The three ways to take credit card payments

You can accept credit cards through a payment processor — a company that handles the transaction between your customer's bank and yours. The processor charges you a fee (usually 2 to 3 percent of the sale plus a small flat fee per transaction) and deposits the money into your business bank account, typically within one to three business days.

The three main routes are: a payment gateway (software that encrypts the card details and sends them to the processor), a point-of-sale system (hardware and software together, common in retail), or a mobile payment app (for phone or tablet). Which one you choose depends on whether you take payments in person, online, or both.

Each route requires you to open a merchant account — a special business bank account that can receive card payments. Some processors set this up for you automatically; others require you to explore separately. You will also need to provide your business license, tax ID, and bank account details.

Key Takeaways

  • Payment processors charge 2 to 3 percent per transaction plus a flat fee, and deposit money into your business bank account within one to three business days.
  • Point-of-sale systems work best for in-person retail; payment gateways work best for online sales; mobile apps work best if you take payments on the go.
  • You will need a merchant account, which most processors set up for you, plus your business license, tax ID, and business bank account details.
  • The processor holds your money in reserve for 180 days (called a reserve or holdback) to cover chargebacks, though some reduce this if your business history is strong.

Point-of-sale systems for in-person payments

A point-of-sale system (or POS) is hardware and software that lets you swipe, insert, or tap a card at checkout. The hardware is usually a small terminal that sits on your counter. The software tracks inventory, sales history, and customer data. Examples include Square, Clover, Toast, and Shopify POS.

You rent or buy the hardware (usually $100 to $500 upfront, or $30 to $100 per month to rent), and the processor charges you per transaction. Most POS systems also let you take online orders, email receipts, and run reports on what sold. If you have multiple locations, you can manage all of them from one dashboard.

The setup takes one to three business days. You order the hardware, create an account with the processor, link your business bank account, and the terminal arrives ready to use. Some processors (like Square) let you start taking payments on your phone when ready while you wait for the hardware.

Payment gateways for online sales

A payment gateway is software that sits on your website and encrypts the customer's card details before sending them to the processor. The customer enters their card information on your checkout page, the gateway scrambles it, and the processor handles the rest. Examples include Stripe, PayPal, Authorize.net, and 2Checkout.

You do not need to buy hardware. Instead, you integrate the gateway into your website (or use a website builder like Shopify or WooCommerce that includes one). The processor charges you per transaction, usually 2.2 to 2.9 percent plus $0.30 per sale. Some gateways charge a monthly fee instead of per-transaction fees.

Setup takes a few hours to a few days. You create an account, provide your business details, link your bank account, and then copy a code snippet into your website (or click a button if you use a website builder). The gateway is live as soon as the processor approves your account, which usually happens within 24 hours.

Mobile payment apps for payments on the go

A mobile payment app lets you take card payments on your phone or tablet. You can use it at a customer's home, at a market, or anywhere without a fixed location. The app connects to a small card reader that plugs into your phone's headphone jack or charging port. Examples include Square Reader, PayPal Here, and Stripe Terminal.

The card reader costs $10 to $50, and the processor charges you per transaction (usually 2.75 percent plus $0.15 per swipe). You do not need a website or a physical terminal. The app stores transaction history, sends receipts by email or text, and deposits money into your bank account on the same schedule as a POS system.

Setup takes minutes. read the app, create an account, order the card reader (or pick one up at a retail store), and you can start taking payments as soon as the reader arrives. Some apps let you take payments by typing in the card number manually if the customer does not have the card with them, though this costs slightly more per transaction.

Fees, reserves, and what happens after the sale

Every processor charges a transaction fee — the percentage and flat fee per sale. This is deducted from the money that goes into your account. A $100 sale with a 2.9 percent fee plus $0.30 costs you $3.20, so you receive $96.80.

Most processors also hold a reserve — a portion of your deposits set aside for 180 days to cover chargebacks (when a customer disputes the charge with their bank). The reserve is usually 5 to 10 percent of your total deposits, though some processors reduce it after six months of clean history. You get the reserve money back after 180 days, but you cannot spend it in the meantime.

Money from card sales lands in your business bank account within one to three business days. Some processors offer next-day deposits for an extra fee. If a customer disputes a charge, the processor investigates and either returns the money to them or lets you keep it. If you lose a chargeback, the money comes out of your account.

How to choose between the three options

Use a point-of-sale system if you have a physical location and take most payments in person. The hardware is visible and familiar to customers, and the software helps you manage inventory and staff. The upfront cost is higher, but the per-transaction fees are usually lower than mobile apps.

Use a payment gateway if you sell online only — through a website, email invoices, or a shopping cart. You do not need hardware, and setup is faster. The fees are comparable to POS systems, but you have no inventory management or staff features.

Use a mobile payment app if you take payments on the go — at markets, in customers' homes, or at events. The startup cost is lowest, and you can start when ready. The per-transaction fees are slightly higher than POS or gateway systems, but the flexibility makes up for it if you do not have a fixed location.

Many businesses use more than one. A coffee shop might use a POS system for the counter and a mobile app for catering events. An online retailer might use a payment gateway on their website and a mobile app for in-person pop-up sales. Choose based on where your customers pay you, not on what sounds easiest.

What documents and information you will need

Before you can open a merchant account, gather these documents: your business license or EIN (Employer Identification Number), your Social Security number, your business bank account number and routing number, and a recent bank statement. Some processors also ask for your business address, phone number, and the type of products or services you sell.

If your business is a sole proprietorship, you will use your personal Social Security number. If it is an LLC or corporation, you will use your EIN. Have your business bank account open and active before you explore — processors will not approve you without one.

The approval process usually takes 24 hours to five business days. Some processors approve you when ready and let you start taking payments right away, then verify your documents later. Others require full approval before you can process your first transaction.

Frequently Asked Questions

Can I take credit card payments without a business bank account?

No. Processors require a business bank account because they need a place to deposit the money. If you do not have one, open it before you explore for a merchant account. Most banks can open a business account in one to three business days.

What is a chargeback and what happens if I lose one?

A chargeback happens when a customer disputes a charge with their bank instead of asking you for a refund. The bank investigates and either sides with you or the customer. If you lose, the money is taken from your account and returned to the customer. This is why processors hold a reserve.

Do I have to use the processor's hardware or can I use my own?

Most processors require you to use their certified hardware for security reasons. You cannot buy a random card reader and plug it into their system. However, you can usually choose between renting and buying the hardware, and some processors let you use your phone instead.

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

Money usually lands in your business bank account within one to three business days. Some processors offer next-day deposits for an extra fee. Weekends and bank holidays can add a day or two to the timeline.

What happens if my processor goes out of business?

Your merchant account transfers to another processor, usually within a few days. Your money in transit is protected by federal banking rules. You may need to update your POS terminal or gateway settings, but your customers' card data is not affected.