You need a payment processor, a way to collect the card details, and a business bank account
Accepting credit cards means three separate things have to happen: you collect the card number (either in person, online, or over the phone), you send that information to a payment processor, and the processor moves money into your business bank account. You do not need to be a certain size or have a certain amount of revenue. You do need to choose which processor to use, which method fits your business model, and what it will cost you per transaction.
The processor is the company that actually handles the card — they contact the customer's bank, confirm the funds are there, and move the money to you. They charge you a fee for this, usually between 2% and 3.5% of each sale, plus sometimes a flat fee per transaction. Different processors have different fee structures, so the cheapest option depends on whether you process many small sales or fewer large ones.
You will also need to decide how customers hand over their card information. In-person businesses use a card reader (a small device that plugs into a phone or tablet). Online stores use a payment form on their website. Service businesses often take cards over the phone. Some processors support all three; others specialize in one.
Key Takeaways
- A payment processor is a separate company from your bank — they handle the card transaction and deposit the money into your business account, usually within one to three business days.
- Fees vary by processor and by how you collect the card: in-person card readers often cost 2.2% to 2.9% per transaction, while online payments may cost 2.9% plus 30 cents, and phone payments typically run higher.
- You can start with a basic processor like Square, Stripe, or PayPal and switch later if your business needs change — there is no long-term contract required with most providers.
- PCI compliance means you must follow security rules when handling card information; using a certified processor handles most of this for you automatically.
- Your business bank account is separate from the payment processor — the processor deposits money there, but you choose which bank and account type.
The three ways to collect card information
In-person payments use a card reader — a small device that connects to your phone or tablet via Bluetooth or the headphone jack. The customer inserts, taps, or swipes their card, and the reader sends the information securely to your processor. Examples include Square Reader, Stripe Reader, and PayPal Here. These are best for retail shops, food trucks, service providers who visit clients, or anyone who meets customers face-to-face. The fee is usually 2.2% to 2.9% per transaction, with no monthly fee.
Online payments use a payment form on your website or a checkout page. The customer enters their card details directly into the form, which encrypts the information before sending it to your processor. You never see the full card number. This method works for e-commerce stores, subscription services, and anyone selling over the internet. The fee is typically 2.9% plus 30 cents per transaction. Popular processors for this include Stripe, Square Online, and Shopify Payments.
Phone or mail payments require you to manually enter the card number into your processor's system. This is the least secure method and carries the highest fees — often 3.5% or more per transaction — because the processor takes on more risk. Use this only when the customer cannot be present and cannot enter their own information online. You will need to be PCI compliant to do this, which means following specific security rules.
How payment processors work and what they cost
When a customer swipes, taps, or enters their card, the processor contacts the customer's bank to confirm the funds exist and the card is not stolen. This takes a few seconds in person or a few minutes online. If approved, the processor holds the money temporarily, then deposits it into your business bank account — usually within one to three business days, though some offer next-day deposits for a higher fee.
The processor keeps a percentage of each sale as their fee. This percentage varies based on how you collect the card and which processor you choose. In-person card reader payments are cheapest (2.2% to 2.9%) because the card is physically present and harder to counterfeit. Online payments cost more (2.9% to 3.5%) because the processor cannot see the card. Phone or mail payments cost the most (3.5% to 4%) because you are manually entering the information.
Some processors also charge a monthly fee ($0 to $50), a per-transaction flat fee (usually 10 to 30 cents), or a fee to withdraw money from your account. Read the pricing page carefully — the lowest percentage does not always mean the lowest total cost. A processor charging 2.5% with no flat fee might be cheaper than one charging 2.2% plus 30 cents per transaction if you process many small sales.
Choosing a processor for your business type
Retail stores and food service should prioritize in-person card readers. Square and Stripe both offer reliable readers that work with most phones and tablets. PayPal Here is another option. All three have similar fees (around 2.2% to 2.9%) and no monthly minimum, so the choice often comes down to which interface you prefer or whether you need other features like inventory tracking or employee management.
Online stores need a processor that handles website checkout. Stripe, Square Online, and Shopify Payments are the most common. If you already use Shopify to build your store, Shopify Payments is built in and simplifies setup. If you use a different website builder, Stripe integrates with most platforms. All three charge around 2.9% plus 30 cents per transaction.
Service providers (plumbers, therapists, consultants, contractors) often use a mix of methods. Square and Stripe both let you create invoices that customers can pay online, and both support phone payments for clients who prefer to call. This flexibility is more important than the lowest fee, since you will use multiple payment methods.
