Most people have tapped a card thousands of times without thinking about what’s happening underneath. When you’re setting up your first card reader and trying to work out what you’ve actually bought, the mechanics feel worth understanding.
This covers how a payment moves from tap to your bank account, what fees go where, and what to do when things go wrong.
What happens in the two seconds after a customer taps
Contactless looks instant. It isn’t quite, it’s several systems talking to each other very quickly.
When a card is tapped, the reader picks up an encrypted signal from the chip. This uses NFC (near-field communication), the same technology behind Apple Pay. The card doesn’t transmit the actual card number; it sends a one-time token unique to that transaction.
The reader sends that token to the payment processor, Square, SumUp, whoever you’ve signed up with, via your phone’s internet connection or its own built-in SIM. The processor passes it to the card network (Visa or Mastercard), which routes it to the bank that issued the customer’s card. The bank checks for sufficient funds and anything suspicious, then sends back an approval or decline. That message reverses back through the same chain to the reader, which shows the green tick.
One to three seconds, typically. Chip-and-PIN works the same way, except the PIN is verified locally on the card before the request goes out.
Do you need a merchant account?
A merchant account is a holding account for card payment funds before they move to your regular business account. Traditional card machines, the kind banks used to lease on three-year contracts, required one, which meant a credit check, an application, and sometimes weeks of waiting.
Most small business card readers work differently. Providers like Square and SumUp operate as payment aggregators: they hold a single merchant account that many businesses share, which is why you can sign up and take payments the same day. The trade-off is that aggregators can freeze or close accounts if they flag unusual activity. It’s rare, but worth knowing.
For very high volumes (typically above £100,000 per year) or industries considered higher-risk, a dedicated merchant account from a traditional acquirer might make more sense. For most small businesses, an aggregator is the practical and sensible starting point.
How the money gets to your account
An approved payment doesn’t move immediately.
That day, the funds are held by the card network. Over the following one to three working days, the processor batches the day’s transactions, submits them for settlement, and transfers the net amount, after its fees, to your bank account. Square typically settles in one to two working days. SumUp in one to three. Tide and myPOS settle into their own accounts almost instantly, though you still have to transfer the money out from there yourself.
Working days matter. A payment taken on Friday afternoon often doesn’t hit your account until Tuesday or Wednesday. If your weekend cash flow is tight, that gap is worth planning for.
Where the 1.75% actually goes
When you pay Square or SumUp 1.75% on a transaction, that money is split between several parties, not all of it stays with the processor.
The largest portion is the interchange fee, which goes to the bank that issued the customer’s card. This is set by Visa and Mastercard, and varies by card type. Consumer debit cards carry lower interchange than premium credit cards, which is why some providers charge more for certain card types.
A smaller portion is the scheme fee, what Visa or Mastercard charges for running the network.
What’s left after those two is the processor’s actual margin, which on a 1.75% transaction is typically somewhere between 0.2% and 0.4%.
Commercial and corporate cards attract higher interchange, which is why you’ll sometimes see processors charge a different rate for them. Worth checking your provider’s terms if your customers frequently pay on business cards.
When a payment is declined
A decline usually means insufficient funds, a bank fraud flag or, occasionally, a connectivity failure that timed out before the authorisation completed.
The customer sees a decline on the reader screen. Nothing moves. The reader is ready for the next attempt.
You won’t know whether a decline is soft (temporary, worth retrying) or hard (the bank is actively blocking the card). If a card is declined, the options are: try again, switch to chip-and-PIN if they tried contactless, or suggest they call their bank. There’s no way to manually override a decline or approve a transaction yourself.
Chargebacks
A chargeback happens when a customer disputes a transaction directly with their bank rather than coming to you. Reasons vary: they don’t recognise the payment, they claim the goods didn’t arrive, or in some cases, fraud.
When a chargeback is raised, the disputed amount is withdrawn from your processor account while the bank investigates, and this can happen weeks or months after the original transaction. If the dispute is upheld, you lose the money. If it’s rejected, you get it back. Investigations take 30-90 days.
Some processors charge a fee per dispute regardless of the outcome. Square charges £15 per chargeback. SumUp does not. For most small businesses, chargebacks are infrequent. For anyone selling high-value items or taking deposits, it’s worth reading your provider’s policy before committing.
Good records are the best protection: receipts, delivery confirmation, and any written communication with the customer.
Connectivity
Bluetooth readers, Square, SumUp, Zettle, need an active internet connection to process payments, either through your phone’s mobile data or Wi-Fi. No connection means no payment.
Some readers have offline modes that queue transactions for processing once connectivity returns. The risk: an authorisation given offline might be declined when the connection comes back, leaving you having already handed over goods.
Readers with their own built-in SIM (SumUp Solo, myPOS Go 2) are less dependent on your phone signal, but still need mobile network coverage. If you trade in locations with poor signal, rural markets, basement venues, large exhibition halls, test before you rely on cards as your main payment method.
Do you need a separate device?
Not usually. Bluetooth readers pair with an app on your existing phone. The phone provides the display, internet connection, and payment interface; the reader just handles the card.
If you’d rather not use your phone, because it’s impractical, or you want a dedicated payment device at a till point, the SumUp Solo (£99 + VAT) has its own screen and SIM. The myPOS Go 2 (£29 + VAT) also works independently. Both cost more upfront but don’t need a phone nearby.
Contactless vs chip-and-PIN
Both use the EMV chip in the card. The difference is whether PIN verification is required.
In the UK, contactless transactions under £100 typically don’t need a PIN. Above that, most cards require PIN verification even for a tap. Banks also periodically force PIN entry after a run of consecutive contactless transactions as a fraud check.
For the merchant, chip-and-PIN is slightly more secure: a fraudster needs both the physical card and the PIN. Contactless fraud does happen, but the card issuer’s fraud protection generally means the merchant doesn’t bear the cost.
In practice, for most small business transactions, the distinction rarely matters. Both work reliably and carry the same fee.
Frequently asked questions
Can I use a card reader without a smartphone? Yes, if the reader has its own screen. The SumUp Solo (£99 + VAT) and myPOS Go 2 (£29 + VAT) work independently without a phone.
Is it safe to take card payments? Yes. Readers don’t store full card details, only encrypted tokens. You’re not responsible for cardholder data as long as you use a reputable provider and don’t write card numbers down.
What cards can I accept? Visa, Mastercard, and Maestro work on all major UK readers. American Express is accepted by most, though sometimes at a different rate, check your provider’s terms. Apple Pay, Google Pay, and Samsung Pay all work via the contactless mechanism.
How do refunds work? Through the same app. Find the original transaction, issue a full or partial refund. The money returns to the customer’s card in three to five working days. The transaction fee isn’t refunded to you.
What if my reader is lost or stolen? Readers don’t store card data or bank details, so there’s no direct financial risk. Log into your provider account and deactivate the device. You’ll need to buy a replacement.
Can I accept foreign cards? Yes, Visa and Mastercard issued outside the UK work fine on UK readers. Whether you can physically use your reader abroad is a separate question. Square locks readers to the country the account is registered in.
Summary
Once you understand the way a card reader, processor, card network, and bank communicate then you can also understand the time it takes to settle and transfer money, and the split of fees between three parties.
If you’re ready to pick a reader, our guide to the best card readers for small businesses covers seven options with tested fee comparisons and honest verdicts for different business types.
