3 Things To Know About Credit Card Processing

Having your credit card processing system can be confusing, costly, and overwhelming. The first stage toward a better payment processing journey is to understand better what you’re being billed for and the options available to you.

This article is going to help you gain a better understanding of credit card processing by highlighting the major types of credit card processing companies that offer payment processing services. Here are a few specifics on what constitutes a payment solutions service, how processing actually works, card processing charges, risks, and others.

1. The Parties Involved In Credit Card Processing

When your customer swipes their credit card, several players are involved. The information provided below summarizes the key roles involved in payment processing.

  • Merchant: A person or company that accepts payments and requires credit card processing.
  • Cardholder: The customer whose credit card is being used to make the purchase.
  • Card Association: These are card networks worldwide. A credit card will have a logo corresponding to one of these networks. They aren’t really banks, but instead regulatory bodies that establish interchange rates and mediate disputes between acquiring as well as issuing banks. They also are responsible for the upkeep and enhancement of their corresponding card networks.
  • Payment Gateways: Payment gateways or merchant service providers are what maintain the terminals and website forms that receive your customer’s card payments. There are a few basic things that your service provider should be able to guarantee right from the onset, and you can discover this info here.
  • Acquiring Bank: The bank of the company (i.e., the merchant). They keep the merchant’s money and receive the proceeds of a sale. In this case, once a card is authorized, they accept the funds from the sale and transfer them into the business’ bank account.
  • Issuing Bank: A cardholder’s bank is known as the issuing bank. They give consumer cards and are members of card associations. Issuing banks reimburse acquiring banks for items purchased by their cardholders. The purchaser is liable to repay the amount according to the terms of their credit card contract.

2. The Payment Method


Each of the above-mentioned parties is involved whenever your customers use a credit card to make a payment. Here’s a quick rundown of both the payment process and how each entity fits in.

  • The client goes into your store and finds the items they want. At the counter, they present to the cashier their credit card.
  • The cashier will use a swipe machine to read their card. This machine is linked wirelessly or wired to the servers of the payment gateway. Secure back-end transactions will transpire between the issuing bank, the card association and the gateway.
  • As long as everything is okay, the purchase goes through.
  • Money will pass through the payment gateway.
  • These funds will then be deposited to the merchant’s bank account.
  • The merchant will get a statement at the end of the month. It will list all the transactions and fees incurred within that period.

3. Service Fees for Credit Card Processing

Now that you have an understanding of the involved parties and how they interact, you can now get to the different types of fees that can be connected with a transaction. Obviously, there are a few things you should look for on your card processing statement each month.

The fees vary depending on which merchant services provider you use, so, keep an eye on the monthly bill you’ll be receiving to ensure you aren’t paying extra for your card processing.

  • Fees For Transactions


Transaction fees refer to the charges for each transaction that you conduct. Because they’re set by the credit card companies, these are the only required payments associated with credit card processing. You’re basically paying the card associations so they can let you accept their cards.
The exchange rate varies with the type of card you’re using. The pricier it will be for the card company to keep the card–incentives, discounts, perks–the higher the interchange rate. That’s to say, debit cards are less expensive, whereas business credit cards are usually the costliest.

  • Recurring Fees

On top of interchange, many service providers profit by billing non-mandatory merchant fees to business owners. These fees usually appear on your monthly bill, but they’re never needed for a credit card to be accepted for payments.

On your monthly statement, keep an eye out for several recurring fees. Some of them are:

  1. Statement fees
  2. Next-day funding fees
  3. Yearly fees
  4. Tax report fees
  5. Minimum fees (usually monthly).
  6. Batch fees
  • Once-Off Fees


One-time fees refer to those fees that happen only once. Terminal fees, early cancellation fees, installation fees, reset fees, and address verification fees, are examples of these.

Merchant service provides profit handsomely from the fact that most business owners are unaware of what they’re paying for and why. Choose a service provider that’s transparent about all its fees and that can help you understand how the whole process works, because after all, credit card processing isn’t supposed to be rocket science.

  • Your Credit Limit and Available Credit

Knowing what your balances are on all of your accounts can seem like a hassle to keep track of if you have a lot of them. It might seem to be boring work, but regular monitoring of your account balances allows you to determine which credit cards you can use and which need to be kept in your wallet. Or else, you risk accruing a large balance or breaching your credit cap.

  • Risk Holds


Risk holds are a common occurrence for most businesses in the first few weeks of processing with a merchant services account. It may sound frightening, but they’re actually put in place to prevent potential fraud, ultimately safeguarding you and your customers.

When users sign up for a merchant services account, the provider will usually ask what your average ticket size is as well as your maximum ticket size. Underwriters will then approve the account for a specific amount of money per transaction depending on the business type, processing track record, and ticket size.


You don’t need to know all the technical jargon about credit card processing, but since it’s a huge part of your business and is likely going to determine how much money your business ultimately gains as profit, then you’ll need to know enough about the process to help you become careful and pro-active.

This article hasn’t been exhaustive, it wasn’t meant to be. What it sought to do is to lay good ground for you to have a working knowledge of at least some of the processes.

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