Everything You Need to Know About Credit Card Processing

Credit card processing can be overwhelming, expensive, and confusing. 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 key credit card processing companies providing payment processing services will help you reach a better understanding of credit card processing. You’ll learn some of the inside details about what defines a payment solutions provider, how processing works, the credit card processing fees, risks, and more.

Credit Card Processing: The Parties Involved

There are several parties involved when your customers swipe their card. 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.

The table below outlines some of the top credit card processing companies in the market, along with their rates and offerings. 


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


Learn More

The Payment Process

Whenever your customers use a credit card to make a payment, each of the mentioned parties above gets involved. Here’s a brief guide of 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 through a processing terminal 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 company sends 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.

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 fees and cents per transaction. Both of these are the only mandatory fees associated with credit card 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, cash back, 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 are never actually required in order to accept credit card payments.

Be aware of recurring fees such as:

Monthly minimum fees – These are fees charged by the provider if the number of transactions or transaction volume for that month doesn’t meet the credit card processor’s monthly minimum thresholds.

Statement fees – This typically pertains to the admin costs of maintaining your account. 

Batch fees – Some payment processors charge extra fees for batching the credit card transactions to be processed for that day. So instead of depositing funds for every single credit card payment, merchants will get the deposit in batches. 

Next day funding fees – You may also be charged extra if you need to receive your funds by the next day. 

Annual or monthly fees – These are miscellaneous fees on top of the payment processor’s other fees. 

IRS report fees – These are fees charged by payment processors for reporting your information to the Internal Revenue Service.

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.

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.

Related Content: Stax Voted Best Credit Card Processing Company 2020

Credit Card Processing: Pricing Models

The fees that you pay to process credit cards largely depend on the pricing model of your credit card processor. This section will tackle the common pricing models implemented by payment processors

Interchange-Plus Pricing or Percentage Markup

This pricing model is just how it sounds – providers will charge an additional percentage on top of the interchange 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 in markups you’ll have to pay.

Flat Rate

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 2.9% 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 .5% interchange – so 2.9% is a very significant markup.

Tiered Rate

By far one of the most expensive and least transparent of all pricing models, 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 fees for various and vague online credit card processing services.

These 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

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 fee.

There are a handful of other companies that use subscription-based pricing, but Stax is the only provider that can guarantee unlimited credit card 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.

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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 lack of connectivity between your data can be highly detrimental.

It’s much more efficient to use solutions that can generate invoices for you. Online invoicing systems automatically ensure that your invoice sequences are correct and that all items are tallied up properly. And when integrated with platforms like your payment processing or accounting software like Quickbooks, you’ll get more visibility into your business finances

EMV Smart Terminal

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 or card reader 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 payments like 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 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 or online payments solution couldn’t be easier, and typically involves a quick phone call with your provider to activate the payment gateway.

Point-of-Sale System

Point-of-sale systems are devices that are used to facilitate in-store sales so they are huge for restaurant and retail locations. These are integrated machines with a computer monitor, a cash register, and an online credit card processing solution. POS systems come in a wide variety of shapes and sizes. Some point of sale systems work on computers, while others can function on mobile devices like tablets and smartphones. Make sure you do your research and choose one with all of the right features for your unique business.

Virtual Terminal

A virtual terminal is a software application that enables you to accept credit cards even without the card being physically present. They’re typically used when taking credit card payments over the phone. Rather than using a physical card terminal, the merchant will input the customer’s payment information into the software.


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, 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 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 it 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 perfect credit card processing company for your business, we encourage you to let us help.

Contact Stax today to learn how our leading technology, award-winning customer success team, and subscription-style pricing model will level up your business.

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