The three ways to take credit card payments

You can accept credit cards through a payment processor (a company that handles the transaction), a point-of-sale system (hardware and software that processes cards in person), or a payment gateway (software that connects your website to a processor). Which one you need depends on whether you sell in person, online, or both.

Each route has different costs, setup time, and equipment needs. A small business taking cards at a farmers market uses different tools than an online store. Understanding what each method does — and what it costs — helps you pick the one that fits your actual sales pattern.

Key Takeaways

  • Payment processors charge a percentage of each transaction (typically 2.2% to 3.5%) plus a per-transaction fee, and these rates vary by card type and your business size.
  • Point-of-sale systems require upfront hardware costs but work offline and often include inventory and reporting tools beyond just payment processing.
  • Payment gateways are software-only and work with your existing website, but you still need a separate merchant account or processor to actually move the money.
  • Interchange fees — what the card issuer charges — are set by Visa and Mastercard and cannot be negotiated, but processor markups on top of that fee can vary widely.
  • Monthly minimums, setup fees, and early termination penalties differ by provider, so comparing the full contract matters more than comparing the headline rate alone.

Payment processors: the most common choice for small businesses

A payment processor is a company that takes your customer's card information, sends it to the card network (Visa, Mastercard, American Express), and deposits the money into your business bank account. Square, Stripe, PayPal, and Toast are examples. You do not need a separate merchant account or bank relationship — the processor handles that part.

Processors charge you in two ways: a percentage of the sale (called the discount rate) and a flat fee per transaction. A typical rate is 2.7% plus 30 cents per card-present transaction (when the customer is in front of you) or 2.9% plus 30 cents for card-not-present (online or phone). These rates are not fixed — they depend on your industry, sales volume, and the type of card used. A debit card costs less to process than an American Express card.

Setup usually takes one to three business days. You provide your business name, tax ID, and bank account, and the processor runs a background check. Some processors charge a monthly fee (usually $10 to $30) even if you process no sales; others charge only when you use them. Read the contract to see whether there is a monthly minimum or an early termination fee.

Point-of-sale systems: for in-person sales with extra features

A point-of-sale system (POS) is hardware and software that processes cards at a physical location. It includes a card reader, a screen, and software that tracks inventory, employees, and sales history. Square Register, Toast, and Clover are common examples. The hardware costs $200 to $2,000 upfront, depending on features.

POS systems process cards the same way processors do — they charge a percentage plus a per-transaction fee — but they add reporting, employee management, and inventory tracking. If you run a restaurant, retail store, or service business, a POS system often pays for itself because it replaces separate tools you would otherwise buy. If you only take a few card payments a week, the hardware cost may not be worth it.

Most POS systems work offline, meaning they can process cards even if your internet goes down. The transaction uploads when you reconnect. This matters if your internet is unreliable or if you sell in locations without WiFi.

Payment gateways: for online stores and custom websites

A payment gateway is software that sits on your website and encrypts card information before sending it to a processor. Stripe, Authorize.net, and Shopify Payments are examples. A gateway does not process the card itself — it passes the information securely to a processor or merchant account you set up separately.

Gateways are useful if you have a custom website or if you want to use a processor that does not have its own website checkout. They cost $10 to $30 per month, plus the processing fees you pay to your processor. Setup requires technical knowledge or a developer, because the gateway has to be integrated into your website code.

If you use a platform like Shopify or WooCommerce, the gateway is often built in — you do not need to set one up separately. Check your platform's documentation to see which processors it supports.

Understanding the fees: interchange, assessment, and markup

When a customer swipes a Visa card, three fees come out of the transaction before you see the money. The interchange fee goes to the card issuer (the bank that issued the card). The assessment fee goes to the card network (Visa or Mastercard). These two are set by the networks and cannot be negotiated — they are the same whether you process $100 or $1 million a year.

The third fee is the processor's markup — the profit margin the processor keeps. This is where rates differ. One processor might charge 2.7% total, another 3.2%, even though the interchange and assessment are identical. The difference is the markup. Comparing processors means comparing their markup, not the total rate, because the interchange portion is fixed.

Interchange rates vary by card type. A rewards credit card costs more to process than a debit card because the card issuer pays the rewards out of the interchange fee. American Express and Discover have higher interchange than Visa and Mastercard. You cannot charge customers different prices based on card type, but you can factor the average cost into your pricing.

Comparing processors: what to check before signing up

Start by listing what you actually need. Do you sell in person, online, or both? Do you need inventory tracking or employee management? How many transactions do you process per month? Do you need to accept international cards?

Then compare these contract terms across at least three processors:

  • The discount rate and per-transaction fee for card-present and card-not-present sales.
  • Whether there is a monthly minimum or monthly fee.
  • Setup fees and early termination penalties.
  • Whether the rate is fixed or can increase after a certain period.
  • What happens if a customer disputes a charge (chargeback fees are often $15 to $100 per dispute).
  • How long it takes for money to reach your bank account (usually one to three business days).

Ask each processor for a written quote that includes all fees. Do not rely on the website rate alone — the contract may include fees not listed on the homepage. Some processors offer lower rates for the first few months, then raise them; check whether the rate you see is introductory.

Security and compliance requirements

Any processor you use must be PCI DSS compliant, which means it meets security standards set by the card networks. This protects customer card data from theft. All major processors (Square, Stripe, PayPal) are PCI compliant. If you use a smaller or custom processor, verify this before signing up.

You are also responsible for protecting customer data on your end. If you collect card information yourself — rather than letting the processor handle it — you must encrypt it and follow PCI rules. Most small businesses avoid this by using a processor's hosted payment page or card reader, which means the processor, not you, stores the card data.

Keep records of all transactions for tax purposes and in case of disputes. Most processors provide a dashboard where you can download transaction history. Save these records for at least three years.

Frequently Asked Questions

Can I accept credit cards without a merchant account?

Yes. A payment processor like Square or Stripe sets up a merchant account for you as part of their service. You do not need to open a separate merchant account with a bank. The processor handles the relationship between you, the card networks, and your bank.

What is the difference between a debit card and a credit card fee?

Debit cards cost less to process because the interchange fee is lower — it is capped by federal law at around 0.05% plus 21 cents per transaction. Credit cards have no cap, so interchange is typically 1% to 3% depending on the card type. Your processor charges you the full interchange plus their markup, so you pay more per debit transaction in percentage terms, but less in absolute dollars on small sales.

Why do some processors charge monthly fees and others don't?

Processors that charge monthly fees often have lower per-transaction rates. Processors with no monthly fee charge higher per-transaction rates. If you process a lot of volume, the monthly-fee model is cheaper. If you process very little, the no-monthly-fee model is cheaper. Calculate your expected monthly volume and compare the total cost under each model.

How long does it take to get paid after a customer swipes their card?

Most processors deposit money into your bank account within one to three business days. Some offer next-day or same-day deposits for an extra fee. Weekend and holiday transactions may take longer. Check your processor's deposit schedule in the contract.

What happens if a customer disputes a charge?

The customer contacts their card issuer and claims the charge was unauthorized or the product was not received. The processor notifies you and asks for proof that the transaction was legitimate (a receipt, shipping confirmation, or email from the customer). If you cannot prove it, the money is returned to the customer and you are charged a chargeback fee, usually $15 to $100. Keep records of all transactions and customer communications to defend against disputes.