Credit card processing is more complex than it seems. There’re many parties involved, which work jointly to process a transaction.

If you aren’t familiar with the process and everything involved, you’re likely to overpay for credit card processing at your business. By learning and understanding the basics of how credit card processing works, you can be sure that you’re getting the best deal.

Following is everything you wanted to know about credit card processing to reduce frustration–and costs!

The Parties Involved

There’re many parties that spring into action when your customers swipe cards:

  • Merchant: The business owner accepting payments.
  • Cardholder: The client who owns the credit card being used to pay for goods and services.
  • Credit Card Companies: You can perhaps name a few. The bigger associations are companies like Discover, American Express, MasterCard, and Visa.
  • Acquiring Bank: The merchant’s bank. They’re responsible for clearing card transactions and depositing funds into the Merchant’s bank account.
  • Issuing Bank: The cardholder’s bank. They supply the funds to the acquiring bank and then bill the cardholder as per their credit card agreement.
  • Payment Processors: These companies handle the batching and processing of acquisitions made with gift, debit, or credit card payments. They act as middlemen to the banks and card associations.

The Process

Every time your clients use credit cards to make payment, all of the above parties are involved. Here’s a breakdown of the entire process:  

  • Step 1: Customers buy goods and services with their credit cards.
  • Step 2: The payment card is swiped through a PDQ terminal, and the machine identifies the card and communicates to the credit card company.
  • Step 3: The credit card is approved.
  • Step 4: The credit card company transfers the sum to the merchant’s bank via a verified merchant services provider.
  • Step 5: The acquiring bank credits the sum into the merchant’s bank account.
  • Step 6: A statement listing the interchange for all transactions that month is sent to the merchant.

Pricing Models

  1. Percentage Markup

Providers will charge an added percentage on top of interchange for every transaction based on card type. So, the more you process, the more in markups you’ll have to pay.

  1. Flat Rate

Flat rate pricing is a popular model since it’s an easy-to-understand markup. With flat rate pricing, the payment processor charges the merchant a fixed percentage on every transaction.

  1. Tiered Rate

This is by far one of the most costly pricing models. However, you get a general idea of what you’re charged per transaction since the rate is based on card type. The important thing to remember with this pricing model is that the tiers are random and determined by the provider.

  1. Subscription

Subscription-based pricing models are the best choice for merchants. A monthly membership is paid in exchange for the direct cost of interchange. This means that irrespective of how much you process, you only ever have to worry about a flat membership and the direct cost of the cards you’ve processed.

Many companies use subscription-based pricing, but only the companies profiles provide excellent service at an affordable cost and can guarantee no hidden fees and unlimited processing.

Payment Technology

All businesses are unique, particularly when it boils down to accepting payments. The technology that you use to manage your business is the key to your success, so it helps to really understand your needs and get the ideal payment technology solution for your business.

  1. Online Invoicing

Invoices are an important part of billing for some businesses. Many business owners still depend on manual processes to create invoices, such as templates in Excel.

  1. EMV Smart Terminal

Physical credit card processing terminals are excellent for businesses with brick and mortar locations. If your clients are physically coming to you and swiping their cards, this is the solution for you.

  1. Mobile Payments

Ideal for the on-the-go business owner, mobile payment technology can be a game changer for your business since you can easily accept payments on the spot.

  1. Online Shopping Cart

Online shopping carts are managed by payment gateways and are essential for eCommerce businesses. Even if you operate a mainly brick-and-mortar location, having an online store is an excellent way to reach more customers and market your products!

  1. Point-of-Sale

Point-of-Sale solutions are perfect for retail stores and restaurants. These are large, integrated machines with a credit card processing solution, cash register, and computer monitor.

  1. API

If you need something more customizable or a very specific payment solution for your app or site, a payment processing API is the way to go.

Security and Compliance

Accepting card payments means you’re responsible for the proper handling of your buyer’s sensitive info. There’re two main ways merchants can ensure they remain compliant with industry standards – EMV and PCI compliance.

  1. PCI Compliance

PCI, which is short for Payment Card Industry, is a set of standards created to protect the sensitive info of consumers and ensure proper security measures are being taken at businesses that accept payment cards.

To become PCI compliant, you have to complete a short questionnaire yearly. If you’re not PCI compliant, you run the risk of being charged a PCI non-compliance fee from the credit card companies.

  1. EMV Compliance

EMV, which is an abbreviation for Europay, MasterCard and Visa, is a global standard for cards with chips and the technology used to verify chip-card transactions.

Unlike magnetic stripes, which store info statically on the card (meaning that the sensitive info can be “replicated” from the card by fraudsters), chip technology uniquely encrypts the card info every time it’s used providing considerable security improvements.

Chargebacks and Risk Holds

Admittedly, we all don’t like it when things don’t go as planned, especially when it boils down to your business’s finances. That’s why it’s so important to know what to do in case of a risk hold or chargeback. Read on for more information:

  1. Chargebacks

Chargebacks were created to safeguard consumers from scammers. They occur when a buyer questions a certain charge to their account. If a chargeback is issued for a stolen or lost card, the bank issues a reversal of funds. This means that your business is liable for the cost of the chargeback.

If your business isn’t EMV compliant, meaning you don’t have a chip reader, you’ll be held responsible for all chargeback liability. If you’re EMV compliant, that liability typically falls on the cardholder.

  1. Risk Holds

Risk holds are put in place to ensure fraudulent activity isn’t being conducted – in the end protecting you and your clients. Risk holds can be triggered by unusual behavior from a customer or unusual behavior from you, the merchant. A risk hold occurs when you process beyond the limit granted to you during underwriting.

Important Things to Remember When Choosing Merchant Payment Providers

Here are some of the qualities you can expect from trustworthy merchant payment providers:

  • Transparency: Open, transparent info and communication between you, the merchant, and merchant services provider are important for efficiency.
  • Real-time reports: Information must be updated in real time so that you can view your data and take care of your books.
  • Customer support: You should always be comfortable with the level of service offered.
  • Ease of use: Look for easy-to-use interfaces.
  • Security: Ensure you remain compliant with industry standards to protect your data against fraud.

With so many merchant account service providers, it can be challenging to choose the best merchant account services. can help you compare the best merchant accounts that are specific to your merchant account needs and the needs of your business.

That’s It!

Congrats for making it to the end and learning more about credit card processing!