The basic steps to start taking card payments

To accept credit card payments, you need three things: a merchant account (a bank account that receives card payments), a payment processor (the company that handles the transaction), and a payment method (the physical or digital way customers hand over their card information). You do not need all three from the same company, though many providers bundle them together.

The process works like this: a customer gives you their card details in person, online, or over the phone. Your payment processor sends that information to the card network (Visa, Mastercard, American Express, Discover). The network checks with the customer's bank that the funds exist and the card is valid. If approved, the money moves from the customer's bank to your merchant account, usually within one to three business days. The processor takes a fee — typically 2 to 3 percent of the transaction plus a flat fee per sale — and the rest lands in your account.

You can start accepting cards today with a mobile reader and a smartphone, or you can set up a full point-of-sale system for a brick-and-mortar store. The choice depends on your business type, sales volume, and how much you want to spend upfront.

Key Takeaways

  • A merchant account is a separate bank account that receives card payments; you cannot deposit card transactions into a regular business checking account.
  • Payment processors charge a percentage of each transaction (usually 2 to 3 percent) plus a per-transaction fee, and these rates vary based on how the card is presented and your sales volume.
  • Mobile readers and online payment links let you start accepting cards with minimal setup, while point-of-sale systems require more hardware but offer more features for high-volume businesses.
  • Interchange fees — set by card networks, not your processor — are built into your total cost and cannot be negotiated, though your processor's markup can be.
  • PCI compliance (Payment Card Industry Data Security Standard) is a legal requirement; you must either use a certified processor or handle card data in a way that meets the standard yourself.

Merchant accounts and how they work

A merchant account is a specialized bank account that only receives card payments. Your regular business checking account cannot accept credit card deposits directly — the card networks will not send money there. You must open a merchant account through a bank or a payment processor, and that account is where card revenue lands before you transfer it to your operating account.

When you open a merchant account, the bank or processor runs a background check on you and your business. They look at your credit history, your business structure (sole proprietor, LLC, corporation), your industry, and your expected monthly sales volume. Some industries — like adult services, gambling, or high-risk goods — are harder to approve for. If you are approved, you receive account details and a merchant ID number, which your processor uses to route transactions to your account.

Merchant accounts come with monthly fees, statement fees, and sometimes a minimum monthly processing volume. If you do not hit that minimum, you may pay a shortfall fee. Read the fee schedule carefully before signing; these costs add up if your sales are low or inconsistent.

Payment processors and their fee structure

A payment processor is the company that actually moves the money. They connect your business to the card networks and handle the technical side of authorization, settlement, and deposit. Common processors include Square, Stripe, PayPal, Toast, and Clover, though your bank may also offer processing services.

Processors charge in three ways. Interchange fees are set by Visa, Mastercard, and other networks — not by your processor — and typically run 1.5 to 2.2 percent of the transaction. Your processor then adds their own markup, usually 0.3 to 0.5 percent plus a flat fee per transaction (often $0.10 to $0.30). Some processors also charge a monthly fee, a statement fee, or a PCI compliance fee. A $100 sale might cost you $2.50 to $3.50 in total fees.

Rates vary based on how the card is presented. A card physically present in front of you (swiped or inserted) costs less than a card entered manually or used online, because the risk of fraud is lower. Keyed-in or online transactions may cost 0.5 to 1 percent more. Ask your processor for their full fee schedule in writing before you commit.

Some processors offer flat-rate pricing — a single percentage regardless of card type — which simplifies budgeting but usually costs more overall if you process a lot of in-person cards. Others use tiered pricing, where your rate depends on the card type and how it was presented. Compare the total cost for your expected mix of transactions, not just the headline rate.

Payment methods: in-person, online, and phone

How your customer hands you their card information determines what equipment you need and what fees you pay. In-person payments use a card reader — either a physical terminal at your counter, a mobile reader plugged into a phone or tablet, or a contactless reader for tap-to-pay. Square Reader, Stripe Terminal, and PayPal Zettle are common mobile options. In-person cards cost the least to process because the card is verified on the spot.

Online payments use a payment form on your website or a hosted checkout page. The customer enters their card details into an encrypted form, and the processor handles the authorization. You need a website or e-commerce platform (Shopify, WooCommerce, BigCommerce) and a processor that supports online transactions. Online cards cost more to process than in-person cards.

Phone payments require you to manually enter the card details into your processor's system or terminal. This is the most expensive option because there is no physical card to verify and the fraud risk is highest. You should only take phone payments from customers you know or when they initiate the call and read the number to you themselves — never ask a customer for their full card details over the phone.

Some processors also offer payment links — a unique URL you send to a customer via email or text. The customer clicks the link, enters their card details, and pays. This works well for invoices and one-off sales. Links are processed at online rates.

