The Basic Steps to Start Taking Credit Cards
To accept credit card payments, you need three things: a merchant account (a bank account that processes card transactions), a payment processor (the company that handles the technical side), and a payment method (a terminal, online form, or mobile reader). You do not need all three from the same company, though many providers bundle them together.
The fastest route for a small business or freelancer is a payment processor like Square, Stripe, or PayPal. You sign up online, connect a bank account, and can start accepting cards within days. For a brick-and-mortar store, you will need a physical card reader. For online sales, you need a payment form on your website or a link you can send to customers.
Every time a customer swipes, taps, or enters their card, the processor checks with the card's bank, holds the money temporarily, and deposits it into your account. You pay a fee for this service—usually a percentage of each transaction plus a small flat fee. These fees vary by processor and by how the card is presented (in-person, online, or over the phone).
Key Takeaways
- You need a merchant account and a payment processor to accept cards; many companies offer both as a package.
- Payment processors charge a percentage of each transaction plus a per-transaction fee, and rates differ based on whether the card is present or not.
- In-person card payments (swiped or tapped) usually cost less per transaction than online or phone payments because fraud risk is lower.
- Your processor deposits money into your bank account on a set schedule, typically within one to three business days.
- You are responsible for refunding customers if they dispute a charge or if you need to reverse a sale.
Choosing Between In-Person, Online, and Phone Payments
The method you choose affects your fees and the equipment you need. In-person payments (card present) have the lowest fees because the customer is physically there and the card is verified in real time. You can use a square reader that plugs into a phone, a standalone terminal, or a full point-of-sale system. Fees typically run 2.6% plus 10 cents per transaction for debit cards and 2.9% plus 30 cents for credit cards, though these vary by processor.
Online payments (card not present) cost more because fraud risk is higher. A customer enters their card details on your website or a payment link you send them. Fees are usually 2.9% plus 30 cents per transaction, sometimes higher. You will need a payment gateway—software that encrypts the card data and sends it securely to your processor. Stripe, Square Online, and Shopify all provide this.
Phone payments fall between the two. You take the customer's card number over the phone and enter it manually into your processor's system. Fees are typically higher than in-person but may be lower than fully online, depending on your processor. This method carries more fraud risk because you are typing the number yourself, so some processors charge extra or require you to keep detailed records.
Understanding Merchant Accounts and Processing Fees
A merchant account is a special bank account that accepts credit card deposits. Your regular business bank account cannot receive card payments directly. When you sign up with a payment processor, they either set up a merchant account for you or connect you to one through their banking partner.
Fees come in several forms. The interchange fee is what the card's bank charges the processor; the processor passes most of this to you. The assessment fee is what Visa or Mastercard charges for the transaction. The processor fee is what the payment company keeps. Together, these usually total 2.2% to 3.5% of the transaction, plus 10 to 30 cents per transaction. Some processors charge a monthly minimum or a monthly fee instead of per-transaction fees.
Rates depend on your industry, your sales volume, and how you accept cards. A coffee shop with high in-person volume pays less per transaction than a consulting firm taking occasional online payments. Some processors offer tiered pricing (different rates for different card types) or flat-rate pricing (the same percentage for all cards). Flat-rate is simpler but may cost more if you process a lot of premium cards.
Setting Up a Payment Processor Account
Most payment processors follow the same basic steps. You create an account online, provide your business name and tax ID, and connect a bank account where deposits will land. The processor verifies your identity and may ask for business documents like a license or articles of incorporation. This verification usually takes one to three business days.
Once approved, you receive login credentials and can start accepting payments immediately. If you need a physical card reader, the processor ships it to you (usually free or for a small fee). You download their app or software, pair the reader to your phone or computer, and you are ready to process.
For online payments, you will receive an API key or a payment link. An API key lets you embed the payment form directly into your website; a payment link is a URL you can email or text to customers. Both are secure and PCI-compliant, meaning they meet the security standards required by the card networks.
How Money Moves From the Customer to Your Bank Account
When a customer pays, the processor does not send the money to you immediately. Instead, it enters a holding period called the settlement cycle. For most processors, this is one to three business days. During this time, the processor checks that the transaction is legitimate, the card has not been reported stolen, and the customer's bank has approved the charge.
