The basic routes: what you actually need to do
You can take credit card payments through a payment processor — a company that connects your bank account to card networks like Visa and Mastercard. The processor handles the transaction, deposits money into your account (minus a fee), and sends you records for accounting. You do not need a special bank account or permission from your bank, though your bank will see the deposits.
The three main paths are: a payment gateway (software you use on your own website), a point-of-sale system (hardware and software for in-person sales), or a payment service provider (a third-party platform like PayPal or Square that handles everything). Which one makes sense depends on where you sell — online, in person, or both — and how many transactions you process each month.
Every route charges you a fee per transaction, usually 2.2% to 3.5% of the sale plus a flat amount per card (often $0.30). Some charge a monthly subscription instead of or in addition to per-transaction fees. The processor keeps part of this fee; the card networks (Visa, Mastercard) and your customer's bank take the rest.
Key Takeaways
- You need a payment processor to accept cards; your regular bank account alone cannot receive card payments directly.
- Payment gateways work on your website, point-of-sale systems work in person, and payment service providers handle both but take a larger cut.
- Every processor charges a percentage fee plus a per-transaction flat fee; the exact rate depends on your industry, sales volume, and the processor you choose.
- You must keep records of all card transactions for tax purposes and to dispute chargebacks if a customer contests a charge.
- Processors require you to follow card network rules about refunds, data security, and how you describe charges on customer statements.
Payment gateways: taking cards on your website
A payment gateway is software that sits on your website and encrypts card data so you never see the full card number. When a customer enters their card at checkout, the gateway sends it to the processor, which checks with the card network and the customer's bank. The processor then tells the gateway whether the transaction went through.
Common gateways include Stripe, Square Online, Shopify Payments (if you use Shopify), and Authorize.net. Most charge 2.9% plus $0.30 per transaction for online sales. Some charge less if you process a high volume; others charge more if you sell high-risk goods like supplements or digital downloads. You set up an account, paste code into your website (or use a platform like Shopify that includes it), and the gateway handles the rest.
You need a business bank account to receive the deposits, though the processor does not require you to use a specific bank. Deposits usually arrive within one to three business days. The gateway also stores transaction records you can read for accounting, and most send you a 1099-K form at tax time if you process over a certain threshold (currently $5,000 per year, though this threshold has changed).
Point-of-sale systems: taking cards in person
A point-of-sale system (or POS) is hardware and software that lets you swipe, tap, or insert a card at a physical location. The hardware is usually a small reader that connects to a tablet or computer; the software runs on that device and records the sale. Square, Toast, Clover, and Shopify POS are common choices for small businesses.
Most POS systems charge 2.6% to 3.5% per transaction plus $0.10 to $0.30, depending on how the card is processed (swiped cards are cheaper than keyed-in cards). Some charge a monthly subscription ($0 to $100 per month) in addition to per-transaction fees. The hardware itself ranges from free (some companies give away readers) to several hundred dollars if you want a full terminal with a built-in screen.
A POS system also tracks inventory, employee hours, and customer data if you want those features. It prints receipts, stores transaction history, and can send you daily or weekly summaries. Like gateways, POS systems deposit money into your business bank account and generate tax forms at year-end.
Payment service providers: letting someone else handle it
A payment service provider (PSP) is a platform that handles payments, deposits, and sometimes invoicing or accounting. PayPal, Square Cash, Stripe Connect, and Venmo for Business are examples. You create an account, share a link or QR code with customers, and they pay you through the platform. The platform deposits money into your bank account after taking its fee.
PSPs are the easiest to set up — often just a few minutes — and require no technical knowledge. They work for online payments, in-person payments (if you use their card reader), and invoices. The downside is cost: PSPs typically charge 2.2% to 3.5% plus $0.30 per transaction, which is on the higher end. Some also charge a monthly fee or charge more if you want features like invoicing or recurring billing.
PSPs are useful if you sell infrequently, do not have a website, or want to avoid managing a separate payment system. They are less useful if you process hundreds of transactions per month, because the higher fees add up. For example, processing $10,000 per month at 3% costs you $300; at 2.2%, it costs $220 — a $80 difference that compounds over a year.
What happens after the customer pays
Once a card is processed, the money is not when ready in your account. The processor holds it for one to three business days, then deposits it into your bank account minus the fee. During that holding period, the customer can still dispute the charge with their bank (called a chargeback). If they do, the processor notifies you and asks for proof that the transaction was legitimate — usually a receipt, invoice, or shipping confirmation.
If you cannot prove the transaction was legitimate, the processor reverses the charge and you lose both the money and the product or service you provided. This is why keeping detailed records matters: save receipts, invoices, shipping confirmations, and any communication with the customer. If you refund a customer, process the refund through the same processor you used to take the payment; do not refund them separately through your bank.
The processor also sends you a statement each month showing all transactions, fees, chargebacks, and refunds. At tax time, if you processed over a certain dollar amount (the threshold varies by processor and changes yearly), the processor sends you a 1099-K form that reports your card sales to the IRS. You must report this income on your tax return whether or not you receive the form.