Subscription or membership businesses need a processor that handles recurring charges. Stripe and Square both support this. You set up the charge once, and the processor automatically bills the customer each month (or week, or year, depending on your terms). This is critical if you run a membership site, offer monthly services, or sell subscriptions.
Security and PCI compliance
PCI compliance is a set of security rules you must follow when handling credit card information. The rules exist to prevent card theft and fraud. The good news: if you use a certified payment processor and never store card numbers yourself, the processor handles most of the compliance for you.
The main rule is simple: do not store card numbers on your own computer or phone. Always let the processor handle the card information. If you take payments over the phone or by mail, use your processor's secure form to enter the card — do not write it down or email it. If you use a card reader or online checkout, the card information never touches your device in an unencrypted form.
If you do store card information (for example, to bill a regular client), you must follow strict security rules: encrypt the data, limit who can access it, and keep detailed records of who accessed it and when. Most small businesses avoid this by using a processor that stores the information for them.
Setting up your first payment processor
The setup process is similar across most processors. You create an account online, provide your business name and address, and link your business bank account. The processor will ask for your Social Security Number or Employer Identification Number (EIN) to verify your identity. This takes about 10 to 15 minutes.
Once your account is approved (usually within one business day), you can start accepting payments immediately. If you chose an in-person processor, you order a card reader — it arrives in a few days and pairs with your phone via Bluetooth. If you chose an online processor, you get a payment link or embed a checkout form on your website. If you chose a phone payment processor, you log into the dashboard and enter card details manually.
Your first deposit usually arrives within three to five business days. After that, deposits happen on a regular schedule — daily, weekly, or monthly depending on your processor and your settings. You can change the deposit schedule anytime, and most processors let you withdraw money on demand for a small fee.
Comparing processors side by side
| Processor | In-Person Fee | Online Fee | Phone/Mail Fee | Monthly Fee | Best For |
|---|---|---|---|---|---|
| Square | 2.6% | 2.9% + 30¢ | 3.5% + 15¢ | $0 | Retail, food service, mixed methods |
| Stripe | 2.7% + 5¢ | 2.9% + 30¢ | 3.5% + 15¢ | $0 | Online stores, subscriptions, developers |
| PayPal | 2.7% | 3.49% + 49¢ | 3.5% + 15¢ | $0 | Existing PayPal users, mixed methods |
| Shopify Payments | 2.7% + 0¢ | 2.9% + 30¢ | Not available | $0 (with Shopify store) | Shopify store owners |
Fees and features change frequently, so check each processor's current pricing page before deciding. Most processors do not require a contract, so you can switch if your needs change or if another processor offers better rates for your specific business model.
What happens if a payment fails or a customer disputes a charge
If a card is declined, the processor tells you immediately — usually because the card is expired, the account is closed, or the customer does not have enough funds. You can ask the customer for a different card or payment method. The declined transaction does not cost you anything.
If a customer disputes a charge (claiming they did not authorize it or did not receive what they paid for), the processor investigates. You will be asked to provide proof that the transaction was legitimate — a receipt, an email confirmation, a signed contract, or a photo of the delivered item. If you can prove the charge was valid, you keep the money. If you cannot, the money goes back to the customer and you lose the sale plus the processor's fee.
To protect yourself, keep records of every transaction: what was sold, when, to whom, and for how much. If you deliver a service, get written confirmation from the customer. If you ship a product, use tracked shipping so you can prove delivery. These records are your defense if a dispute arises.
Frequently Asked Questions
Do I need a business license to accept credit cards?
No. You need a business bank account (which most banks require a business license or EIN to open), but the payment processor does not require a license. However, your city or state may require a business license to operate legally, regardless of how you accept payment. Check your local requirements separately.
Can I accept credit cards without a business bank account?
Most processors require a business bank account to deposit money into. A few will deposit into a personal account, but this creates tax and liability problems — your business and personal finances get mixed, and the IRS may question it. Open a business account first; it takes about 15 minutes at any bank and costs nothing.
What if I process a very small number of transactions?
All major processors work fine for low volume. You pay per transaction, not a monthly minimum, so if you process one payment a month, you pay one transaction fee. There is no penalty for being small. Some processors offer virtual terminals (a website where you manually enter card details) if you rarely process cards.
Can I use the same processor for both in-person and online payments?
Yes. Square, Stripe, and PayPal all support multiple payment methods from one account. You can accept cards in person with a reader, online through a checkout form, and over the phone through a virtual terminal — all from the same processor and the same business account.
How long does it take to get paid after a customer swipes their card?
Most processors deposit money within one to three business days. Some offer next-day deposits for a higher fee. A few deposit daily. Check your processor's deposit schedule — you can usually change it in your account settings. Weekends and holidays may delay deposits by one day.