The most direct way to accept credit card payments
To receive credit card payments, you need a payment processor — a service that connects your business to the card networks (Visa, Mastercard, American Express, Discover) and moves money from your customer's account to yours. The processor handles the security, fraud checking, and deposit into your bank account. You do not contact the card networks directly; the processor does that work for you.
Your choice of processor depends on your business type. If you have a physical store, you need a terminal or point-of-sale system. If you sell online, you need a payment gateway. If you take payments over the phone or by invoice, you need a virtual terminal or invoicing tool. Many processors offer all three, so you can start with one and add others as you grow.
The processor charges you a fee for each transaction — usually a percentage of the sale plus a flat amount per card. This fee varies by processor, by card type, and by how you accept the card (in person, online, or by phone). You will see this fee deducted from your deposit before the money reaches your bank account.
Key Takeaways
- A payment processor is the middleman between your customer's card and your bank account, and you must use one to accept cards legally.
- Physical stores need a terminal or point-of-sale system; online businesses need a payment gateway; phone and invoice payments need a virtual terminal.
- You will pay a transaction fee (usually 2–3% plus a flat amount) that comes out of each deposit before it reaches your bank.
- Setting up a processor account takes 1–3 business days if you have your business license, tax ID, and bank account details ready.
- Some processors require a monthly minimum or charge monthly fees; others charge only per transaction, so compare before you commit.
What you need before you can accept cards
You will need a business bank account in your business name (not your personal account). The processor deposits money there, and the bank verifies your identity and the account's legitimacy. If you do not yet have a business account, open one at your bank before you explore to a processor.
You also need a business tax ID (EIN) from the IRS, or your Social Security number if you are a sole proprietor. The processor uses this to verify you are a real business and to report your card sales to the IRS. You will need your business license or articles of incorporation, depending on your business structure.
Have your average monthly card sales estimate ready. Processors ask this to assess risk and set your processing limits. If you are brand new and have no sales history, estimate conservatively — you can increase the limit later as you grow.
Choosing between in-person, online, and phone payment methods
If you run a retail store or service business where customers are physically present, you need an in-person payment method. This usually means a point-of-sale terminal (a physical machine) or a mobile reader that plugs into a smartphone or tablet. Examples include Square Reader, Clover, and Toast. These are the cheapest per-transaction option because the card is physically present, which reduces fraud risk.
If you sell online through a website or app, you need a payment gateway — software that sits on your checkout page and securely collects card details without you ever seeing the full number. Examples include Stripe, PayPal, Square Online, and Shopify Payments. The gateway encrypts the card data and sends it to the processor. You will pay slightly higher fees than in-person because the card is not physically present.
If you take payments by phone, mail, or invoice, you need a virtual terminal — a web page where you type in the card number and the customer's details, then submit the payment. Most processors offer this as an add-on. Fees are higher than in-person because you are manually entering the card data and the card is not present.
Many processors let you use all three methods under one account. You might swipe cards in your store, accept payments on your website, and take phone orders over the phone — all through the same processor and the same bank deposit.
How to set up a payment processor account
Start by choosing a processor. Common options for small businesses are Square, Stripe, PayPal, Clover, and Toast. Each has different fee structures, features, and hardware costs. Visit their websites and compare the per-transaction rate, monthly fees (if any), and the cost of any hardware you need.
Once you have chosen, go to the processor's website and click the sign-up button. You will be asked for your business name, address, tax ID, and bank account details. Have your business license or articles of incorporation ready to upload. The processor will verify your information with your bank and the IRS.
Approval usually takes 1–3 business days. Some processors approve you when ready if you are a sole proprietor with a strong personal credit history; others take longer if you are a new corporation or LLC. Once approved, you will receive login credentials and can start accepting payments when ready.
If you chose an in-person method, you will receive your hardware (terminal or reader) by mail within 5–10 business days. If you chose online or phone, you can start accepting payments as soon as your account is approved — no hardware needed.
