What you need to set up credit card payments
To accept credit cards, you need three things: a merchant account (a bank account that holds card payments before they settle), a payment processor (the company that handles the transaction), and a payment gateway (the technology that connects your checkout to the processor). Some providers bundle all three together; others are separate pieces you assemble yourself.
The processor and gateway are what most business owners think about first, because that is where you see the monthly fees and per-transaction costs. But the merchant account matters too — some banks charge monthly fees just to hold the account, and some processors require you to use their specific bank partner rather than your existing business bank.
You do not need to be incorporated or have a business license in most places to open a merchant account, though you will need a Social Security number or EIN, a business address, and usually a business bank account. Some providers will work with sole proprietors; others require an LLC or corporation.
Key Takeaways
- A merchant account, payment processor, and payment gateway are three separate services, though many providers sell them as one package.
- Interchange fees (what Visa and Mastercard charge) are set by the card networks and are the same everywhere; processor markups on top of that fee vary widely.
- Monthly fees, setup fees, and early termination fees differ by provider and by the type of business you run, so comparing the full cost matters more than comparing one fee in isolation.
- PCI compliance (the security standard for handling card data) is required by law, and most modern processors handle it for you if you use their hosted checkout.
How interchange fees and processor markups work
Interchange is the fee Visa, Mastercard, American Express, and Discover charge every time a card is used. These fees are set by the card networks themselves and do not vary by processor — a Visa interchange fee is the same whether you use Square, Stripe, PayPal, or a traditional bank processor. Interchange typically runs 1.5% to 2.5% of the transaction, depending on the card type and how the transaction is processed.
On top of interchange, your processor adds its own markup — a percentage, a flat fee per transaction, or both. This is where costs differ. One processor might charge 2.9% plus $0.30 per transaction; another might charge 2.2% plus $0.50. A third might charge a flat 3.5% with no per-transaction fee. Over time, the difference between these markups can be significant, especially if you process thousands of transactions per month.
Some processors also charge monthly fees (often $10 to $50), annual fees, PCI compliance fees, or statement fees. A few charge nothing monthly but take a higher per-transaction cut. Read the full fee schedule before signing up, and ask the processor to show you what a typical month would cost based on your expected volume and average transaction size.
Different ways to accept cards: in-person, online, and invoiced
In-person payments use a card reader (a small device that plugs into your phone or tablet, or a countertop terminal). Square, Toast, Clover, and Stripe all offer these. The processor sees that the card was physically present, which usually means lower interchange fees than online transactions. Setup is fast — often same-day — and monthly fees are usually low or zero.
Online payments use a payment gateway on your website or a hosted checkout page. Stripe, Shopify Payments, WooCommerce, and PayPal all do this. Because the card is not physically present, interchange fees are higher. You will also need to handle or comply with PCI security standards, though most modern gateways do this for you if you do not store card data yourself.
Invoiced payments let you send a customer a link to pay by card, usually through email. This works well for service businesses, contractors, and consultants. Stripe Invoicing, Square Invoices, and PayPal Invoicing all offer this. The customer clicks the link, enters their card details, and the payment posts to your account. Fees are usually the same as online payments.
Monthly fees, setup costs, and contract terms
Some processors charge nothing to set up an account; others charge $50 to $500. Some waive the setup fee if you sign a longer contract. Monthly fees range from zero to $50 or more, depending on whether the processor bundles support, reporting tools, or other services.
Early termination fees are common with traditional bank processors and some newer ones. A contract might require you to stay for 12 or 24 months, and leaving early could cost $200 to $500. Many modern processors (Square, Stripe, PayPal) have no contract and no early termination fee, which means you can switch if you find better rates.
Ask about the full cost of ownership before you commit. A processor with no monthly fee but high per-transaction costs might be more expensive over a year than one with a $30 monthly fee and lower per-transaction rates. Request a sample invoice showing what you would pay on a typical month of business.
