Credit Card Processing &Amp; Everything You Need To Know About It

Credit card processing can be overwhelming, expensive, and confusing. And yet, accepting non-cash forms of payments is more or less required to operate a modern business, at least in the U.S. Credit, debit, and digital payments have far and away become the most popular payment method. Cash has dropped to less than 20% of all US payments in recent years. And 80% of those transactions are under $25. If your AOV is above $25, you must accept credit cards.

The first step to creating a more positive payment processing experience is to gain a better understanding of exactly what you’re being charged for and what options are at your disposal. 

This article on the best credit card processing companies providing payment processing services will help you reach a better understanding of credit card processing. Here are the inside details about what defines a payment solutions provider, how processing works, the credit card processing fees, risks, and more.


  • There are several parties involved in credit card processing. They include: the merchant, cardholder, card associations, acquiring bank, issuing bank, and payment processor.
  • You also have to be mindful of the costs of credit card processing. Fees include (but aren’t limited to transaction fees, interchange rates, PCI compliance, and more. 
  • There are also risk holds—a routine procedure that most companies experience within the first few weeks of processing with a new merchant services account. It might sound scary, but they are put in place to ensure that fraudulent activity is not being conducted–ultimately protecting you and your customers. 

Credit Card Processing: The Parties Involved

There are several parties involved when your customers swipe their cards. The information below helps to summarize the essential roles involved in payment processing. 

Merchant: The individual business accepting the payment and in need of credit card processing.

Cardholder: The customer who owns the credit card being used for purchase.

Card Association: Visa, Mastercard, American Express, and Discover. These are not banks, but rather governing bodies that set interchange rates, and arbitrate between acquiring and issuing banks. They are also responsible for maintaining and improving their respective card networks.

Acquiring Bank: The business’ (i.e. merchant’s) bank. They hold the merchant’s funds and acquire the money from a sale. In this context, they accept the funds from the sale once a card is authorized and deposit them into the business’ bank account.

Issuing Bank: The cardholder’s bank. They issue cards to consumers and are a part of card associations. Issuing banks pay acquiring banks for the purchases their cardholders make. The cardholder is responsible for paying back that amount in accordance with their credit card agreement.

Payment Processor: The credit card processing company handles the processing and batching of purchases made with credit, debit, or gift card payments. They typically assist with technology needs and customer service as well, acting as an intermediary to the card associations and banks.

Stax Stripe Square PayPal Banks
Contract Required No No No No Yes
Early Termination Fees No No No No Yes
Card Present Processing Pricing $99/month

+ 8¢ per transaction

+ interchange

2.9% + 30¢ per transaction

(includes interchange)

2.6% + 10¢ per transaction

(includes interchange)

2.7% per transaction;

3.5% + 15¢ for

key-in and scanned cards


1.8-3.5% per transaction

+15-30¢ per transaction

Card-Not-Present Processing Pricing $99/month

+ 15¢ per transaction

+ interchange.

2.9% + 30¢ per transaction

(includes interchange)

3.5% + 15¢ per transaction

(includes interchange)

2.9% + 30¢ per transaction

(includes interchange)


1.8-3.5% per transaction

+20-30¢ per transaction


The Payment Process

Whenever your customers use a credit card to make a payment, each of the parties mentioned above gets involved. Here’s a brief guide on the payment process and where each entity plays a role.

Step 1: The customer purchases an item with a credit card.

Step 2: The credit card is swiped, dipped, or tapped at a POS system or a credit card reader, where the card gets recognized for charging. The terminal then contacts the credit card processing company for authorization.

Step 3: The card is authorized.

Step 4: The credit card processing companies send the payment to the business’s bank through a certified merchant services provider such as Stax.

Step 5: The business’ bank deposits the payment into the connected merchant bank account.

Step 6: At the end of the month, the statement is sent to the business that details the interchange for all transactions that month–which is the fee set by credit card companies for merchants to accept their cards as payment.

Typically, card transactions are authorized in less than a minute. And it generally takes two business days for banks to deposit payments into a merchant’s account—once transactions are settled. Some merchant service providers may offer same-day or next-day funding, while others might take longer to process payouts.

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Credit Card Processing Service Fees

Now that we have a pretty good understanding of the parties involved and how they all work together, we can take a look at what types of fees can be associated with a transaction. These vary based on your merchant services provider, so pay attention to your monthly bill to ensure you aren’t overpaying for your credit card processing.

Transaction Fees

Transaction fees are associated with each transaction you run. They can be broken down into interchange and cents per transaction. Both of these are the only mandatory fees associated with credit card payment processing since they are set by the credit card companies themselves. You are essentially paying Visa, Mastercard, Amex, and Discover for the ability to accept their cards.