Once the settlement period ends, the processor deposits the full amount (minus fees) into your merchant account or your connected bank account. You can see the deposit as a single lump sum or as individual line items, depending on your processor's reporting. Most processors show you a detailed breakdown in your dashboard: the gross amount, the fees charged, and the net deposit.
If a customer disputes a charge or requests a refund, the money comes back out of your account. The processor reverses the transaction, and the funds return to the customer's card. If you have already spent the deposit, you will owe the money back to your processor. This is why it is important to keep a small reserve and to process refunds promptly.
Security and Compliance Requirements
Any business that accepts credit cards must comply with PCI DSS (Payment Card Industry Data Security Standard). This is a set of rules designed to protect customer card data. The main rule: never store a customer's full card number on your own computer or server. Your payment processor handles this encryption for you.
If you take payments online, your website must use HTTPS (a secure connection). If you take payments over the phone, you must not write down or email the full card number. If you use a card reader or payment form provided by your processor, you are already compliant because the processor handles the encryption.
Some processors offer fraud detection tools that flag suspicious transactions automatically. These tools look for patterns like multiple failed attempts, unusually large amounts, or cards used in different countries within minutes. You can set rules to block or review these transactions before they settle.
Comparing Popular Payment Processors
The right processor depends on your business type and sales volume. Square is popular for retail and service businesses; it offers in-person readers, online payments, and invoicing. Fees are 2.6% plus 10 cents for in-person debit, 2.9% plus 30 cents for credit, and 3.5% plus 15 cents for online. Deposits arrive within one business day.
Stripe is built for online businesses and developers. It has lower online fees (2.9% plus 30 cents) and integrates deeply with websites and apps. Setup is more technical than Square, and deposits take one to two business days. Stripe does not offer physical card readers.
PayPal accepts cards and also PayPal account payments. Fees are 2.99% plus 30 cents for online, 2.7% plus 5 cents for in-person with their reader. PayPal is useful if you already have a PayPal account or if you want to accept PayPal payments alongside cards. Deposits take one to two business days.
Shopify Payments is built into Shopify and is the simplest option if you use Shopify to run your store. Fees are 2.9% plus 30 cents for online payments. Deposits arrive within one to two business days. You cannot use Shopify Payments outside of Shopify.
Handling Refunds and Chargebacks
A refund is when you give money back to a customer because they returned a product or you made an error. You initiate the refund through your processor's dashboard, and the money returns to the customer's card within one to three business days. The processor reverses the transaction, and you do not pay fees on the refunded amount.
A chargeback is when a customer disputes a charge with their bank instead of asking you for a refund. The bank investigates and either sides with the customer (you lose the money and pay a chargeback fee, usually $15 to $100) or sides with you (the money stays in your account). Chargebacks are more expensive than refunds, so it is better to refund customers quickly when they ask.
To reduce chargebacks, keep clear records of what you sold, when you shipped it, and any tracking information. If a customer claims they never received an item, you can provide proof of delivery. If they claim the charge was unauthorized, you can show that they logged into their account and made the purchase. Most processors let you upload this evidence through their dashboard.
Frequently Asked Questions
Do I need a business license to accept credit cards?
No, but you do need a tax ID (EIN) or Social Security number. Most payment processors ask for this during signup to verify your identity and report your income to the IRS. If you are a sole proprietor, you can use your Social Security number. If you have an LLC or corporation, use your EIN.
What happens if a customer's card is declined?
The processor tells you immediately that the transaction failed. Common reasons include insufficient funds, expired card, or the bank blocking the charge as fraud. You can ask the customer for a different card or payment method. The failed transaction does not charge you a fee (most processors do not charge for declined cards), but some charge a small fee for the attempt.
Can I accept credit cards without a physical location?
Yes. You can accept online payments through a website or payment link, or take payments over the phone. You do not need a store or office. Many freelancers, consultants, and online sellers accept cards this way. Your processor will deposit money into your personal or business bank account.
How long does it take to get approved to accept credit cards?
Most processors approve you within one to three business days. Some approve instantly if you provide all required information upfront. You can usually start accepting payments as soon as you are approved, though you may need to wait for a physical card reader to arrive by mail.
What is the difference between a debit card and a credit card fee?
Debit card fees are usually lower (around 1.5% to 2%) because the money comes directly from the customer's bank account and fraud risk is lower. Credit card fees are higher (around 2.9% to 3.5%) because the customer's bank is lending them the money and taking on more risk. Your processor charges different rates for each.