The basic setup: what you need to start taking cards
To accept credit cards, you need three things: a merchant account (which lets you receive card payments), a payment processor (which handles the transaction), and a payment method (the physical or digital way customers hand over their card). Many small businesses use a single provider that bundles all three — Square, Stripe, PayPal, or your bank — rather than piecing them together separately.
The simplest route depends on how you sell. If you take payments in person, you need a card reader that plugs into your phone or tablet. If you sell online, you need a payment form on your website. If you do both, you need a system that handles both. Most modern processors offer all three, so you can start with one and add the others as you grow.
You will also need a business bank account to receive the money. Processors deposit funds there, usually within one to three business days. Some require a separate merchant account; others deposit directly to your regular business checking account.
Key Takeaways
- You can start accepting cards through a phone-based reader, online payment form, or invoice link — most small businesses use one provider that handles all three.
- Costs include a percentage of each transaction (typically 2.2% to 3.5%), a per-transaction fee (usually $0.30), and sometimes a monthly account fee or statement fee.
- Square, Stripe, PayPal, and your bank are the most common starting points for small businesses; each has different strengths depending on whether you sell in person, online, or both.
- You will need a business bank account and an Employer Identification Number (EIN) or Social Security Number to open a merchant account.
- PCI compliance — a security standard for handling card data — is required by law; most modern processors handle it for you automatically.
In-person payments: card readers and point-of-sale systems
If you take payments face-to-face, you need a card reader. The most common option is a small device that connects to your phone or tablet via Bluetooth or the headphone jack. Square Reader, PayPal Here, and Stripe Terminal are the main choices. You swipe, insert, or tap the card, and the payment goes through in seconds. The reader itself is usually free or costs $30 to $100 one-time.
For a retail shop or restaurant, you might want a full point-of-sale (POS) system instead — software that tracks inventory, employees, and sales in addition to processing cards. Square for Retail, Toast, and Clover are common examples. These cost more upfront ($500 to $2,000 for hardware plus monthly software fees of $50 to $300), but they give you detailed reporting and can manage multiple registers.
If you are just starting out or run a service business (plumber, consultant, trainer), a straightforward card reader is usually enough. You can upgrade to a full POS later if you need it.
Online payments: payment forms and checkout pages
If you sell online, you need a way for customers to enter their card details securely. Most small businesses use a hosted payment form — a page you embed on your website or send as a link. Stripe Checkout, Square Online, and PayPal Commerce Platform are common choices. The customer enters their card, and the processor handles the security. You never see the full card number, which protects you and them.
If you use a website builder like Shopify, Wix, or Squarespace, payment processing is usually built in. You connect your merchant account and the platform handles the rest. If you have a custom website, you will need to integrate a payment processor's code, which usually takes a developer a few hours.
For one-off invoices or donations, you can send a payment link via email. The customer clicks the link, enters their card, and the money goes to your account. Square Invoices, Stripe Payment Links, and PayPal Invoicing all offer this. It is useful for freelancers, consultants, and nonprofits.
What credit card processing costs
Every card transaction has three costs: an interchange fee (set by Visa or Mastercard, usually 1.5% to 2.2%), an assessment fee (set by the card network, usually 0.1%), and a processor markup (set by your provider, usually 0.5% to 1.5%). Together, these typically total 2.2% to 3.5% of each transaction. You also pay a per-transaction fee, usually $0.30.
Some processors charge a monthly account fee ($10 to $50) or a statement fee ($2 to $5). Others charge nothing monthly but take a higher percentage. Compare the total cost for your expected monthly volume, not just the percentage.
Debit cards, American Express, and Discover often cost more than Visa or Mastercard. Some processors charge extra for card-not-present transactions (online or phone orders). Ask your processor for a full fee schedule before you sign up.
Choosing a processor: the main options for small business
Square is best if you take mostly in-person payments. The card reader is free, the per-transaction cost is straightforward (2.6% + $0.10 for in-person, 2.6% + $0.30 for online), and there is no monthly fee. You get a free online store and invoicing. The downside: no inventory management or employee tracking unless you pay for Square for Retail.
Stripe is best if you have a website or sell online. Fees are 2.9% + $0.30 for online payments, and you can integrate their code directly into your site. They offer invoicing, recurring billing, and a full suite of tools for growing businesses. The downside: in-person payments require a separate Stripe Terminal reader ($299), and there is no free online store.
PayPal works for both in-person and online. Fees are 2.99% + $0.30 for online and 2.7% + $0.05 for in-person with PayPal Here. You can send invoices and accept payments on your phone. The downside: the interface is less modern than Square or Stripe, and you need a separate PayPal account.
Your bank may offer merchant services. Fees are often higher (3% to 4%), but you have one relationship and one deposit account. This is useful if you already have a strong relationship with your bank, but shop around first.
Security and compliance: what you must do
You are required by law to meet PCI DSS (Payment Card Industry Data Security Standard). This means you must protect card data from theft. The good news: if you use a modern processor with a hosted payment form, they handle PCI compliance for you. You never store card numbers on your computer or server.
The bad news: if you take card details over email, phone, or paper, you are responsible for storing them securely — which is difficult and risky. Never email card numbers. Never write them down and leave them on a desk. If you must take phone orders, use a payment form or processor that records the call securely, not a notepad.
Most processors include fraud protection and chargeback handling. If a customer disputes a charge, the processor investigates and either returns the money or sides with you. Keep receipts and records of what you sold in case you need to defend a chargeback.
Setting up your merchant account: what you need
To open a merchant account, you will need your Employer Identification Number (EIN) or Social Security Number, a business bank account, and basic information about your business (name, address, how long you have been operating). If you are a sole proprietor, you can use your Social Security Number, but an EIN is better for privacy.
Most processors can open an account in minutes online. Some require a phone call or a few days of verification. If you have been in business less than a year, or if you have a history of chargebacks or disputes, approval may take longer or require more documentation.
Once approved, you can start taking payments when ready. Funds usually deposit within one to three business days. Some processors hold a small reserve (1% to 5% of your monthly volume) for the first few months to cover chargebacks.
Frequently Asked Questions
Can I accept credit cards without a business license?
Most processors require you to have a business structure (sole proprietorship, LLC, or corporation) and an EIN or Social Security Number. You do not need a formal business license in most states, but you should register your business name with your state and get an EIN from the IRS. Check your state and local requirements.
What happens if a customer disputes a charge?
The processor investigates the dispute. If the customer claims they did not make the purchase, you can provide a receipt or proof of delivery. If you can prove the transaction was legitimate, you keep the money. If you cannot, the processor refunds the customer and charges you a dispute fee (usually $15 to $100). Keep detailed records of all sales.
Do I need a separate merchant account or can I use my regular business bank account?
Most modern processors deposit directly to your regular business bank account. You do not need a separate merchant account. However, some banks and older processors still use a separate merchant account. Ask your processor before you sign up.
Which processor is cheapest?
It depends on your sales mix. Square is cheapest for in-person payments. Stripe is competitive for online. PayPal is middle-of-the-road for both. Calculate your expected monthly volume and total fees (percentage plus per-transaction fees) for each processor, then compare. The difference is usually $20 to $100 per month for a small business.
Can I accept credit cards on my phone without a reader?
No. You need either a card reader (for in-person) or a payment form (for online). You cannot manually type in card numbers and process them securely on your phone. Using a reader or form protects you from fraud and PCI liability.