The three ways to take credit card payments
You can accept credit cards through a payment processor (a company that handles the transaction), a point-of-sale system (hardware and software that processes cards in person), or a payment gateway (software that connects your website to a processor). Most small businesses use one of these three, often combined. A payment processor like Square or Stripe works for online, phone, or in-person sales. A point-of-sale system like Toast or Clover is built for retail or restaurants. A payment gateway like Shopify Payments or PayPal works best if you already have a website.
Each route has different costs, setup time, and hardware needs. The right choice depends on whether you sell in person, online, or both — and how many transactions you expect each month.
Key Takeaways
- Payment processors like Square and Stripe charge a percentage of each transaction (usually 2.2% to 3.5%) plus a small per-transaction fee, with no monthly contract.
- Point-of-sale systems require hardware (a card reader or terminal) and often charge monthly fees in addition to per-transaction costs, but offer more features for retail businesses.
- Payment gateways integrate with your existing website or shopping cart and pass transactions to a processor, so you pay the processor's fees plus sometimes a gateway fee.
- All three require you to have a business bank account and a tax ID; some also require a credit check or proof of business registration.
- Setup typically takes one to three business days for approval, though some processors offer same-day or next-day set up for low-risk businesses.
Payment processors: the simplest route for most businesses
A payment processor is a company that takes your customer's card information, checks it with the card network (Visa, Mastercard, American Express), and deposits the money into your bank account. Square, Stripe, Toast, and PayPal are the most common. You don't need to own a physical store or have a website — you can take payments over the phone, in person with a card reader, or through an invoice link.
Costs are straightforward: you pay a percentage of each sale (typically 2.2% to 3.5%) plus a small per-transaction fee (usually $0.30). There is no monthly fee and no contract. If you process $1,000 in sales, you might pay $25 to $35 in fees. The processor deposits the remainder into your bank account, usually within one to two business days.
To open an account, you need a business bank account, a tax ID (EIN or SSN), and proof of business registration (a DBA filing, LLC certificate, or incorporation papers). Some processors also run a credit check. The whole process usually takes one to three business days. You'll receive a card reader (for in-person payments) or a unique payment link (for online or phone payments) once you're approved.
Point-of-sale systems: for retail stores and restaurants
A point-of-sale system (or POS) is hardware and software that works together to process cards, track inventory, manage staff, and print receipts. Clover, Toast, Square for Retail, and Lightspeed are popular options. These systems are designed for businesses that sell in person and need to track what's in stock, who's working, and how much money came in each day.
A POS system requires you to buy or lease a terminal (a device that reads cards), which costs $200 to $1,500 depending on the model. You also pay a monthly subscription fee, usually $50 to $300, plus per-transaction fees of 2.5% to 3.5% plus $0.25 to $0.30. Some systems bundle the hardware cost into the monthly fee. If you process $5,000 a month, you might pay $150 to $300 in monthly fees plus $125 to $175 in transaction fees.
POS systems take longer to set up than a straightforward processor because you need to configure inventory, staff accounts, and receipt settings. Plan for three to seven business days from approval to your first transaction. They're worth the extra cost and complexity if you need inventory tracking, employee management, or detailed sales reports — but overkill if you're just taking occasional payments.
Payment gateways: for existing websites and shopping carts
A payment gateway is software that sits between your website and a payment processor. It encrypts your customer's card information and sends it to the processor to be charged. Shopify Payments, PayPal, Stripe, and WooCommerce Payments are common gateways. You use a gateway when you already have a website or shopping cart and want to add card payments to it.
Costs depend on the gateway and the processor it uses. Shopify Payments charges 2.9% plus $0.30 per transaction if you use Shopify as your shopping cart. PayPal charges 2.2% plus $0.30 for standard transactions. Some gateways charge an additional monthly fee ($10 to $30) on top of the processor's per-transaction fees. A gateway doesn't replace a processor — it works with one.
Setup is fastest if you're already using a shopping cart platform like Shopify, WooCommerce, or BigCommerce. You connect your gateway account to your cart, and transactions flow automatically. If you're building a custom website, setup takes longer because you or a developer need to integrate the gateway's code. Most gateways are ready to process payments within one to two business days of approval.
