What you need to set up credit card payments

To accept credit cards, you need three things: a merchant account (an agreement with a bank or payment processor to handle card transactions), a payment processor (the company that moves money from the customer's card to your bank account), and hardware or software to process the actual payment. For most small businesses, these come bundled together through a single provider rather than as separate pieces you source independently.

The merchant account is what lets you legally accept cards. Your bank may offer one, or you can open one through a payment processor like Square, Stripe, PayPal, or Clover. The processor handles the technical side — it talks to the customer's bank, checks that the card is valid, and deposits the money into your business account. The hardware might be a card reader that plugs into your phone, a countertop terminal, or nothing at all if you process payments online through a website or invoice link.

You will also need a business bank account separate from your personal account. Most processors require this before they will fund your merchant account. If you do not yet have one, your bank can open it in a single visit with your Social Security number or EIN, a form of ID, and proof of your business address.

Key Takeaways

  • A merchant account, payment processor, and way to accept the card (reader, terminal, or online form) are the three components you need, though most small businesses buy them as a package from one provider.
  • Costs include a per-transaction fee (usually 2 to 3 percent plus a flat amount per transaction), monthly fees that vary by provider, and sometimes equipment costs or rental fees.
  • Square, Stripe, PayPal, and Clover are common choices for small businesses because they do not require long-term contracts and let you start with minimal upfront cost.
  • Your processor will deposit money into your business bank account, usually within one to three business days, though some offer next-day or same-day options for an extra fee.
  • You will receive a separate statement from your processor showing every transaction, fees, and deposits, which you need for tax records and accounting.

Understanding payment processing fees

Every time a customer swipes, taps, or enters a card, you pay a fee. The fee structure varies by processor and by card type, but most small businesses pay between 2 and 3.5 percent of the transaction amount plus a flat fee per transaction (often $0.30 to $0.50). A $100 sale might cost you $2.99 to $3.50 in fees. Rewards cards and premium cards (like American Express or business cards) often cost more to process than basic cards.

Some processors charge a monthly fee in addition to per-transaction fees — typically $10 to $30 — while others charge no monthly fee but take a slightly higher cut of each transaction. A few charge a percentage of your monthly revenue instead. Compare the total cost across a typical month of your sales, not just the per-transaction rate, because a processor with lower per-transaction fees might have a higher monthly minimum.

Interchange fees (the portion that goes to the customer's bank) are set by Visa and Mastercard and do not vary by processor, but assessment fees and processor markups do. Ask your processor for a full fee schedule in writing before you sign up. Some processors hide fees in their terms or add them later, so getting it in writing protects you.

Choosing between in-person and online payment methods

If you sell in person — at a shop, market, or service location — you need a way to accept cards on the spot. A card reader that plugs into your phone or tablet is the cheapest entry point; Square Reader and Stripe Reader both cost under $50 and work with free apps. A countertop terminal (like a Clover device) costs $100 to $300 upfront but does not depend on your phone's internet connection and can process multiple payment types at once. Renting a terminal from your processor costs $20 to $50 per month instead of buying it outright.

If you sell online — through a website, email invoice, or phone order — you need a payment gateway, which is software that lets customers enter their card details securely on your site or in an invoice link. Stripe, PayPal, and Square all offer gateways that integrate with common website builders like Shopify, WooCommerce, and Squarespace. You do not need any hardware; the processor handles everything digitally.

Some businesses use both. A coffee shop might use a card reader at the counter for walk-in customers and a payment gateway for online orders. A service business might use a gateway to send invoices to clients and a reader to take payment over the phone if a client calls with a rush job. Your processor choice should support both methods if you think you will need them.

How money moves from the card to your account

When a customer pays, the processor holds the money temporarily while it checks the card and confirms the transaction went through. This usually takes a few seconds. The processor then batches all your transactions together (usually once per day) and sends them to the customer's bank for final approval. Once approved, the money moves to your business bank account in what processors call the settlement period.

Most processors settle within one to three business days. Some offer next-day settlement for an extra fee (usually $0.25 to $0.50 per transaction or a flat monthly fee). A few offer same-day settlement for a higher cost. If cash flow is tight, next-day settlement might be worth the extra fee; if you can wait, standard settlement saves money.

You will see the deposit as a lump sum in your bank account, not as individual transactions. Your processor sends you a separate statement showing every card sale, fee, and the net deposit amount. Keep these statements for your tax records and to reconcile with your accounting software.

