Unless you’re a cash-only business, you need a way to accept customers’ tapped and swiped credit cards. So, how does the credit card payment process work?
In this article, we’ll break down the transaction process, what it costs and how to choose the right setup for your business.
Credit Card Processing, Explained
As a business owner, a lot goes on behind the scenes to deposit money into your account, even if it might appear seamless to shoppers.
Credit card processing moves payment information and funds from your customer’s bank to the card network, and finally to your business.
Whether you process credit cards in person, online or through mobile credit card processing, the same steps apply.
Credit card processing can feel complex because a lot of parties are involved. There’s a whole ecosystem that services credit card processing, including:
- Your customer, as the cardholder
- You, as the merchant
- A payment gateway, which sends payment data
- A payment processor, which routes the transaction
- Card networks such as Visa or Mastercard
- The issuing bank, which is your customer’s bank
- The acquiring bank, or the bank your business uses
Most merchant credit card processing services lump these steps together to streamline the process, especially for small businesses.
The 5 Steps of the Credit Card Payment Process
In most cases, credit card processing follows this process:
- Capture card information: The shopper pays with chip, tap, swipe or manual entry.
- Request authorization: The transaction travels through the processor, card network and issuing bank. Authorization is a crucial step for catching fraud, and it happens in just milliseconds.
- Approval: The bank approves the transaction if everything is on the up and up.
- Clearing: The money goes through clearing, where transactions are grouped and prepared for transfer. You see them as “pending” on your processing statement.
- Settlement: The funds arrive in your account, minus fees.
What Small Businesses Pay for Credit Card Processing
Depending on your credit card processing service, you can expect to pay fees such as:
- Interchange fees to your bank
- Network fees for the card network
- Processor markups from your processing service
Every processor follows its own rules. Some bill on a flat-rate basis, while others offer tiered pricing. There’s no single best credit card processing model. Instead, the right model depends on your needs.
In general, you can expect to pay between 1.3% and 3.5% per transaction, plus a fixed fee of $0.10 to $0.30 per sale. So, at a 3.5% rate with a fixed $0.30 fee, you would pay $205 for $5,000 spread across 100 transactions.
Security Basics Every Small Business Should Understand
Security isn’t just for big companies. If you process credit cards for your business, you need to take card security seriously. There are rules around encryption, PCI compliance and tokenization that can get complex.
The best option is often to use a software credit card processing tool with built-in security features. Many platforms bundle these protections with your subscription.
What Happens When a Customer Disputes a Charge?
Sometimes, a customer may dispute a charge. This is called a chargeback, which the customer initiates.
When this happens:
- The issuing bank flags the transaction
- Your processor notifies you
- You may need to provide documentation (receipts, emails, etc.)
Chargebacks aren’t fun, but they’re a normal part of credit card processing for businesses. It can help to keep detailed records of every transaction, just in case you need to present your case to the bank or processing company.
How to Compare Credit Card Processing Solutions for Your Business
There are many credit card processors. To find the best option for your business, compare providers based on what matters to you.
When you shop for software, look for:
- Which payment types it supports, such as in-person and mobile credit card processing
- Your hardware needs, and whether hardware is included or is a separate charge
- Contract terms
- Fees
- Payout speed, as processors lump payments together and release them on a predetermined schedule
- Support options
- Customer reviews
Some processors also offer free trials. You can test-drive a few platforms to see if you like their service, interface and overall experience.
Get Clarity on Credit Card Processing
You don’t need to know the technical ins and outs of the process, but you do need to understand your processor’s fee structure, security options and customer service offerings.
Understanding these features will help you pick the best option for both your business and its customers.
If you’re running a small business, understanding how payments work can help you feel more in control. Many owners of small businesses find that learning the basics of processing helps them better compare top credit card processing companies and choose tools that best fit their needs.