Understanding transaction fees and what they cover
Most processors charge a percentage fee plus a per-transaction fee. For example, 2.7% + $0.30 per card. This means on a $100 sale, you pay $2.70 + $0.30 = $3.00, and $97.00 goes into your bank account. The exact percentage varies by processor and by card type — American Express and Discover usually cost more than Visa and Mastercard.
Some processors charge a monthly fee instead of (or in addition to) per-transaction fees. For example, $29 per month plus 1.5% per transaction. This model works better if you process a high volume of sales; the monthly fee spreads across many transactions and lowers your per-transaction cost. If you process only a few sales per month, a pay-as-you-go processor is cheaper.
A few processors charge a flat monthly fee with no per-transaction fees, but these are rare and usually only for high-volume businesses. Read the pricing page carefully to understand whether you are paying per transaction, per month, or both.
The fee covers the processor's cost to connect to the card networks, fraud prevention, and customer support. It does not cover your point-of-sale system, website, or other software — those may have separate costs.
What happens after a customer pays
When a customer swipes, taps, or enters their card, the processor checks the card with the card network and the customer's bank. This takes a few seconds. If the bank approves it, the money is authorized and held. If the bank declines it, the transaction fails and you see a decline message on your terminal or screen.
Once the transaction is approved, the processor batches it with other transactions from that day and sends them to the card networks overnight. The card networks then send the money to your bank. This is called settlement. Settlement usually takes 1–2 business days, though some processors offer next-day deposits for a small fee.
The money lands in your business bank account minus the transaction fee. You will see a line item for each transaction (or a summary if you process many) on your bank statement. You can also log into your processor's dashboard to see a detailed record of every transaction, refund, and fee.
Handling refunds and chargebacks
If a customer asks for a refund, you log into your processor's dashboard, find the transaction, and click "Refund." The processor sends the money back to the customer's card. This usually takes 3–5 business days to appear on their statement. You pay a small fee (usually $0.10–$0.50) for the refund, and you do not get back the original transaction fee.
A chargeback happens when a customer disputes the charge with their bank instead of asking you for a refund. The bank pulls the money back from your account and charges you a chargeback fee (usually $15–$100). You can dispute the chargeback by providing proof that the customer received the product or service — a receipt, shipping confirmation, or signed delivery proof. If you win the dispute, the money goes back into your account, but you still pay the chargeback fee.
To reduce chargebacks, keep clear records of every transaction, send order confirmations by email, and respond quickly if a customer contacts you with a problem. If a customer is unhappy, offering a refund is cheaper than fighting a chargeback.
Frequently Asked Questions
Do I need a separate merchant account, or does the processor handle that?
The processor handles it. When you sign up with a processor like Square or Stripe, they set up everything you need behind the scenes. You do not need to contact your bank or explore for a separate merchant account. Your bank account is where the money lands, but the processor manages the connection to the card networks.
What if my processor goes out of business?
Your money is safe. The processor does not hold your funds — they move money from the card networks to your bank account. If a processor shuts down, you lose access to your transaction history and may need to switch to a new processor, but your bank account and the money in it are unaffected. Set up your new processor account before you close the old one so there is no gap in your ability to accept cards.
Can I accept cards without a business bank account?
No. Processors require a business bank account in your business name. They will not deposit to a personal account. If you are a sole proprietor, you can use your Social Security number as your tax ID, but the bank account must still be registered as a business account, not a personal one.
What is the difference between a payment processor and a payment gateway?
A processor is the company that connects you to the card networks and handles the money movement. A gateway is the software (usually on your website) that collects the card details securely. Many companies offer both — for example, Stripe is both a processor and a gateway. Some businesses use a processor for in-person payments and a separate gateway for online payments, though most modern processors handle both.
How long does it take to get paid after a customer swipes their card?
Usually 1–2 business days. This is called the settlement period. The processor batches transactions overnight and sends them to the card networks, which then send the money to your bank. Some processors offer next-day settlement for a fee. Weekends and holidays can add a day or two to the timeline.