The simplest way to accept credit cards depends on your business size and how often you take payments

If you run a small business, freelance, or sell online, you have three main routes: a payment processor (like Square, Stripe, or PayPal), a merchant account through your bank, or a point-of-sale system if you have a physical location. Payment processors are the fastest to set up and work for most small operations. Merchant accounts typically cost less per transaction if you process high volume, but take longer to open. Point-of-sale systems bundle payment processing with inventory and sales tracking, which matters if you're managing stock.

The choice comes down to three things: how much you'll process each month, whether customers come to you or you go to them, and whether you need to track inventory or just take payments. A freelancer taking occasional payments online needs something different from a coffee shop taking dozens of cards a day.

Key Takeaways

  • Payment processors like Square and Stripe let you start accepting cards within hours, with fees typically between 2.2% and 3.5% per transaction plus a small per-transaction fee.
  • Merchant accounts through your bank usually have lower per-transaction fees but require a business license, tax ID, and approval that takes one to two weeks.
  • In-person payments, online payments, and phone payments each use different technology, so choose a processor that handles the method your customers actually use.
  • You will need a business bank account and either a business license or a sole proprietor tax ID to open any merchant account or processor account.

Payment processors: fastest setup for small businesses and freelancers

A payment processor is a company that handles the technical side of taking card payments. You sign up, they give you a way to accept cards (a link, a card reader, a form), and they deposit money into your bank account. Square, Stripe, PayPal, and Toast are the most common. Most let you start within a few hours.

The trade-off is cost. Payment processors charge a percentage of each transaction (usually 2.2% to 3.5%) plus a small per-transaction fee (often $0.30). If you process $10,000 a month, you might pay $250 to $400 in fees. A merchant account might cost less at that volume, but you won't know until you apply and see their quote.

Processors work best if you take payments online, by phone, or with a mobile card reader. If you have a physical store and take hundreds of cards a day, a point-of-sale system might be more efficient. If you take payments only a few times a month, a processor is almost always the right choice because there's no monthly minimum.

Merchant accounts: lower fees for high volume, longer to open

A merchant account is a bank account specifically for business card payments. You apply through your bank or a third-party processor, and once approved, you can accept cards directly. Merchant accounts typically charge a lower percentage per transaction (often 1.5% to 2.5%) but may include a monthly fee ($10 to $50) and a setup fee ($100 to $500).

The approval process takes one to three weeks. You'll need to provide a business license or sole proprietor tax ID, a business bank account, and sometimes proof of revenue or a business plan. Banks want to know you're a real business before they give you a merchant account.

Merchant accounts make sense if you process more than $5,000 to $10,000 a month and can wait for approval. Below that, the monthly fees and setup costs usually outweigh the savings on per-transaction fees. If you're just starting out, a payment processor is almost always faster and cheaper.

Point-of-sale systems for retail and restaurants

A point-of-sale system (or POS) is hardware and software that handles payments, inventory, and sales tracking all in one. Square, Toast, Clover, and Lightspeed are common examples. You connect a card reader to a tablet or computer, ring up the sale, and the customer pays.

POS systems include payment processing built in, so you don't choose a processor separately — the POS company handles it. Fees are similar to payment processors (2% to 3% per transaction), but you may pay a monthly subscription ($30 to $300 depending on features) for the software and hardware.

POS systems are worth the extra cost if you need inventory tracking, employee management, or detailed sales reports. If you just need to take payments, a payment processor is simpler and cheaper. If you're a solo freelancer or online seller, you don't need a POS system at all.

What you need before you can accept cards

Every payment processor and merchant account requires the same basic documents. You need a business bank account in your business name (or your personal name if you're a sole proprietor). You need either a business license or an Employer Identification Number (EIN), which you get from the IRS for free. If you're a sole proprietor with no employees, you can use your Social Security number instead of an EIN, but most processors prefer an EIN.

You'll also need to tell the processor or bank how much you expect to process each month, what you sell, and how long you've been in business. If you're brand new, some processors will still approve you, but others may decline or ask for a personal may provide (meaning you're personally liable if something goes wrong).

Have your business bank account open and your EIN or business license ready before you apply. The application usually takes 10 to 20 minutes online, and you'll get a decision within hours or days.

Fees and how they work

Payment processors and merchant accounts charge in three ways: a percentage of the transaction (called the discount rate), a flat fee per transaction, and sometimes a monthly fee. A typical processor might charge 2.9% plus $0.30 per transaction. A typical merchant account might charge 1.8% plus $0.15 per transaction plus a $25 monthly fee.

The percentage is usually higher for online payments (called card-not-present transactions) than for in-person payments where the customer swipes or inserts their card. This is because online payments have higher fraud risk. Rates also vary by card type — American Express and Discover often cost more than Visa and Mastercard.

Some processors offer tiered pricing, where your rate depends on how the card is processed. Others use interchange-plus pricing, where they charge you the bank's interchange fee plus a fixed markup. Interchange-plus is usually more transparent but requires higher volume to may have access to.

Choosing between in-person, online, and phone payments

Different payment methods require different technology. In-person payments use a card reader connected to a phone or tablet — Square Reader, Stripe Terminal, or a POS system. Online payments use a payment form on your website or a link you send to customers — Stripe Checkout, PayPal, or a processor's hosted form. Phone payments use a virtual terminal, where you type in the card number yourself.

Most processors handle all three, but some specialize. Stripe is strongest for online payments. Square is strongest for in-person payments with a mobile reader. PayPal works for all three but is most common for online. If you need all three methods, pick a processor that does all three well rather than juggling multiple services.

In-person payments (where the customer is present and you can see their card) have the lowest fraud risk and lowest fees. Online and phone payments have higher fees because the risk is higher. If you can take payments in person, you'll save money on fees.

Frequently Asked Questions

How long does it take to start accepting credit cards?

Payment processors like Square and Stripe can be ready within hours — sometimes the same day. Merchant accounts through banks typically take one to three weeks because they require more verification. If you need to start immediately, a payment processor is your only option.

Do I need a business license to accept credit cards?

Most processors and banks require either a business license or an EIN (Employer Identification Number). If you're a sole proprietor, you can use your Social Security number, but processors often prefer an EIN because it separates your business finances from personal finances. An EIN is free from the IRS and takes 10 minutes to request online.

What's the difference between a payment processor and a merchant account?

A payment processor is a company that handles card payments for you and deposits money into your bank account. A merchant account is a special bank account designed for business card payments. Processors are faster and easier to set up; merchant accounts usually have lower fees if you process high volume. Many processors also offer merchant accounts, so the line between them is blurry.

Can I accept credit cards without a business bank account?

Most processors require a business bank account because they need somewhere to deposit the money. Some will accept a personal account if you're a sole proprietor, but it's not recommended — mixing personal and business money makes taxes harder and looks unprofessional. A business bank account is inexpensive (often free) and takes a few days to open.

Which payment processor is cheapest?

Fees vary by processor, payment method, and card type. For low volume, the difference is small — pick whichever is easiest to use. For high volume, get quotes from at least two processors and compare the total cost, not just the percentage. Some processors offer lower rates if you process a certain amount per month or if you accept payments in person rather than online.