Point-of-sale systems versus mobile readers

A point-of-sale (POS) system is a complete setup: a terminal, a cash drawer, a receipt printer, and software that tracks inventory, employees, and sales. Systems like Square Register, Toast, or Clover run on a tablet or a dedicated device and connect to your processor. They cost $200 to $2,000 upfront, plus monthly software fees of $50 to $300. They are worth it if you run a restaurant, retail store, or any business with high transaction volume, multiple employees, or complex inventory.

A mobile reader is a small device that plugs into a smartphone or tablet. Square Reader, Stripe Reader, and PayPal Zettle are examples. They cost $20 to $100 and require no monthly fee beyond your processing costs. You use the processor's app to ring up sales, and the reader handles the card. Mobile readers work well for service businesses, pop-up shops, freelancers, and low-volume sellers.

The choice depends on your business. If you have one location, low sales volume, and few employees, a mobile reader is simpler and cheaper. If you have multiple locations, high volume, or need to track inventory and staff, a POS system pays for itself quickly through better reporting and efficiency.

PCI compliance and security requirements

PCI compliance (Payment Card Industry Data Security Standard) is a set of rules that protect customer card data. If you accept cards, you must follow these rules or use a processor that does it for you. The rules cover how you store data, who can access it, how you encrypt it, and how you handle breaches.

The easiest way to stay compliant is to use a certified processor — Square, Stripe, PayPal, and most major processors are PCI Level 1 certified, which means they handle compliance for you. You do not store card data on your own servers; the processor stores it in their secure system. You only need to keep your own devices and networks secure.

If you use a processor's official app or payment form, you are automatically compliant. Do not build your own payment form or store card data yourself unless you have a security team and a PCI audit budget. The fines for non-compliance start at $5,000 per month and go much higher if there is a breach.

Deposits, settlement, and timing

When a customer's card is approved, the money does not land in your account immediately. Settlement is the process of moving the money from the card network to your merchant account, and it takes one to three business days. Your processor batches all the day's transactions and sends them to the card networks at the end of the day. The networks then send the money to your merchant account, usually by the next business day or the one after.

Some processors offer next-day deposits, which means the money hits your account the next business day. Others use standard settlement, which takes two to three days. A few offer same-day settlement for an extra fee. Check your processor's settlement schedule before you sign up, especially if you need cash flow quickly.

Your processor will send you a statement showing every transaction, the fees charged, and the net deposit. Review this statement monthly to catch errors or unexpected fees. If a transaction is wrong, contact your processor within 30 days; after that, most will not reverse it.

Chargebacks and dispute handling

A chargeback happens when a customer disputes a charge with their bank instead of asking you for a refund. The bank pulls the money back from your merchant account and charges you a chargeback fee (usually $15 to $100). Common reasons include fraud, the customer not recognizing the charge, or a claim that the product or service was not delivered.

To fight a chargeback, you must provide evidence to your processor within a set window — usually 7 to 10 days. Evidence includes the signed receipt, a delivery confirmation, an email from the customer approving the charge, or a screenshot of the transaction. If you win the dispute, the money goes back to your account and the chargeback fee is waived. If you lose, the money stays gone and you keep the fee.

Prevent chargebacks by being clear about what you are charging for, sending receipts immediately, and keeping records of all customer communication. For online sales, use address verification and the CVV code to reduce fraud. For in-person sales, always get a signature or PIN confirmation. If a customer asks for a refund, process it yourself rather than waiting for a chargeback — it costs you less and keeps your chargeback rate low.

Frequently Asked Questions

Can I accept credit cards without a merchant account?

No. Card networks require the money to go into a merchant account, not a personal or regular business checking account. You can use a processor like Square or Stripe that opens a merchant account for you as part of their service, but the account still exists — you just do not manage it directly.

What is the difference between a payment processor and a payment gateway?

A processor handles the entire transaction — authorization, settlement, and deposit. A gateway is just the software that encrypts and sends the card data to the processor. Most small businesses use an all-in-one processor (Square, Stripe) that includes both. Larger businesses sometimes use a separate gateway and processor for more control.

Do I have to use the processor my bank recommends?

No. You can use any processor you want, even if your bank offers one. Shop around and compare fees, settlement times, and features. Your bank's processor may not be the cheapest or the best for your business.

What happens if a customer's card is declined?

The processor will tell you the reason — insufficient funds, card expired, fraud block, or other issues. You can ask the customer for a different card or payment method. Do not charge the card multiple times hoping it will go through; each attempt is a separate transaction and may trigger fraud alerts.

Can I negotiate my processing fees?

You can negotiate your processor's markup, but not the interchange fees set by the card networks. If you process high volume or have a good credit history, some processors will lower their markup by 0.1 to 0.3 percent. It is worth asking, especially if you are signing a long-term contract.