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 rings up sales), or a payment gateway (software that connects your website to a processor). Which one you need depends on whether you sell in person, online, or both.
Each route has different costs, setup time, and equipment needs. A food truck or small retail shop usually starts with a point-of-sale system. An online store needs a payment gateway. A service business that takes payments over the phone or in the field might use a mobile card reader. You do not have to pick one forever — many businesses use two or three at once.
The processor is the backbone of all three. It is the company that actually talks to the customer's bank, confirms the card is real and has money, and moves the funds to your business account. Common processors include Square, Stripe, PayPal, Toast, and Clover. Each charges different rates and offers different features.
Key Takeaways
- Payment processors charge a percentage of each transaction (usually 2 to 3 percent) plus a small flat fee per transaction, and these rates vary by processor and card type.
- Point-of-sale systems work in physical locations and include a card reader, register software, and sometimes inventory tracking, with monthly fees on top of per-transaction costs.
- Payment gateways let you take cards online or over the phone by connecting your website or phone system to a processor, and they work alongside a separate merchant account.
- You need a business bank account and a merchant account (which the processor sets up) before you can receive card payments.
- Mobile card readers let you take payments anywhere using a smartphone or tablet, making them useful for field service, delivery, or pop-up sales.
In-person payments: point-of-sale systems and card readers
A point-of-sale system (or POS) is software and hardware that rings up a sale, processes the card, and records the transaction. It sits on a counter or table and includes a screen, a card reader, and sometimes a receipt printer. Square, Toast, Clover, and PayPal all make POS systems. Setup usually takes a few hours — you read the app, plug in the hardware, and connect to the internet.
Costs vary. Square charges 2.6 percent plus 30 cents per card transaction, plus $0 per month for the software. A Clover system might cost $50 to $150 per month for the software, plus per-transaction fees. Toast charges per-transaction fees and a monthly software fee that depends on which features you use. You also pay for the hardware itself — a Square reader costs $29, but a full Clover station can cost $500 to $2,000 upfront.
A mobile card reader is smaller and cheaper. It is a device that plugs into a smartphone or tablet and lets you take payments anywhere. Square, PayPal, and Stripe all make them. A Square reader costs $29, and you pay the same per-transaction rate as you would at a counter. This works well for a plumber, electrician, or delivery driver who collects payment at the customer's location.
Online payments: payment gateways and hosted checkout pages
If you sell on a website, you need a payment gateway — software that takes the customer's card information on your site and sends it securely to a processor. Stripe, PayPal, Square, and Authorize.net are common gateways. The gateway does not hold the money; it just passes the information along and tells your site whether the transaction went through.
You also need a merchant account, which is a special bank account that receives card payments. The processor usually sets this up for you when you sign up. The merchant account is separate from your regular business bank account. Card payments land in the merchant account first, then the processor deposits them into your business bank account, usually within one to three business days.
Some gateways charge a monthly fee ($20 to $100), and all charge per-transaction fees (usually 2.2 to 3.5 percent plus 30 cents). If you use a hosted checkout page — a payment form that lives on the processor's site instead of your own — the fees are often slightly higher but setup is faster and you do not need a developer.
Phone and mail payments: keyed transactions and virtual terminals
If a customer gives you their card number over the phone or you process a mailed check by hand, you use a virtual terminal — a web form where you type in the card details. Most processors offer this. You log in, enter the card number, expiration date, and CVV, and the processor charges the card.
Virtual terminals cost the same per-transaction as online payments, but sometimes with a higher percentage rate because the card is not physically present. Stripe charges 3.5 percent plus 30 cents for keyed transactions, while Square charges 3.5 percent plus 15 cents. This higher rate reflects the higher fraud risk when you cannot see the card.
You can also use a phone-based system like PayPal Here or Square Cash for Business, which lets customers call a number, enter their card details on their phone, and authorize the charge. These are less common but useful if you take a lot of phone orders.
What you need before you can start
You need a business bank account in your business name. Most processors will not set up a merchant account without one. If you are a sole proprietor, you can use your personal account, but a business account keeps your finances separate and looks more professional to customers and the IRS.
You also need an Employer Identification Number (EIN) if you are a business entity like an LLC or corporation. If you are a sole proprietor, you can use your Social Security number. The processor will ask for this when you sign up.
Have your business address, phone number, and a description of what you sell ready. The processor uses this to set up your merchant account and to screen for fraud. If you have been in business for less than a year, some processors may ask for a personal may provide, meaning you agree to cover losses if the business cannot.
Comparing costs across processors
| Processor | Card-present rate | Card-not-present rate | Monthly fee | Best for |
|---|---|---|---|---|
| Square | 2.6% + $0.30 | 3.5% + $0.15 | $0 | Small retail, food trucks, mobile payments |
| Stripe | 2.7% + $0.30 | 3.5% + $0.30 | $0 | Online stores, SaaS, custom integrations |
| PayPal | 2.7% + $0.30 | 3.5% + $0.49 | $0 | Existing PayPal users, online and in-person |
| Clover | 2.7% + $0.30 | 3.5% + $0.30 | $50–$150 | Restaurants, retail with inventory tracking |
| Toast | 2.6% + $0.30 | 3.5% + $0.30 | $99–$299 | Restaurants, bars, high-volume locations |
Rates change and vary by card type (Amex is usually higher), so check the processor's current pricing page before you decide. A business that processes $10,000 per month will pay roughly $260 to $350 in fees across most processors, but a restaurant with higher volume might save money with Toast or Clover because of their features, even though the monthly fee is higher.
Setting up your first merchant account
Choose a processor based on how you sell (in person, online, or both) and what features matter to you. If you need inventory tracking, Clover or Toast might be worth the monthly fee. If you want the lowest cost and simplest setup, Square or Stripe are usually the fastest.
Sign up on the processor's website. You will enter your business name, address, phone number, EIN or Social Security number, and bank account details. The processor will verify your information and run a background check. This usually takes one to three business days, but can take longer if there are questions.
Once you are approved, the processor sends you hardware (if you ordered it) and gives you login credentials. You read the app, connect the card reader, and test a transaction. Most processors let you run a test charge for $1 to make sure everything works. After that, you are ready to take real payments.
Frequently Asked Questions
Do I have to use the processor's hardware, or can I use my own card reader?
Most processors require their own hardware because it is certified for security and fraud prevention. You cannot use a generic card reader with Square or Stripe. However, some gateways like Authorize.net work with third-party hardware, so if you already own a reader, check whether your chosen gateway supports it.
What happens if a customer disputes a charge?
The customer's bank investigates and either sides with you or reverses the charge. If reversed, the money comes out of your merchant account. You can dispute the chargeback by providing proof of the transaction (receipt, shipping confirmation, or email). The processor charges a fee (usually $15 to $100) to handle the dispute, whether you win or lose.
Can I accept credit cards without a business bank account?
Most processors require a business bank account to set up a merchant account. If you do not have one, open one at your bank or credit union. It usually takes one to two weeks and costs nothing to open, though some accounts have monthly fees if you do not maintain a minimum balance.
What is the difference between a payment processor and a payment gateway?
A processor is the company that handles the entire transaction — it talks to the bank, confirms the card, and moves the money. A gateway is the software tool that collects the card information and sends it to the processor. You need both for online payments, but they are often provided by the same company.
How long does it take for money to show up in my bank account?
Most processors deposit funds within one to three business days. Some offer next-day deposits for an extra fee. Weekends and holidays can delay deposits. Check your processor's settlement schedule in your account settings.