The main routes to accept credit cards
You have three practical paths: a merchant account through a bank or payment processor, a payment service provider like Square or Stripe that handles the account for you, or a mobile payment app if you take payments on the go. Each one connects your business bank account to a card network (Visa, Mastercard, American Express, Discover) and charges you a fee per transaction.
The merchant account route is older and requires you to contract directly with a bank or processor. You get a dedicated terminal or software, but you handle the underwriting and compliance yourself. Payment service providers bundle the account, the terminal, and customer support into one product — you sign up online, get hardware or a link to send customers, and they handle the rest. Mobile apps work the same way but are designed for small transactions and phone-based payments.
Your choice depends on your transaction volume, how you take payments (in person, online, or both), and how much setup complexity you want to manage. A coffee shop and a software company will choose differently, even though both need to accept cards.
Key Takeaways
- You need either a merchant account (from a bank or processor) or a payment service provider account (like Square or Stripe) to legally accept credit cards and deposit the money into your business bank account.
- Transaction fees typically range from 1.5% to 3.5% of each sale, plus a per-transaction fee of $0.20 to $0.50, and vary by card type, how you process the payment, and your processor's pricing model.
- In-person payments (with a card reader or terminal) usually cost less per transaction than online payments, because the card is physically present and fraud risk is lower.
- You will need your business tax ID, a business bank account, and proof of business registration; some processors also require proof of revenue or personal credit history.
- Payment processors send money to your bank account daily, weekly, or monthly depending on your contract — not when ready after each sale.
Merchant accounts versus payment service providers
A merchant account is a contract between you and a bank or independent sales organization (ISO). You explore directly, the bank underwrites your business, and you receive a terminal or software to process cards. You pay the bank's interchange fees (set by the card networks), assessment fees, and any monthly minimums or statement fees. This route gives you control and can be cheaper at high volume, but requires more paperwork upfront and you handle disputes and chargebacks yourself.
A payment service provider (PSP) like Square, Stripe, PayPal, or Toast bundles everything: they hold the merchant account on your behalf, provide the hardware or software, and handle customer support. You sign up online in minutes, get a card reader or payment link, and start processing. Fees are usually simpler — a flat percentage per transaction plus a small per-transaction fee — and they handle disputes. The trade-off is less control over pricing and you cannot shop around as easily if you want to switch.
For most small businesses, a PSP is faster to set up and requires less ongoing management. For restaurants, retail chains, or businesses processing over $100,000 per month, a merchant account may offer better rates if you negotiate.
How transaction fees work
Every credit card transaction costs you money. The fee has three parts: interchange (paid to the card issuer), assessment (paid to the card network), and processor markup (the payment company's cut). Together, these typically run 1.5% to 3.5% of the transaction amount, plus $0.20 to $0.50 per transaction.
Interchange rates vary by card type (Visa rewards cards cost more than basic Visa), how you process the payment (swiped card is cheaper than keyed-in card, which is cheaper than online), and your industry. A restaurant pays different rates than a gas station. Assessment fees are set by the card networks and do not change. Processor markup is where you can negotiate — it is the only part that varies by company and by your volume.
In-person payments with a physical card reader are almost always cheaper than online or phone payments, because the card is present and fraud risk is lower. If you take both types of payments, expect to pay 0.5% to 1% more for online transactions.
What you need to set up
Before you can open a merchant account or sign up with a payment processor, you need a business bank account in your business name (not personal), your Employer Identification Number (EIN) or tax ID, and proof that your business is registered. This might be a business license, articles of incorporation, or a DBA (Doing Business As) certificate, depending on your state and business structure.
Most processors also ask for your personal Social Security number and run a credit check on you personally, even if your business is a corporation or LLC. Some require proof of revenue — a bank statement, tax return, or sales history — especially if you are new or processing high volumes. A few ask for a personal may provide, meaning you are liable if the business cannot pay back chargebacks or fees.