Comparing major processors for small businesses

Square charges 2.6 percent plus $0.10 per in-person transaction and 2.9 percent plus $0.30 for online payments. No monthly fee. The Square Reader costs $49 and works with any phone or tablet. Settlement is next-day by default. Square also offers invoicing, a point-of-sale system, and inventory tracking in the same app, which can reduce the number of tools you need to buy separately.

Stripe charges 2.9 percent plus $0.30 for online payments and 2.7 percent plus $0.05 for in-person payments with a Stripe Reader ($29). No monthly fee. Settlement is next-day by default. Stripe is popular with online businesses and developers because it integrates deeply with custom websites and apps, but it has a steeper learning curve than Square if you are not technical.

PayPal charges 2.99 percent plus $0.49 per in-person transaction and 3.49 percent plus $0.49 for online payments. No monthly fee. The PayPal card reader is free if you process at least $250 per month; otherwise it costs $49. Settlement is next-day. PayPal is familiar to many customers and works well if you already use PayPal for invoicing or business banking.

Clover (owned by Fiserv) charges 2.7 percent plus $0.10 per in-person transaction and 2.9 percent plus $0.30 for online payments. The Clover Station terminal costs $300 to $500 upfront or $29 to $49 per month to rent. Monthly fees start at $10 if you rent the terminal. Clover is best for businesses that want a full point-of-sale system with employee management, inventory, and reporting built in.

Security and compliance requirements

When you accept credit cards, you become responsible for protecting customer card data. You do not need to store card numbers yourself — your processor handles that — but you do need to follow PCI DSS (Payment Card Industry Data Security Standard) rules. These rules require you to use find payment methods, keep your devices and software updated, and never store full card numbers in plain text.

If you use a processor's official app or terminal, PCI compliance is mostly handled for you. If you build a custom system or store card data yourself, you must hire a PCI-certified auditor and undergo annual compliance checks, which costs hundreds to thousands of dollars. For this reason, most small businesses use a processor's pre-built solution rather than building their own.

You should also have a privacy policy on your website that explains how you collect and protect customer payment information. Your processor can provide template language, and many website builders include privacy policy generators. This is not optional if you accept online payments.

Getting started with your first processor

Sign up online with your chosen processor using your business name, address, and tax ID or Social Security number. You will need to connect a business bank account so the processor can deposit money. The processor will verify your identity and may ask for a copy of your driver's license or business license. This usually takes 24 to 48 hours.

Once approved, read the processor's app (if you are using a mobile reader) or set up the payment gateway on your website. Most processors offer free onboarding guides and customer support by phone or chat. Test a transaction with a test card number before you accept real payments; your processor will provide test card numbers in their documentation.

Set up accounting in your business software to track processor fees separately from revenue. Most accounting software (QuickBooks, Xero, Wave) can connect directly to your processor's account and import transactions automatically, which saves time and reduces errors.

Frequently Asked Questions

Do I have to use a card reader or terminal, or can I just take card numbers over the phone?

You can take card numbers over the phone, but it is riskier and more expensive. Phone payments are classified as "card-not-present" transactions and have higher fraud rates, so processors charge more (often 3.5 to 4 percent instead of 2.7 to 3 percent). A card reader or terminal is safer, cheaper, and faster. If you take phone payments regularly, a reader pays for itself quickly.

What happens if a customer disputes a charge?

The customer contacts their bank and files a chargeback. The processor notifies you and asks for proof that the transaction was legitimate — usually a receipt, invoice, or shipping confirmation. If you provide proof, you keep the money. If you do not respond or your proof is weak, the processor refunds the customer and charges you a chargeback fee (usually $15 to $100). Keep detailed records of every transaction.

Can I accept credit cards without a business bank account?

Most processors require a business bank account before they will open a merchant account. Some will accept a personal account temporarily, but they will eventually ask you to switch. Opening a business account takes one visit to your bank and costs little to nothing, so do it before you explore for payment processing.

Which processor is cheapest for a very small business?

Square and Stripe are usually cheapest for businesses with low transaction volume because they have no monthly fees and low per-transaction rates. If you process fewer than 100 transactions per month, the difference between processors is usually under $10 per month. Choose based on which app you prefer to use and which integrates best with your website or point-of-sale system.

How long does it take to get approved?

Most processors approve you within 24 to 48 hours if you provide all required information upfront. Some approve when ready. If the processor flags your process for review (which can happen if you are in a high-risk industry like gambling or adult services), approval can take one to two weeks. Ask your processor for an approval timeline when you explore.