October 2025
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What Does Credit Card Processing Involve?

Have you ever wondered what's involved in credit card processing? Every credit card transaction involves four key parties: the customer making the purchase, the merchant receiving payment, the acquiring bank (the bank that provides credit card processing services to the merchant), and the issuing bank (the bank that issued the customer's credit card). Understanding the role each plays is essential to grasp how funds move from a customer’s account to a merchant's business.

How Does Credit Card Processing Work?

Acquiring banks, also known as merchant banks, enable merchants to accept credit card payments by providing them with merchant accounts. These banks handle the transfer of funds from customer credit cards into merchant accounts, furnish software and equipment such as card readers and terminals, and offer customer support and other credit card processing services.

A merchant account functions as an unsecured line of credit. When a customer makes a purchase, the acquiring bank essentially loans the amount to the merchant before retrieving it from the customer’s issuing bank. This loan is then settled once the issuing bank transfers the money.

However, merchants do not receive the full transaction amount. Both the acquiring and issuing banks deduct fees that include a percentage of the transaction amount, and sometimes fixed per-transaction charges. These fees vary based on the nature of the business and perceived risk.

The Cost Involved With Credit Card Processing

If you're considering opening a merchant account, one of your primary concerns will likely be the fees. These depend heavily on your business type. Industries considered high-risk due to frequent disputes or chargebacks—such as online sales or high-value transactions—typically incur higher fees.

Chargebacks occur when a customer successfully disputes a transaction. Transactions where customers physically swipe and sign for inexpensive goods (like in restaurants or gas stations) are seen as lower risk, thus associated fees are lower. In contrast, phone or online orders involving expensive or shipped products are riskier and costlier in fees.

Conclusion

Whether you're operating a brick-and-mortar store, an online shop, or a phone/mail order business, credit card processing is essential for staying competitive. While you'll need to pay for these services, they are crucial to success. To ensure you're getting the best deal, always compare offers and confirm that all fees—both fixed and percentage-based—are clearly included in any quote. Choosing the right provider can make a significant difference in your bottom line.