The three ways to accept credit card payments

You have three main routes: a payment processor (like Square or Stripe), a merchant account through your bank, or a point-of-sale system that bundles payment processing with inventory and sales tracking. Most small businesses start with a payment processor because setup takes hours instead of days, fees are transparent, and you do not need a separate bank relationship.

A payment processor is a company that connects your customer's card to their bank, handles the security, and deposits money into your account. You pay a fee per transaction—usually 2.6% to 3.5% of the sale plus 30 cents—and the processor handles the rest. A merchant account is older and more complex: you open a separate business account with a bank or specialized provider, and they handle card acceptance. Point-of-sale systems (like Toast or Clover) add software that tracks what you sold, who bought it, and inventory levels, then process the payment as part of that system.

Key Takeaways

  • Payment processors like Square, Stripe, and PayPal are fastest to set up and work for most small businesses that do not need inventory tracking.
  • You pay per-transaction fees (typically 2.6% to 3.5% plus 30 cents) rather than monthly minimums, so costs scale with your sales.
  • Point-of-sale systems add inventory management and detailed sales reports but cost more and take longer to set up than a basic processor.
  • You will need a business bank account, an Employer Identification Number (EIN) or Social Security Number, and basic business information to open a processing account.

Payment processors: the fastest route for most small businesses

A payment processor handles the technical work of accepting cards in person, online, or by phone. You sign up, connect your bank account, and start processing within a few hours. The processor gives you a card reader (for in-person sales), a link to share (for online sales), or a phone number to call (for phone orders). When a customer pays, the processor deposits the money into your bank account, usually within one to two business days.

The largest processors for small business are Square, Stripe, PayPal, and Toast. Square is strongest for in-person sales (restaurants, retail, services) and offers a free card reader. Stripe is built for online businesses and integrations with other software. PayPal works for both in-person and online but has higher per-transaction fees. Toast is designed for restaurants specifically and includes table management and kitchen display systems.

Fees vary by processor and by how you accept the card. In-person card-present transactions (the customer hands you their card or taps it on a reader) usually cost 2.6% plus 30 cents. Online or phone transactions (card-not-present) cost more—often 3.5% plus 30 cents—because the processor takes on more fraud risk. Some processors charge monthly minimums; most do not. Read the fee schedule before you sign up, because the difference between 2.6% and 3.5% adds up fast on high-volume sales.

Merchant accounts: when you need a bank relationship

A merchant account is a business bank account specifically for credit card sales. Your bank or a specialized provider (called a merchant services provider) opens the account, and you process cards through them. This route is older and less common for new small businesses, but it can make sense if you already have a business bank account with a bank that offers merchant services, or if you process very high volumes and can negotiate lower rates.

Merchant accounts usually require a monthly minimum fee (often $25 to $50), a per-transaction fee, and sometimes a percentage of sales. You may also need to sign a contract that locks you in for a year or longer. Setup takes longer than a processor—typically three to five business days—because the bank runs a credit check and verifies your business. If you have been in business less than two years or have weak credit, you may be declined.

The main advantage is that rates can be lower if you process high volumes. The main disadvantage is that you are locked into one provider, fees are less transparent, and switching is harder. For most small businesses under $100,000 in annual card sales, a payment processor is simpler and cheaper.

Point-of-sale systems: when you need inventory and reporting

A point-of-sale (POS) system is software that runs on a tablet or computer and handles sales, inventory, and payment processing all in one place. When you ring up a sale, the system tracks what you sold, updates your inventory count, and processes the card payment. At the end of the day, you see how much you sold, what items moved, and which staff member rang up each transaction.

Common POS systems for small business are Clover, Toast, Square for Retail, and Lightspeed. They cost $50 to $300 per month depending on features, plus the same per-transaction fees as a payment processor (2.6% to 3.5% plus 30 cents). You also need to buy or lease the hardware—a tablet, card reader, and receipt printer—which can cost $500 to $2,000 upfront.