Interchange rates vary based on the type of card you are running. The more expensive it is for the credit card company to maintain the card–rewards, cashback, perks–the more expensive the interchange. In other words, debit cards are more economical while business credit cards are typically the most expensive.

Recurring Fees

In addition to interchange, many providers make an extra profit by charging businesses non-mandatory merchant fees. These fees can be seen frequently on your monthly statement, but such monthly fees are never actually required in order to accept credit card payments.

Be aware of monthly minimum fees, statement fees, batch fees, next-day funding fees, annual fees, IRS report fees, and others on your statement each month.

One-Off Fees

One-off fees are those that occur only once. These can include terminal fees, early termination fees, setup fees, reprogramming fees, PCI compliance fees, address verification fees, chargeback and retrieval fees, and payment gateway fees.

Needless to say, there are a number of things you need to keep an eye out for on your credit card processing statement every month. Merchant services providers make significant profits off of the fact that most businesses aren’t even aware of what they’re paying for and why. 

With Stax, your payment processing statement is simple. All you pay is a monthly membership in exchange for the direct cost of interchange and cents per transaction. We pride ourselves in our transparency by never adding hidden charges or online credit card processing fees for the sake of profit.

Read on to the next section to learn more about pricing models and how companies increase savings using Stax’ innovative subscription-based system.

Credit Card Processing: Pricing Models

Not all card processing pricing models are created equal. It’s important for small business owners like yourself to understand the pricing plans offered by various credit card processors (or merchant service providers) in the market, so you can compare their processing costs before you decide who to sign up with. With that in mind, let’s take a look at the different pricing models offered by most merchant account providers. 

Interchange-plus Pricing

This pricing model is just how it sounds–providers will charge an additional percentage on top of the interchange fees for each transaction run. Since interchange varies based on card type, there is no good way to predict what you’ll be paying each month with this pricing model. The more you process, the more you’ll have to pay in markups.

Flat Rate Pricing

A flat rate is a variation on percentage markup models. Instead of charging a percentage extra on top of the interchange (which means each card’s final cost will be different), flat-rate models make each card the same percentage. The most popular example of this is Square. No matter what card is being used, you’ll always pay 2.6% + 10 cents with Square. 

This might seem like a good system at first, but the more you process, the more expensive it gets. This is especially true if you process a lot of cards with low interchange rates, like debit cards. These cards average around 0.5% interchange–so 2.6% is a very significant markup.

Tiered Rate Pricing

By far one of the most expensive pricing models to take credit card payments, tiered rates put different cards in various tiers and charge based on those qualifications. The important thing to remember with this model is that the tiers are arbitrary and determined by the provider. Providers observe the most popular card types, ensure they are in the most expensive tier, or add extra one-time or monthly fees for various and vague online credit card processing services.

These credit card processing services’ models are rarely questioned since businesses often believe there is some sort of reasoning behind the groupings. Since there isn’t, it pays to have an honest conversation with your provider if you see any terms like “qualified,” “mid-qualified,” or “non-qualified” on your statement.

Simple Flat Rate Subscription Pricing

Subscription-based pricing models are very often the best choice for companies. A monthly membership is paid in exchange for the direct cost of interchange. Essentially, no matter how much you process, you only ever have to worry about the direct cost of the cards you’ve processed and a flat membership monthly fee.

There are a handful of other companies that use subscription-based pricing, but Stax is the only provider that can guarantee unlimited payment processing with absolutely no hidden fees.

Talk with one of our solutions specialists today and we’ll discuss your current pricing model and how we can help your company save money.

Payment Processing Technology

Every business is unique, especially when it comes to accepting payments. The technology that you use to run your business is vital to your success, so it pays to really understand your needs and get the best payment technology solution possible.

Online Invoicing

Invoices are an essential part of billing for a majority of businesses. Many businesses still rely on very manual processes such as Excel templates, in order to create invoices. While this might seem like a cost-effective solution, the time wasted in creating your invoices and the lack of connectivity between your data can be highly detrimental.

EMV Smart Terminal

Credit Card Processing

Physical credit card processing terminals are great for businesses with brick-and-mortar locations. If your customers are physically coming to you and swiping (or dipping) their cards, this is the solution for you. An important thing to remember is to make sure whatever machine you decide to purchase comes with full EMV and NFC technology enabled. This means you’ll be able to accept chip cards as well as contactless payment methods like contactless cards and digital wallets like Google Pay or Apple Pay.

Mobile Payment Solutions


Perfect for the on-the-go business owner, mobile payment technology can be a game-changer for your business. Some businesses can get by with just a mobile solution, but a large majority use their mobile credit card swipers and apps for trade shows and field reps to be able to take payments on the spot.

