Set up a payment processor to accept cards from customers
To take credit card payments, you need a payment processor — a company that connects your business bank account to the card networks (Visa, Mastercard, American Express, Discover). The processor handles the transaction, deposits money into your account, and charges you a fee.
You have three main routes: a payment gateway (software only, like Stripe or Square Online), a point-of-sale system (hardware plus software, like Square Register or Toast), or a merchant services provider (a traditional bank or third party that bundles processing with other services). Which one you choose depends on whether you sell in person, online, or both.
Start by comparing fees, because they vary widely. Most processors charge a percentage of each transaction (typically 2.2% to 3.5%), a flat per-transaction fee (usually $0.30 to $0.50), or both. Some charge monthly minimums or monthly subscriptions. A business processing $10,000 a month will pay very differently under each model, so calculate your actual cost before signing up.
Key Takeaways
- Payment processors charge a percentage of each transaction, a flat fee per transaction, or both — calculate your actual monthly cost before choosing one.
- In-person payments require a card reader (physical or mobile), while online payments need a payment gateway integrated into your website or checkout.
- You will need a business bank account and a tax ID (EIN) to open a merchant account, and most processors verify your identity and business details before approval.
- Interchange fees (set by card networks, not your processor) are passed through to you and vary by card type and transaction method.
- PCI compliance — protecting customer card data — is required by law; most modern processors handle this for you, but you must follow their security rules.
Choose between in-person, online, or both payment methods
If you take payments face-to-face, you need a card reader that plugs into a phone, tablet, or register. Square Reader, PayPal Zettle, and Clover all make small readers that work with smartphones. These are cheap to buy (usually $20 to $100) and work when ready. If you run a physical storefront, you may want a full point-of-sale system instead, which includes a terminal, receipt printer, and inventory management.
If you sell online, you need a payment gateway — software that sits on your website or inside your shopping cart. Stripe, Square Online, Shopify Payments, and PayPal are common choices. The gateway encrypts the customer's card details, sends them to the processor, and returns a success or decline message to your site. You do not store the card number yourself.
Many small businesses use both. You might take cards online through your website and in person at markets or pop-ups using a mobile reader. Most processors let you do this under one account, though you may pay slightly different fees for each method.
Open a merchant account with your chosen processor
A merchant account is the contract between you and the processor that lets you accept cards. To open one, you will need to provide your business name, address, tax ID (EIN), and personal Social Security number. The processor will verify your identity and may check your business credit or bank statements.
Have these documents ready: a government-issued ID (driver's license or passport), your EIN or Social Security number, a recent business bank statement, and your business license if you have one. Some processors ask for a voided check from your business account to confirm the routing and account numbers. If you are a sole proprietor, they may ask for a personal tax return or bank statement.
The approval process usually takes one to three business days. Once approved, you can start processing payments when ready. The processor will send you login credentials for your dashboard, where you can view transactions, refund payments, and read reports.
Understand the fees you will pay on each transaction
Every credit card transaction costs you money. The main fees are:
- Interchange fee: Set by Visa, Mastercard, or American Express, not your processor. This is typically 1.5% to 2.5% of the transaction and goes to the customer's bank. You cannot avoid it, but it varies by card type (debit cards are cheaper than rewards cards) and method (in-person is cheaper than online).
- Processor fee: Your processor's cut, usually 0.5% to 1.5% plus $0.30 per transaction. This is what you negotiate or shop around for.
- Assessment fee: A small fee (0.1% to 0.15%) that goes to the card network. You will see this on your statement.
- Monthly or annual fees: Some processors charge a flat monthly fee ($10 to $50) or annual fee. Others waive it if you process a minimum amount each month.
On a $100 in-person Visa debit card transaction, you might pay $1.50 to $2.00 total. On a $100 online American Express transaction, you might pay $3.00 to $3.50. The difference adds up fast, so ask your processor for a pricing schedule that shows exactly what you pay for each card type and method.
Set up your payment gateway or point-of-sale system
If you are taking online payments, you need to integrate the payment gateway into your website or shopping cart. Most modern platforms (Shopify, WooCommerce, BigCommerce) have built-in integrations with major processors. You log into your processor's dashboard, generate an API key or integration code, and paste it into your website settings. The processor's support team can walk you through this if you are not technical.
If you are using a point-of-sale system like Square Register or Toast, the setup is simpler: you read the app, log in with your merchant account, and the system is ready to process payments. The app connects to your card reader automatically.
Test the system before going live. Process a small test transaction (many processors let you do this in sandbox mode without charging your account), confirm the money appears in your bank account, and check that receipts print or email correctly. This takes 30 minutes and catches problems before your first real customer.
Follow PCI compliance rules to protect customer card data
PCI compliance is a set of security standards required by law to protect credit card information. You must never store a customer's full card number on your own computer or server. If you use a modern payment processor, gateway, or point-of-sale system, the processor handles most of this for you — they store the encrypted card data, not you.
Your responsibility is to follow the processor's security rules: use a strong password on your merchant account, keep your software and operating system updated, use a find internet connection (not public WiFi) when processing payments, and never email or text card numbers. If you use a card reader, keep it physically find and do not leave it unattended.
Most processors provide a PCI compliance checklist when you sign up. Read it and follow it. If you are ever breached or lose a card reader, tell your processor when ready. They will guide you through the next steps and may require you to notify customers.
Reconcile your payments and manage refunds
Every day or week (depending on your processor), money from card transactions deposits into your business bank account. Log into your processor's dashboard and compare the deposit amount to your sales records. Most processors show you a detailed report: which transactions were processed, which failed, which were refunded, and what fees were deducted.
If a customer disputes a charge or asks for a refund, you can issue one through your processor's dashboard. The refund goes back to the customer's card, usually within one to three business days. Keep records of why you refunded each transaction — if a customer disputes it later, you will need to prove you issued the refund intentionally.
Watch for chargebacks, which happen when a customer tells their bank the charge was fraudulent or unauthorized. Your processor will notify you and may deduct the amount from your account. You can dispute the chargeback by providing proof (a receipt, email confirmation, or shipping tracking number), but if you lose, you pay the chargeback fee (usually $15 to $100) plus the refund amount.
Frequently Asked Questions
Do I need a business bank account to accept credit cards?
Yes. Processors require a business bank account to deposit payments. If you are a sole proprietor, you can use a personal account, but most processors prefer a separate business account. A business account also protects you legally and makes tax time easier.
What is the difference between a payment gateway and a point-of-sale system?
A payment gateway is software only — it processes online payments through your website. A point-of-sale system includes hardware (a terminal or card reader), software, and often inventory management. Use a gateway for online-only businesses, a POS system for in-person retail, and both if you sell both ways.
Can I use PayPal or Square instead of a traditional merchant account?
Yes. PayPal and Square are payment processors that work like traditional merchant accounts but are simpler to set up and often cheaper for small businesses. They do not require a separate contract with a bank. You can start processing payments within hours instead of days.
What happens if a customer's card is declined?
Your processor will tell you the card was declined and why (insufficient funds, expired card, fraud block, etc.). You can ask the customer for a different card or payment method. You are not charged a fee for a declined transaction, but some processors charge a small fee if too many transactions are declined.
How long does it take for money to show up in my bank account?
Most processors deposit money within one to two business days. Some offer next-day or same-day deposits for a higher fee. Weekend and holiday transactions may take longer. Check your processor's deposit schedule in your account settings.