A POS system makes sense if you sell multiple products (a coffee shop, a retail store, a salon with multiple services), need to track inventory, or want detailed reports on what sold and when. If you sell one service or product (a therapist, a consultant, a freelancer), a basic payment processor is usually enough. If you are not sure whether you need inventory tracking, start with a processor and upgrade later—most POS systems can import your transaction history.

What you need to set up a payment account

To open a payment processor account, have these items ready: your Social Security Number or Employer Identification Number (EIN), your business name and address, your business bank account number and routing number, and a government-issued ID. Some processors also ask for your business license number, your website URL, or a description of what you sell. The whole process takes 15 to 30 minutes online.

If you do not have a business bank account yet, open one before you set up payment processing. Your personal account will work temporarily, but processors prefer a business account because it makes accounting clearer and protects your personal funds if there is a dispute. Most banks offer business checking accounts for $0 to $15 per month.

If you do not have an EIN, you can get one free from the IRS website (irs.gov) in about 15 minutes. If you are a sole proprietor (you own the business by yourself), you can use your Social Security Number instead, but an EIN keeps your personal and business finances separate and is worth getting.

Fees, deposits, and what happens when a customer disputes a charge

Every processor charges a per-transaction fee, but the fee structure varies. Most charge a percentage of the sale plus a flat fee per transaction. In-person transactions (where the customer is present and you can verify the card) are cheaper than online or phone transactions. Some processors also charge monthly fees, annual fees, or fees for features like invoicing or reporting.

Money from card sales usually lands in your bank account within one to two business days. Some processors hold back a small percentage (called a reserve) for the first few months to cover potential disputes or refunds. This is normal and the reserve is released once you have a clean transaction history.

If a customer disputes a charge—they say they did not authorize it, or the product did not arrive, or it was charged twice—the processor investigates. If the customer wins the dispute, the money comes back out of your account. This is called a chargeback. To protect yourself, keep receipts, send digital receipts to customers, and document what you sold. If chargebacks happen frequently, the processor may raise your fees or close your account.

In-person, online, and phone payments: which processor handles which

Most processors handle all three, but some are stronger in one area. Square is built for in-person sales and gives you a free card reader; it also handles online and phone sales but is not the cheapest for those. Stripe is built for online sales and integrations with shopping carts and websites; it can handle in-person sales but requires you to buy a reader. PayPal handles all three but charges higher fees for in-person sales.

If you sell only online (a Shopify store, a coaching business, a digital product), Stripe or a Shopify-integrated processor is usually best. If you sell only in person (a retail store, a salon, a food truck), Square is usually best. If you sell both, compare the fees for each processor across all three channels before you choose.

Frequently Asked Questions

Do I need a business license to accept credit cards?

No, but you do need a business bank account and either a Social Security Number or an EIN. Most processors do not verify that you have a license, but you should have one anyway because it is required by your city or state to operate legally. Check with your local business licensing office.

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

Debit card transactions usually cost less (often 1.5% to 2%) because the bank that issued the card takes on less risk. Credit card transactions cost more (2.6% to 3.5%) because the card issuer guarantees the payment. Some processors charge the same fee for both; check the fee schedule.

Can I accept American Express, Discover, and other cards besides Visa and Mastercard?

Yes, all major processors accept Visa, Mastercard, American Express, and Discover. American Express and Discover usually charge higher fees (3% to 3.5%) than Visa and Mastercard (2.6% to 2.9%), and some small processors do not accept them. Ask before you sign up if you want to accept all four.

What happens if my internet goes down and I cannot process cards?

Most processors let you process offline—the transaction is stored on your device and sent to the processor when your internet comes back. Some card readers have built-in backup, and some do not. If offline processing matters to you (you are in a location with spotty internet), ask the processor before you buy the reader.

Can I use a payment processor if I work from home or do not have a physical location?

Yes, all processors accept online and phone payments, and most accept in-person payments too. You do not need a storefront or office. If you meet customers in person (a therapist, a trainer, a consultant), you can use a mobile card reader and process payments wherever you are.