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. Which one you need depends on whether you sell in person, online, or both.
The processor is the backbone of all three. It's the company that actually talks to the customer's bank, confirms the card is real, and moves money into your account. Common processors include Square, Stripe, PayPal, Toast, and Clover. Each charges a fee per transaction—usually between 2.2% and 3.5% of the sale, plus a flat fee of 20 to 30 cents. Some also charge a monthly subscription.
You don't choose the processor directly in most cases. You choose a point-of-sale system or payment gateway, and it uses a processor behind the scenes. Understanding which processor is involved matters because it affects your fees and how fast money reaches your account.
Key Takeaways
- Payment processors charge a percentage of each transaction plus a flat fee, and the total cost varies by processor and by how you accept the card (in person, online, or by phone).
- Point-of-sale systems like Square, Clover, and Toast work for in-person sales and include hardware (a card reader), software, and reporting tools.
- Payment gateways like Stripe and PayPal are software-only and work for online sales, phone orders, and invoices sent to customers.
- You need a business bank account and a way to receive deposits; most processors deposit funds within one to three business days.
- Interchange fees (set by Visa and Mastercard, not your processor) make up most of what you pay, so shopping processors saves less money than you might think.
In-person payments: point-of-sale systems
If you have a physical location—a store, restaurant, salon, or service business—you need a point-of-sale system. This is hardware (a card reader, tablet, or terminal) plus software that rings up sales, tracks inventory, and stores customer data. The hardware connects to the internet and sends card information to a processor.
Square, Clover, and Toast are the most common for small businesses. Square is the simplest: you buy a card reader (about $10 to $50 depending on the model), read the app on your phone or tablet, and start taking payments. Clover is similar but includes more built-in features like employee management and inventory tracking. Toast is designed for restaurants and includes table management and kitchen display systems.
All three charge per transaction. Square charges 2.6% plus 10 cents for in-person card payments, or 3.5% plus 15 cents for keyed-in or online payments. Clover and Toast charge similar rates but may offer lower rates if you commit to a monthly subscription or higher sales volume. None of these fees include the interchange fee, which is set by Visa and Mastercard and passed through automatically—it's typically 1.5% to 2.2% on top of what the processor charges.
You'll also need a business bank account. Most processors deposit funds within one to three business days, though some offer next-day deposits for an extra fee.
Online and remote payments: payment gateways
If you sell online, by phone, or send invoices to customers, you need a payment gateway. This is software that sits on your website or in your email and securely collects card information. The gateway sends that information to a processor, which handles the rest.
Stripe and PayPal are the two largest. Stripe is designed for developers and businesses that want to build custom checkout experiences; it integrates into websites and apps. PayPal is simpler and works for anyone—you can send a payment link via email, embed a button on a website, or use their invoicing tool. Both charge 2.9% plus 30 cents per transaction for online payments.
Other gateways include Square Online (which combines a website builder with payment processing), Shopify Payments (if you use Shopify to run your store), and WooCommerce with a processor like Stripe. Each has different fee structures and features.
Gateways also deposit funds into your business bank account, usually within one to three business days. Some offer faster deposits for a fee.
Hybrid systems: when you need both
Many businesses accept cards both in person and online. You have two options: use one system that does both, or use separate systems.
Square, Clover, and PayPal all offer both in-person and online payments. You can use the same processor for both, which simplifies reporting and deposits. The trade-off is that you may pay slightly higher fees than if you specialized in one channel.
Alternatively, you can use Square for in-person sales and Stripe for your website, for example. This gives you more control over each channel but means managing two accounts, two fee schedules, and two deposit schedules. Most small businesses find it simpler to stick with one processor.
What fees actually include
When you see "2.6% plus 10 cents," that's the processor's markup. But the total cost to you is higher because of the interchange fee, which is set by Visa and Mastercard and is not negotiable. Interchange is typically 1.5% to 2.2% and goes directly to the customer's bank, not to your processor.
So a $100 sale might cost you: 2.6% processor fee ($2.60) plus 10 cents, plus 1.8% interchange ($1.80), for a total of $4.50. You receive $95.50.
Some processors advertise "interchange-plus" pricing, which means they show you the interchange fee and their markup separately. This is more transparent but doesn't save you money—interchange is the same no matter who your processor is. What you can control is the processor's markup (the percentage and flat fee), which is why comparing processors matters.
Monthly subscription fees, PCI compliance fees (for storing card data securely), and chargeback fees (when a customer disputes a charge) are separate and vary by processor. Read the fine print before signing up.
Security and compliance requirements
If you accept credit cards, you must comply with PCI DSS (Payment Card Industry Data Security Standard). This is a set of rules designed to protect customer card information. The rules are enforced by Visa, Mastercard, and other card networks, not by the government.
If you use a payment processor, gateway, or point-of-sale system, most of the compliance work is done for you. The processor is responsible for encrypting card data and storing it securely. You are responsible for not storing card data yourself—never write down a card number, never email it, never save it in a spreadsheet.
Your processor will send you a PCI compliance form to fill out once a year. Answer honestly. If you're found to be non-compliant, you can be fined by the card networks or lose the ability to accept cards.
Choosing between processors
The fee difference between processors is usually small—often less than 0.5% of your sales. The bigger differences are in features, ease of use, and customer support. Before signing up, ask yourself: Do I need inventory tracking? Do I need to manage employees? Do I need detailed reporting? Do I need to accept payments by phone? Do I need invoicing?
Square is best if you want simplicity and low startup costs. Clover is best if you need more features and don't mind paying a monthly subscription. Toast is best if you run a restaurant. Stripe is best if you have a website and want to customize the checkout experience. PayPal is best if you want the most flexibility and the lowest barrier to entry.
Most processors let you try for free or with no long-term contract. Set up a test account, process a few test transactions, and see how the dashboard feels. You can always switch later—your customer data stays with you, not with the processor.
Frequently Asked Questions
Do I need a separate merchant account?
No. Merchant accounts were required years ago, but modern processors like Square and Stripe handle everything. You just need a business bank account to receive deposits. Some traditional banks still offer merchant accounts, but they're more expensive and less flexible than using a modern processor.
What's the difference between a card reader and a terminal?
A card reader is a small device that plugs into your phone or tablet and lets you swipe or insert a card. A terminal is a standalone device that sits on your counter. Terminals are more durable and faster for high-volume businesses, but card readers are cheaper and portable. Most small businesses start with a card reader.
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 typically cost more—but you don't have to do anything special. The processor handles it automatically.
How long does it take to get paid after a customer swipes their card?
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 deposit schedule before signing up if timing matters to your cash flow.
What happens if a customer disputes a charge?
The customer's bank investigates and either sides with you or refunds the customer. If the customer wins, the money comes out of your account. Your processor will charge you a chargeback fee (usually $15 to $100) on top of the refund. Keeping clear records of what you sold and when helps you win disputes.