Online Shopping Cart

Online shopping carts are powered by payment gateways and are essential for any eCommerce business. Even if you mainly operate a brick-and-mortar location, having an online store is a great way to increase your product’s visibility. Processing payments through an online shopping cart couldn’t be easier, and typically involves a quick phone call with your provider to activate the payment gateway.

Virtual Terminals

While countertop POS systems or card readers may be the obvious choice for card processing equipment for some businesses, they may not be suitable for all. Especially if your business takes orders over the phone, mail, fax, or in-person, you are going to need the help of a virtual terminal. Virtual terminals are simply web-based applications that can run on your laptop, desktop, tablet, or smartphone, transforming them into a POS system so you can process transactions anywhere as long as you have an internet connection. All you need to do is enter the payment info into your virtual terminal and it will then be encrypted, authorized, and submitted for online payment.


Point-of-sale systems are huge for restaurant and retail locations. These are large, integrated machines with a computer monitor, cash register, and an online credit card processing solution. POS systems come in a wide variety of shapes and sizes, so make sure you do your research and choose one with all of the right features for your unique business.


If you’re needing a very specific payment solution for your website or app, a payment processing API is probably the way to go. Some merchant services providers offer their API technology to developers to integrate into their proprietary applications, making it the perfect online credit card processing solution for companies needing something more customizable.

Security & Compliance

Accepting credit cards means you’re responsible for the proper handling of your customer’s sensitive information. There are two major ways companies can make sure they stay secure and compliant with industry standards–PCI and EMV compliance. Read on to learn what each of these means and how your business can stay compliant. 

PCI Compliance

PCI, which stands for Payment Card Industry, is a set of standards put in place to protect the sensitive information of consumers and ensure proper security measures are being taken at establishments that accept credit cards. To become PCI compliant, you must complete a short questionnaire once a year.

If you are not PCI compliant, you run the risk of being charged a PCI non-compliance fee from the credit card companies themselves. This is not a fee associated with your merchant processor, which is an important distinction to make. Stax ensures all of our members are compliant within the first 60 days of membership with us, helping you avoid that fee and keep your information safe.

EMV Compliance

Most businesses are aware by now that EMV is the chip card technology that has been rolling out across the USA over the past few years. This change has been taking place due to the considerable security improvements that the chip technology provides. Magnetic stripes store information statically on the card–meaning that the information can be “copied” from the card by scammers.

Chips uniquely encrypt the card information each time it is used. This means that “skimmer” technology cannot pull your sensitive information from the card and use it to make unauthorized purchases.

EMV technology has gotten some pushback since its rollout in 2015, with business owners citing longer checkout times and frustrated customers. Improvements are being made continuously to improve the speed of the transactions, plus the added security is worth the few extra seconds at the checkout counter. To avoid frustration, make sure your staff is trained on chip technology so that your customers don’t accidentally take out their card too soon or insert the card incorrectly into the machine.

As of October 2015, all businesses that accepted credit cards were required to be able to accept chip cards as well. If you’re still not EMV-compliant at your business, you run the risk of being liable for any fraudulent activity. Before the EMV shift, that risk was put on the banks. Now, if you’re not accepting chip cards, the risk is on you as the business owner.

The only way to truly avoid that risk is to have EMV-compliant payment technology. Stax offers a full line of compliant terminals and can integrate with thousands more–we’d be happy to find you the perfect machine to help keep you compliant as well as efficient in your payment process.

Chargebacks and Risk Holds

No one likes it when things don’t go according to plan, especially when it comes to your business’s finances. That’s why it’s so important to understand the possibilities and what to do in case of a chargeback or risk hold. Step one in both cases is not to panic. Read on for more specifics.


Chargebacks were created in order to protect consumers from fraudulent activity. They occur when a consumer disputes a certain charge to their account. If a chargeback is issued for a lost or stolen card, the bank will issue a reversal of funds. This means that your company is responsible for the cost of the chargeback.

If your company is not EMV compliant, meaning you do not have a chip reader, you’ll be held responsible for all chargeback liability. If you are EMV compliant, that liability typically falls on the cardholder.

Once you receive notice of a chargeback, it is important to remember that the process can take weeks to complete–during which time the funds from the transaction are held by the bank. The bank will typically ask for proof of purchase from the merchant and use this proof to make an ultimate ruling on the chargeback.

Here are some ways to avoid chargebacks at your company, or at the very least, avoid excessive penalties from chargebacks:

  • Follow proper credit card processing procedures.
  • Make sure to use an online credit card processing company with strong security standards and clear payment descriptors.
  • If your company provides a service rather than a product, it’s always a good idea to have a contract in place that details exactly what the payment is for, minimizing the risk of confusion over delivery and payment.
  • Always provide exceptional customer service and encourage your customers to try and resolve any issues with you directly before escalating them to the banks.
  • Train your employees to look for signs of fraudulent activity at your business to try and prevent chargebacks before they happen.