What you need before you can accept cards
Every processor, POS system, and gateway requires the same basic information. You need a business bank account in your business name (not your personal account). You need a tax ID — either an EIN (Employer Identification Number) if you're an LLC, S-corp, or C-corp, or your SSN if you're a sole proprietor. You need proof of business registration — a DBA filing, LLC certificate, incorporation papers, or business license, depending on your state and business structure.
Some processors also ask for your business address, the type of business you run, your expected monthly sales volume, and your personal credit score. A few run a credit check. If you have a history of chargebacks (customers disputing charges), fraud, or bankruptcy, some processors may decline you or charge higher fees. Stripe and Square are generally more lenient with newer or riskier businesses than traditional banks.
You do not need a separate merchant account from a bank anymore — processors handle that for you. You do not need to be incorporated or have an LLC, though sole proprietors may face higher fees or stricter underwriting.
Comparing costs across processors
| Processor | Per-Transaction Cost | Monthly Fee | Hardware Cost | Best For |
|---|---|---|---|---|
| Square | 2.6% + $0.30 | None | $29–$299 (card reader optional) | Small in-person or online businesses |
| Stripe | 2.2% + $0.30 | None | $29–$99 (reader optional) | Online businesses and developers |
| PayPal | 2.2% + $0.30 | None | Free (use your phone) | Very small businesses or invoicing |
| Clover (POS) | 2.7% + $0.25 | $50–$150 | $300–$1,200 | Retail stores and restaurants |
| Toast (POS) | 2.5% + $0.25 | $99–$299 | $400–$1,500 | Restaurants and bars |
Costs vary by card type (American Express charges higher fees than Visa or Mastercard), by country, and by processor. The table above shows typical rates for U.S. businesses processing standard credit cards in 2024. Debit cards, ACH transfers, and international cards may have different fees. Always check the processor's current pricing page before signing up, because rates change.
The setup and approval process
Most processors follow the same steps. First, you create an account online and enter your business information. Second, the processor verifies your identity and business registration — this usually takes one to three business days. Third, you receive approval and can start processing payments when ready or after you set up your hardware or website integration.
Some processors offer when ready or same-day approval for low-risk businesses (established sole proprietors with good credit, for example). Others require manual review and take up to a week. If you're declined, the processor will tell you why — usually because of a credit issue, a mismatch in your business information, or a high-risk industry. You can reapply after fixing the issue, or try a different processor.
Once approved, money from card sales goes into your business bank account. Most processors deposit funds daily or within one to two business days. Some hold back a small reserve (1% to 5% of your monthly sales) for the first few months to cover chargebacks or refunds.
Frequently Asked Questions
Do I need a separate merchant account?
No. Payment processors like Square and Stripe handle merchant accounts for you as part of their service. You only need a business bank account where the processor deposits your money. Banks no longer require separate merchant accounts for most small businesses.
What's the difference between a processor and a gateway?
A processor takes the payment and deposits money into your account. A gateway encrypts the card information and sends it to a processor. If you have a website, you use a gateway to connect your site to a processor. If you're taking payments over the phone or in person, you use a processor directly.
Can I use a personal bank account instead of a business account?
Most processors require a business bank account. Using a personal account can trigger fraud alerts, cause your account to be frozen, or violate your bank's terms of service. Open a business account first — it usually takes one to three business days and costs nothing.
What happens if a customer disputes a charge?
The customer contacts their card issuer and claims they didn't authorize the charge or didn't receive what they paid for. The processor notifies you and asks for proof (a receipt, email confirmation, or shipping tracking). If you can't prove the charge was legitimate, the processor refunds the customer and deducts the amount from your account. Repeated chargebacks can get your account closed.
Which processor is cheapest?
Stripe and PayPal have the lowest per-transaction rates (2.2% + $0.30) with no monthly fees. Square charges 2.6% + $0.30. For very small businesses or occasional payments, PayPal is free to set up and requires no hardware. For higher volume, the difference between 2.2% and 2.6% adds up — at $10,000 a month, you'd save $40 with Stripe over Square.