Online Payments Explained: Stripe, Square, PayPal, and How It All Works

Money Has to Move Somehow

Whether you're selling products online, invoicing clients, or taking deposits for services, you need a way to accept payment digitally. There are more options than ever — which is great, but also slightly overwhelming.

Here's how online payments actually work, what the fees look like, and how to pick the right setup for your business.

How Payment Processing Works

When a customer enters their card details on your website or at your register, a lot happens in about two seconds:

Your payment processor securely captures the card information
The processor sends it to the customer's bank for authorization
The bank checks for available funds and fraud signals, then approves or declines
The funds are held and eventually settled into your business bank account — usually within 1–2 business days

You never see the raw card number — it's encrypted throughout the process. The processor handles the security so you don't have to store sensitive payment data yourself.

The Three Main Options for Small Businesses

Stripe is the leading choice for online businesses. It handles one-time payments, subscriptions, invoicing, and international currencies cleanly. Fees: 2.9% + 30¢ per transaction. No monthly fee. Setup is straightforward if you're comfortable with tech, or a developer can integrate it into your site.

Square is built for businesses that sell both in person and online. If you have a physical location and an online presence, Square's ecosystem — point-of-sale hardware, online store, invoicing, and scheduling — all ties together. Fees: 2.6% + 10¢ in-person, 2.9% + 30¢ online.

PayPal is the oldest and most recognized name. Customers trust it, and the checkout experience is familiar. Fees: 3.49% + 49¢ for PayPal checkout; 2.99% + 49¢ if the customer pays by card directly. Fees are slightly higher than the alternatives, but the brand recognition can increase checkout completion — especially with customers who hesitate to enter card details on an unfamiliar site.

What "2.9% + 30¢" Actually Costs You

On a $100 sale: $2.90 + $0.30 = $3.20 in fees. You receive $96.80.

On a $10 sale: $0.29 + $0.30 = $0.59 in fees. You receive $9.41.

The flat 30¢ fee hits harder on small transactions. If you're selling low-priced items frequently, this matters. Some businesses set a minimum purchase amount for this reason.

Getting Paid for Services vs. Products

Service businesses (consultants, contractors, freelancers) usually do best with invoicing tools. Stripe Invoicing, Square Invoices, and PayPal Invoices let you email a client a payment link. Simple, professional, and no special website setup required.

Product businesses need a checkout flow. Options include:

Shopify — a complete e-commerce platform with payments built in ($29–$79/month). The easiest way to get an online store running quickly
WooCommerce — a free WordPress plugin that turns your WordPress site into a store
Square Online — builds a basic online store connected to your Square account
Stripe Checkout — a clean, prebuilt checkout page you link to from your website, without building a full store

The Thing Nobody Tells You About Chargebacks

A chargeback happens when a customer disputes a charge with their bank, and the bank reverses it. You lose the sale and pay a fee ($15–$25 per dispute, typically).

Most businesses see chargeback rates well under 1%, but digital goods and subscriptions see more of them. Clear refund policies, good order documentation, and prompt customer service are your best protection.

Which Should You Choose?

Situation	Best Option
Online-only business	Stripe
Physical + online retail	Square
Invoicing clients	Stripe Invoicing or Square Invoices
Quick online store, non-technical	Shopify
WordPress site with products	WooCommerce + Stripe
Customers who prefer PayPal	Add PayPal alongside Stripe

What PCI Compliance Actually Means for You

PCI DSS (Payment Card Industry Data Security Standard) is a set of security requirements for any business that accepts, stores, or transmits cardholder data. If you accept credit or debit cards, you're technically subject to it.

The good news: if you use Stripe, Square, or PayPal and never store card numbers yourself, your compliance requirements are minimal. These providers handle the hard parts — encryption, secure storage, fraud detection infrastructure.

Your responsibilities still include:

Using HTTPS on your website
Never storing card numbers yourself
Completing an annual Self-Assessment Questionnaire (SAQ) — usually a straightforward online form your payment processor walks you through
Basic security practices on your systems (strong passwords, 2FA, keeping software updated)

Your payment processor will guide you through their compliance process. It's manageable for most small businesses.

International Payments

Selling to customers in other countries introduces some complexity:

Currency: Stripe and PayPal both accept multiple currencies. You can charge in USD and let the customer's bank handle conversion, or charge in their local currency.

International tax: Selling digital goods to EU customers may require you to collect and remit VAT. Tax software like TaxJar or Avalara can automate this as you grow.

Regional payment methods: Some countries have preferred local payment methods — iDEAL in the Netherlands, SEPA bank transfers in Europe, and others. Stripe supports many of these as add-ons.

Subscription and Recurring Billing

If your business model involves recurring payments — memberships, monthly retainers, subscription boxes — you need a platform that handles subscription billing well.

Stripe Billing is the most capable option for complex subscription models. Features include:

Automatic payment retry when cards fail
Dunning emails (reminders to customers with expired or declined cards)
Proration when customers upgrade or downgrade plans
A self-serve customer portal where subscribers manage their own billing

Square and PayPal have recurring payment capabilities but are less sophisticated for complex subscription logic.

Buy Now, Pay Later

Buy Now, Pay Later (BNPL) services like Klarna, Afterpay, and Affirm let customers split purchases into installments. You get paid in full upfront (minus fees); the BNPL provider collects installments from the customer.

Stripe supports Klarna and Afterpay as payment method options. Research suggests BNPL can meaningfully increase average order values and reduce cart abandonment for purchases in the $100–$1,000 range.