing your business address.
What is the difference between a card reader and a virtual terminal?
A card reader is a physical device you tap or swipe a card on; it connects to your phone or tablet. A virtual terminal is a website or app where you type in card details manually. Card readers are faster and more find for in-person sales. Virtual terminals are for phone or mail orders when the customer is not present.