Risk Holds

Risk holds are a routine procedure that most companies experience within the first few weeks of processing with a new merchant services account. It might sound scary, but they are put in place to ensure that fraudulent activity is not being conducted–ultimately protecting you and your customers.

When you sign up for a new merchant services account, your provider will typically ask what your average ticket size is, as well as your highest possible ticket size. Your account will then be approved by underwriters for a certain amount of money per transaction based on your business type, processing history, and ticket size.

If you process sales that are outside of that approved range, the underwriters will issue a risk hold. This means the funds from the transaction are held until proper documentation can be provided for the sale. Once the sale is confirmed, the funds are released and your merchant services provider will work to re-establish your maximum ticket size with the risk department if necessary, in order to avoid a repeat occurrence. When trying to minimize the risk of this happening with your company, it is very important to be as accurate as possible on your merchant services application.

To Conclude

As you continue to learn and search for the best credit card processing company for your business, we encourage you to let us help. Stax’ all-in-one platform can be customized to fit the needs of businesses of all types and sizes. We offer subscription-based pricing which gives you access to the direct costs of interchange in exchange for a flat monthly fee and a small per-transaction charge—regardless of how much you process. Plus, there are no hidden fees, no contracts, and no markups. 

With Stax, you can offer a variety of payment options to your customers including swipe, dip, and tap payments, ACH, eChecks, mobile wallets, Text2Pay, payment links, recurring billing, and invoicing. You’ll also benefit from a host of optional add-ons such as a one-click shopping cart, two-way sync with QuickBooks Online, same-day funding, and custom branding tools, to name a few. 

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FAQs about Credit Card Processing

Q: What is credit card processing?

Credit card processing is a series of services that facilitates businesses in accepting debit and credit card transactions. It involves several parties including the customer, banks, and payment processing companies.

Q: Can you list the parties involved in credit card processing?

The parties involved include the merchant, the cardholder, the card associations such as Visa, Mastercard, Amex, Discover, the acquiring bank (merchant’s bank), the issuing bank (cardholder’s bank), and the payment processor.

Q: What are the fees associated with credit card processing?

Fees related to credit card processing commonly include transaction fees, interchange rates, PCI compliance fees, monthly minimum fees, statement fees, batch fees, next-day funding fees, as well as some one-time fees like setup and early termination charges.

Q: Can you talk about the different pricing models in credit card processing?

There are several pricing models such as Interchange-plus Pricing, Flat Rate Pricing, Tiered Rate Pricing, and Subscription-based Pricing. The choice of model can significantly alter the cost of processing credit card payments for a business.

Q: Could you explain the credit card payment process?

The process involves multiple stages, including the customer initiating a purchase, the card being authorized, the transaction being sent to the business’s bank, and finally, the funds being deposited into the merchant’s account.

Q: What security measures are essential in credit card processing?

Important security measures include adherence to PCI and EMV Compliance. PCI is a standard for protecting sensitive customer data, and EMV is a secure chip card technology that prevents information replication for unauthorized purchases.

Q: What is a ‘chargeback’ in the context of credit card processing?

A chargeback happens when a customer disputes a charge on their account. If the bank issues a chargeback for a lost or stolen card, it reverses the transaction, leaving the merchant responsible for the chargeback cost.

Q: What tools and technologies assist in credit card processing?

Some contemporary tools include online invoicing, EMV smart terminals, mobile payment solutions, online shopping carts, virtual terminals, Point-of-Sale systems, and APIs. These tools cater to various business needs.

Q: Can you name some renowned credit card processing companies?

Well-known companies offering credit card processing services include Stripe, Square, Stax, and PayPal. These companies offer distinct pricing models tailored to diverse business needs and sizes.

Q: What does ‘risk hold’ mean in credit card processing?

A risk hold is a precautionary measure initiated during sales outside the approved range set by the account’s underwriters. It’s done to ensure no fraudulent activity is taking place. Upon confirmation of the sale, the held funds are released, and the maximum transaction size may be re-evaluated.

Q: Why is credit card processing important for businesses today?

With digital payments taking precedence and cash transactions in the US dropping to less than 20% of all payments, it’s crucial for businesses to accommodate their customers’ preferences by implementing credit card processing.

Q: How can companies reduce the risk of chargebacks?

Companies can decrease the likelihood of chargebacks by following appropriate credit card processing procedures, using a reliable credit card processing company, having clear payment descriptions, providing excellent customer service, and understanding potential signs of fraudulent activities.

Q: What does it mean for a business to be PCI compliant?

PCI compliance refers to a business’s adherence to the Payment Card Industry Data Security Standard, a set of guidelines to safeguard sensitive consumer data. To achieve this, a business must complete a yearly questionnaire.