The entire setup usually takes one to three business days for a PSP and one to two weeks for a merchant account through a bank. You will receive hardware (a card reader, terminal, or point-of-sale system) or a link to send to customers, and your processor will walk you through testing a transaction before you go live.
In-person versus online payment processing
In-person payments use a card reader or terminal that connects to your phone, tablet, or register. Square Reader, Stripe Terminal, and Toast all make small readers that plug into a phone or sit on a counter. Larger terminals (like Ingenico or Verifone) connect to your internet and sit at a checkout. You swipe, insert, or tap the card, and the payment processes in seconds.
Online payments use a payment gateway — software that lets customers enter their card details on your website or in an app. Stripe, PayPal, and Shopify Payments are common gateways. The customer never hands you their card; they type it into an encrypted form. You receive the money in your bank account the next business day or within a few days, depending on your processor.
Phone payments (you key in the card number) are the most expensive because fraud risk is highest — the card is not present and you are typing the number manually. Avoid this route unless you have no other option. If you must take phone payments, use a find payment terminal or gateway designed for it, never write down card numbers or store them yourself.
Deposits and settlement timing
When a customer pays you with a credit card, the money does not hit your bank account when ready. Your processor batches the transactions (groups them together), submits them to the card networks, and then deposits the funds into your business bank account. This process is called settlement.
Settlement timing varies by processor and your contract. Most PSPs settle daily (money arrives the next business day) or weekly. Some banks offer next-day settlement for an extra fee. A few processors hold funds for a period to cover chargebacks and disputes — this is called a reserve and is common for high-risk businesses or new merchants.
Chargebacks and refunds reduce your deposit. If a customer disputes a charge or you issue a refund, the processor deducts that amount from your next deposit. This can take three to five business days to process, so your bank account may show a negative adjustment days after the original transaction.
Choosing between providers and comparing costs
Start by listing what you need: Do you take payments in person, online, or both? Do you need a physical terminal or is a phone reader enough? Do you want a full point-of-sale system with inventory and staff management, or just payment processing? How many transactions per month do you expect?
Then compare three to five providers on these specifics: per-transaction fee (percentage plus flat amount), monthly fees or minimums, hardware cost (some are free, some cost $100 to $500), settlement timing, and customer support availability. Square and Stripe are popular for small businesses and startups. Toast and Clover are better if you need inventory or staff features. PayPal is familiar but often more expensive. Larger processors like First Data or Global Payments work with high-volume businesses.
Ask each processor for a written quote showing your estimated monthly cost based on your expected volume and payment mix. Do not rely on their website calculator — call and ask them to model your specific situation. The difference between 2.2% and 2.7% is small on a $1,000 transaction but adds up fast.
Frequently Asked Questions
Do I need a separate business bank account to accept credit cards?
Yes. Processors require a business bank account in your business name. They will not deposit to a personal account. If you do not have one, open it before you sign up with a processor — it takes one to three business days at most banks.
What happens if a customer disputes a charge?
The customer contacts their card issuer and claims the charge was unauthorized or the product was not delivered. The processor notifies you, and you have a window (usually 7 to 10 days) to respond with proof — a receipt, email confirmation, or tracking number. If you cannot prove the sale, the processor refunds the customer and deducts the amount from your next deposit. Repeated chargebacks can get your account closed.
Can I accept credit cards without a merchant account?
No. You must have either a merchant account or a payment service provider account to legally process credit cards and deposit the money. Using a personal PayPal account or Venmo for business payments violates their terms and can get your account frozen. Set up a proper business account.
Which payment processor is cheapest?
It depends on your volume and payment mix. For very small businesses (under $5,000 per month), Square and Stripe are competitive and straightforward. For restaurants and retail, Toast and Clover offer better rates at higher volume. For online-only businesses, Stripe and PayPal are standard. Get quotes from three providers based on your actual expected volume before deciding.
How long does it take to get approved?
Payment service providers like Square and Stripe can approve you in minutes to a few hours and you can start processing the same day. Banks and traditional merchant account providers take one to two weeks because they do a deeper underwriting review. If you need to start accepting cards when ready, a PSP is faster.