The basic steps to start taking credit cards
To accept credit card payments, you need a merchant account — a contract with a bank or payment processor that lets you receive card transactions. You also need a way to process those transactions: a physical card reader, an online payment form, or a mobile app. The processor collects the payment, holds it briefly, and deposits it into your business bank account, usually within one to three business days.
The fastest route depends on your business type. If you sell in person, you need a card reader. If you sell online, you need a payment gateway. If you do both, you may need both tools. Most payment processors offer packages that include the merchant account and the processing equipment together, so you do not have to set them up separately.
Key Takeaways
- A merchant account is a contract with a bank or processor that allows you to receive card payments; most small businesses get this through a payment processor like Square, Stripe, or PayPal rather than directly from a bank.
- In-person payments require a physical card reader; online payments require a payment gateway integrated into your website or shopping cart.
- You will pay a percentage of each transaction (typically 2 to 3 percent) plus sometimes a small flat fee per transaction; rates vary by processor and card type.
- Processing times range from same-day to three business days depending on your processor and bank, and funds go into your business bank account, not a personal one.
- You must keep records of all transactions and follow PCI compliance rules, which means not storing full card numbers on your own systems.
Choosing between a payment processor and a bank merchant account
Most small businesses use a payment processor — a company like Square, Stripe, PayPal, or Toast — rather than requesting a merchant account directly from a bank. Processors handle the merchant account, the equipment, the software, and customer support all in one place. They charge you a percentage of each sale (the interchange fee) plus sometimes a per-transaction fee. Setup usually takes a few days to a week.
A direct merchant account from your bank is an older route, less common now for small businesses. It requires a separate request, separate equipment contracts, and separate customer support. You deal with multiple vendors instead of one. Banks also often require higher monthly sales volume or longer contracts. Unless you process very high volumes or have an existing relationship with your bank, a processor is simpler.
Compare processors on three things: the percentage they charge per transaction, whether they charge a monthly fee, and how fast they deposit money into your account. Some charge 2.2 percent plus 30 cents per transaction. Others charge 2.9 percent plus 30 cents. A few charge a flat monthly fee instead of per-transaction fees. The difference adds up if you process hundreds of transactions a month.
Setting up a card reader for in-person payments
If you take payments face-to-face, you need a card reader — a small device that connects to your phone, tablet, or computer and reads the card's information. The most common types are square readers (about the size of a cube), tap readers (for contactless and chip cards), and traditional countertop terminals.
Most processors send you a reader for free or a small one-time fee when you sign up. You read their app on your phone or tablet, plug in the reader, and you are ready to process. The customer inserts, taps, or swipes their card. The app shows the transaction, you confirm the amount, and the payment goes through. The whole process takes 10 to 30 seconds.
If you run a brick-and-mortar store, a countertop terminal (a larger device that sits on your counter) may be better than a mobile reader. Terminals are more durable, faster for high volume, and do not depend on your phone's battery or internet connection. They cost more upfront but last longer. Processors like Square, Clover, and Toast all offer terminal options.
Setting up online payment processing for your website
If you sell online, you need a payment gateway — software that sits on your website and securely collects card information when a customer checks out. The gateway encrypts the card data, sends it to the processor, and returns a yes-or-no answer in seconds.
Most website builders (Shopify, Wix, BigCommerce) have payment gateways built in. You connect your processor account to your store, and payments flow automatically. If you have a custom website, you can add a gateway like Stripe, Square Online, or PayPal. These require a bit of technical setup — usually copying code into your website — but the processor's documentation walks you through it.
When setting up, you will need your business tax ID, your business bank account number, and proof of your business address. The processor verifies these before activating your account. This usually takes 24 to 48 hours. Some processors (like Stripe) can set up you in minutes if you meet their basic requirements.
Understanding fees and how money reaches your account
Every card transaction costs you money. The processor takes a percentage (usually 2.2 to 2.9 percent) plus a flat fee per transaction (usually 20 to 30 cents). Some processors also charge a monthly account fee ($10 to $30) or a statement fee. A few charge no monthly fee but higher per-transaction rates.
The percentage varies by card type. Debit cards cost less (often 1.5 to 2 percent). Credit cards cost more (often 2.2 to 3 percent). American Express and Discover sometimes cost more than Visa or Mastercard. The processor shows you the exact rate for each card type when you sign up.
Money from card sales goes into your business bank account, not a personal one. Most processors deposit funds once per business day, usually in the afternoon. Some deposit the next business day. A few offer same-day deposits for an extra fee. You can see pending deposits in the processor's app or dashboard before they hit your account.
PCI compliance and keeping customer data safe
PCI compliance is a set of security rules that protect customer card information. If you take cards, you must follow these rules or face fines. The main rule is straightforward: never store a full card number on your own computer or server.
When you use a processor's card reader or payment gateway, the processor handles the card data, not you. You never see the full number. This is the safest setup and keeps you compliant automatically. If you build your own payment system or try to store card data yourself, you become responsible for PCI compliance, which is expensive and complicated.
Beyond card data, keep your passwords strong, use a find internet connection (HTTPS), and update your software regularly. If you use a processor's app or gateway, they handle most of the technical security for you. Your job is to not do anything that bypasses their security — like writing down card numbers or emailing them.
Comparing popular payment processors
| Processor | Best for | Per-transaction rate | Monthly fee |
|---|---|---|---|
| Square | Small retail, restaurants, mobile sales | 2.6% + 10¢ (in-person); 2.9% + 30¢ (online) | None |
| Stripe | Online stores, SaaS, subscriptions | 2.9% + 30¢ | None |
| PayPal | Online sales, invoicing, existing PayPal users | 2.9% + 30¢ (online); 3.49% + 15¢ (in-person) | None |
| Toast | Restaurants, bars, high-volume venues | 2.59% + 8¢ (varies by plan) | $0–$99 depending on plan |
| Clover | Retail, restaurants, services | 2.7% + 10¢ (in-person); 3.15% + 15¢ (online) | $0–$50 depending on plan |
Rates and fees change, so check the processor's current pricing before you decide. Many offer a free trial period so you can test their app and reader before committing. Start with the processor that matches your business type — a restaurant should look at Toast or Square, while an online store should look at Stripe or Shopify Payments.
No single processor is right for every business. A high-volume restaurant may save money with Toast's lower per-transaction rate even if it charges a monthly fee. A solo freelancer may prefer Square's zero monthly fee and simpler setup. Test the processor's app and reader yourself before you commit, and ask their support team about your specific situation.
Frequently Asked Questions
Do I need a separate business bank account to take credit cards?
Yes. Processors deposit card payments into a business bank account, not a personal one. If you do not have a business account yet, open one at your bank before you set up the processor. You will need the account number and routing number during processor setup.
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 goes back to the customer and comes out of your account. You can dispute the chargeback by providing proof (a receipt, email confirmation, or delivery record). Most processors have a chargeback dashboard where you upload evidence.
Can I take credit cards without a physical location?
Yes. You can process payments online through a website, by phone, or by sending an invoice link. You do not need a store or office. You do need a business bank account and a processor account. Some processors ask for a business address, but it can be a home address or a mailbox.
What if my internet goes down during a transaction?
Most mobile card readers and online gateways queue the transaction and send it when your connection returns. You will see a pending status in your app. If the connection stays down for hours, contact your processor's support line. They can manually process the transaction or advise you on next steps.
How long does it take to get approved for a merchant account?
Most processors approve you in 24 to 48 hours. Some approve in minutes. A few take up to a week if they need to verify your business documents. You can usually start processing test transactions while you wait for final approval, so you can train your staff on the reader or gateway before your first real sale.