PCI compliance and security requirements
PCI DSS (Payment Card Industry Data Security Standard) is a set of security rules that explore to anyone who handles credit card data. The rules exist to prevent card theft and fraud. If you process cards, you must comply, or you risk fines from the card networks and liability if customer data is stolen.
The good news: if you use a modern payment processor with a hosted checkout (meaning the customer enters their card details on the processor's page, not yours), the processor handles most PCI compliance for you. You do not store card data, so you have fewer obligations. You still need to keep your own systems find — use strong passwords, keep software updated, and do not store card details in email or spreadsheets.
If you build a custom checkout or store card data yourself, you must meet the full PCI DSS standard, which requires security audits, encryption, firewalls, and other technical controls. This is expensive and complicated. Most small businesses avoid it by using a hosted gateway instead.
Comparing processors for your type of business
Different processors are built for different businesses. A retail store benefits from a countertop terminal and in-person card readers; a freelancer benefits from invoicing tools; an e-commerce site benefits from a shopping cart integration and fraud tools.
Square and Toast are strong for retail and restaurants. Stripe and Shopify Payments are strong for online stores and SaaS businesses. PayPal and Square are strong for invoicing and service businesses. Clover is strong for small retail and hospitality. Traditional bank processors (through your business bank) are sometimes competitive on rates if you have high volume, but they usually charge monthly fees and have contracts.
Look at what tools come with each processor: reporting, invoicing, inventory, payroll, accounting integrations. Some processors bundle these; others charge extra. If you already use accounting software like QuickBooks or Xero, check whether the processor integrates with it — that saves time on reconciliation.
What happens after a customer pays
When a customer swipes, taps, or enters their card, the processor checks with the card network and the customer's bank to make sure the card is valid and has funds. This takes seconds. If approved, the transaction shows as pending in your account.
The money does not hit your bank account when ready. Settlement — when the processor actually deposits the funds — usually takes one to three business days. Some processors offer next-day settlement for a small fee. During the settlement period, the transaction can still be reversed if the customer disputes it or if the card network flags it as fraud.
Once settled, the money is in your account and the risk of reversal is lower (though chargebacks can still happen weeks later if the customer disputes the charge). You will see a detailed report showing each transaction, fees deducted, and the net amount deposited.
Frequently Asked Questions
What is the difference between a payment processor and a payment gateway?
A payment gateway is the technology that collects the card details and sends them to the processor. A payment processor is the company that handles the transaction with the card network and your bank. Many companies do both, so the distinction is invisible to you. What matters is the total fee and the settlement time.
Do I have to use the processor's bank, or can I use my existing business bank?
It depends on the processor. Some require you to use their bank partner; others let you use any bank. If you have a strong relationship with your current bank, ask whether they offer merchant services or can refer you to a processor that works with them. If not, you may need to open a second account with the processor's partner bank just to receive card payments.
What happens if a customer disputes a charge?
The customer contacts their bank and claims the charge was unauthorized or the product was not delivered. The processor notifies you and holds the funds while the dispute is investigated. You can respond with proof of delivery, a signed receipt, or other evidence. If the bank sides with you, you keep the money. If it sides with the customer, the money is refunded and you may be charged a chargeback fee (usually $15 to $100).
Can I accept American Express and Discover, or just Visa and Mastercard?
Most modern processors accept all four major card networks. Amex and Discover typically have higher interchange fees than Visa and Mastercard, so your per-transaction cost will be slightly higher when an Amex or Discover card is used. You cannot decline one network and accept another — if you accept cards, you must accept all of them.
What if I only process a few transactions per month?
Look for processors with no monthly fee and no setup fee, since you will not benefit from a monthly plan. Square, PayPal, and Stripe all work this way. Your only cost is the per-transaction fee. If you process fewer than 10 transactions per month, the difference between processors is usually small in absolute dollars, so pick based on ease of use and reporting tools rather than chasing the lowest rate.