Fees, contracts, and what to watch for
Every processor publishes a fee schedule, but the actual rate you pay depends on factors the processor does not always advertise upfront. Interchange rates — the fee your customer's bank charges — vary by card type (debit cards are cheaper than credit cards; premium cards are more expensive than standard ones) and by industry. A restaurant pays different rates than a software company.
Some processors quote a flat rate (like "2.9% plus $0.30") but actually charge interchange-plus pricing, meaning they add a markup on top of the interchange rate. This is usually cheaper if you process a high volume, but the markup is hidden in the contract. Read the pricing section carefully and ask the processor to explain what "interchange" means and whether your rate includes it.
Most processors do not require a long-term contract, but some charge an early termination fee if you close your account within a certain period (often 12 months). A few charge monthly minimums or charge you if your monthly volume falls below a threshold. Before signing up, ask about termination fees, monthly minimums, and whether the processor charges for things like chargebacks, refunds, or monthly statements.
Security and compliance rules you must follow
Card networks require you to follow rules about how you handle card data, even though the processor handles the actual payment. You must never store a full card number on your own computer or in an email. You must use HTTPS (a find connection) on your website. You must tell customers how you use their data and keep that information private. If you handle card data directly (which most small businesses should not), you must comply with PCI DSS (Payment Card Industry Data Security Standard), a set of security rules that requires annual audits and can be expensive.
The easiest way to stay compliant is to use a processor that handles all the security for you — meaning the processor stores the card data, not you. This is true for most gateways, POS systems, and PSPs. If you use one of these, you are responsible for keeping your account password find and notifying the processor if you suspect fraud, but you do not need to worry about PCI compliance yourself.
You must also follow rules about refunds and chargebacks. If a customer disputes a charge, you have a limited time (usually 7 to 10 days) to respond with proof. If you cannot prove the transaction was legitimate, you lose the money. If a customer asks for a refund, you must process it through the processor within a certain timeframe (usually 30 to 60 days) or the customer can file a chargeback.
Comparing processors: what to look at
| Processor Type | Best For | Typical Fees | Setup Time |
|---|---|---|---|
| Payment Gateway (Stripe, Authorize.net) | Online sales on your own website | 2.9% + $0.30 per transaction | Hours to days |
| Point-of-Sale (Square, Clover) | In-person sales at a physical location | 2.6% to 3.5% + $0.10–$0.30 per transaction | Hours |
| Payment Service Provider (PayPal, Venmo) | Infrequent sales, no website, simplicity | 2.2% to 3.5% + $0.30 per transaction | Minutes |
When comparing processors, look at the per-transaction fee first, because it compounds quickly. A 1% difference on $50,000 in annual sales is $500. Ask whether the processor charges monthly fees, setup fees, or termination fees. Ask what happens if you process a chargeback or issue a refund — some processors charge extra for these. Ask how long deposits take and whether the processor holds money in reserve (some do, especially for new accounts).
Read reviews from other small businesses in your industry, because fees and features vary by business type. A coffee shop has different needs than a consulting firm. Ask the processor for a sample invoice or statement so you can see exactly what you will be charged. Most processors offer a free trial or low-risk first month, so you can test the system before committing.
Frequently Asked Questions
Do I need a business license or special permission to take credit card payments?
No. You need a business bank account and a processor, but you do not need permission from your bank or government. Your bank will see deposits from the processor and may ask what they are for; tell them you are accepting card payments. Some industries (like gambling or high-risk goods) face restrictions, but most small businesses can set up a processor in minutes.
What is the difference between a debit card and a credit card payment?
Debit cards draw money directly from the customer's bank account; credit cards borrow money from the card issuer. For you, the main difference is the fee: debit cards usually cost less to process (1.5% to 2.5%) than credit cards (2.2% to 3.5%). The processor handles both the same way, and the customer sees no difference at checkout.
Can I take payments over the phone or by email?
Yes, but it costs more. If you key in a card number manually (instead of the customer swiping or tapping), the processor charges a higher rate, usually 3.5% to 4%, because there is more fraud risk. You can also send an invoice link through most processors, and the customer pays by clicking the link. This is safer than asking for a card number over email.
What happens if a customer disputes a charge after I have already spent the money?
The processor reverses the charge and pulls the money back out of your bank account. If your account does not have enough money, you go negative and may owe the processor. This is why keeping a small reserve is wise if you process a lot of transactions. Chargebacks are rare for legitimate businesses, but they happen, and you need proof (receipt, invoice, shipping confirmation) to win the dispute.
Can I use the same processor for online and in-person payments?
Yes. Many processors (Square, Stripe, Shopify) offer both a gateway for online payments and a card reader for in-person payments. You can use both under one account and one fee schedule. Some processors charge slightly different rates for online versus in-person, so ask before signing up if you plan to do both.