Credit cards are a staple in the wallets of consumers today, and they will undoubtedly be a payment method of choice for years to come, particularly as the adoption of mobile and contactless payments continues to grow.
In fact, ResearchAndMarkets.com forecasts the global credit card payment services market (fees, hardware, software) to grow to $762.16 billion by 2027—exhibiting a 7.8% compound annual growth rate over the next five years.
To give you some clarity, here’s a practical guide that answers the most common questions small business owners have about credit card processing.
What is credit card payment processing?
Credit card processing refers to the series of steps involved in facilitating transactions made using credit cards. The process begins from the moment the customer makes a card payment to the point when the transaction is authorized and settled. This can be done through a variety of channels, which include but are not limited to:
- Point-of-sale (POS) terminals
- Mobile POS terminals
- Mobile card readers
- Mobile apps
- Online payment gateways
These channels enable businesses to accept payments securely and conveniently, no matter where or how their customers choose to pay.
How do businesses accept credit cards?
Some businesses choose a traditional payment solution to accept credit card payments, while others go with an integrated payment platform.
For example, brick-and-mortar businesses, such as coffee shops, may choose to use a point-of-sale system (POS system) or hardwired credit card reader to accept card payments at the counter. Or they could use a mobile point-of-sale (mPOS) system or a smart terminal if they prefer to collect payments at the table.
Mobile card readers (dongles) are particularly suited for merchants that sell their products at farmers’ markets, fairs, trade shows, etc., as well as mobile businesses like dog groomers, food trucks, plumbers, etc.
Other businesses may consider a more feature-rich platform to account for the integration of a variety of online and in-store payments into a single payment platform.
Different types of businesses require various solutions, ranging from mobile device options to the ability to accept credit card payments online.
Credit card payments are not limited to one channel
Credit card transactions take place across multiple channels and thus require different payment devices and solutions. Consider the following:
POS systems – POS terminals are present in brick-and-mortar stores and are used to take payments in-store.
Mobile solutions are becoming increasingly popular with popups, service professionals, and doorstep delivery services, as they enable easy payment methods such as tap-to-pay and contactless in addition to more traditional methods like swiping and dipping the card. Essentially, swiping, dipping, and tapping are the three ways that customers can make in-person payments with a credit or debit card.
Swiping, of course, is the oldest of the three methods and is used with a card that has a magnetic stripe (or magstripe) on it. Both dipping and tapping require an EMV chip card that generates a unique one-time code for every transaction. That adds an extra layer of security. In tap-to-pay transactions, EMV combines with another technology called NFC (near-field communications) that makes it possible for the card terminal to read credit card information from contactless cards.
Mobile solutions – Mobile solutions can come in the form of mobile POS systems or card readers that enable you to take payments using your smartphone or tablet.
Field service professionals often use these solutions to accept credit card payments directly into their app accounts. They are also used by businesses that accept credit card payments via methods such as QR codes, which are unique to each merchant account.
Payment gateways – Payment gateways are used by ecommerce stores and apps. These solutions require customers to process their credit card payments by manually entering their 16-digit number, expiration date, and CVV code.
Entities involved in credit card processing
As for who’s involved in credit card transactions, here are the key parties and the roles they play in the process.
1. The merchant
This is you or your business. You are also given a merchant account where your processed payments are deposited.
The “merchant,” in short, is the business that accepts card payments from customers in exchange for their products or services.
2. The customer
Put simply, this refers to the cardholder who uses their debit or credit card to pay for the products or services.
3. Acquiring bank / merchant services provider
This is the financial institution or service provider (like Stax) that contracts with the merchant, accepts the payment from the issuing bank, and deposits it into the business account. They are often used synonymously with the payment processor. For more context, the payment processor handles the technical flow, while the acquiring bank is the financial institution providing the contract. Their roles are inseparable in practice.
4. The issuing bank
This is the cardholder’s bank or the financial institution that issued their credit or debit card.
5. Credit card associations
This is the card network or card brand that powers the credit card for the cardholder. Think: Visa, Mastercard, American Express, and Discover.
The role of credit card associations in payment processing
All major credit cards are connected to card associations in some way. Each association has its own interchange fee, so knowing what these fees are and how they are handled by your merchant service provider will help ease any potential confusion.
This component is a core part of your overall transaction fees, and you will see this as a part of your processing fees.
Some providers will even allow you to “turn off” acceptance for American Express or Discover, allowing you to simply accept Visa and Mastercard, as their interchange rates are typically lower.
This can be beneficial if you find out over time that your customers are not really using either of those associations for payment, and you want to save on those fees.
Keep in mind that while these are the most widely used payment card networks, they are not the only networks that you can encounter or use as a small business to accept credit card payments on behalf of your customers.
You need an acquiring bank or merchant service provider
Apart from credit card associations, the other key parties involved in processing these payments are a merchant services provider and an acquiring bank.
The acquiring bank is a financial institution that accepts the payment and deposits into the business account. Further, they can play the role of the payments processor, making them a critical part of the transaction.
How are credit card payments processed?
When a card is present, a customer can tap, dip, or swipe the card against a POS terminal. For scenarios where the card isn’t present, its details can be used to perform contactless credit card payments via online or digital payment gateways.
Through your acquiring bank or your payment solutions provider, you can use these methods to send the payment information to the credit card network.
The credit card network receives the information, verifies it, and then sends you its approval. When the transaction goes through, you can know right away and deliver your customers the products or services they have purchased.
Traditional vs. integrated payment systems
In a traditional POS method of credit card processing, the process looks something like this:
- Create a new sale in POS and scan the item.
- Choose the payment method your customer would like to use (debit, credit, gift card, etc.).
- The amount often had to be manually keyed into the separate terminal (for older systems) or was pushed via a direct connection. This manual entry created room for “keying errors” and reconciliation mistakes.You can skip this step if you’re using an integrated payments provider. Integrated payment systems would automatically flow from the POS to the credit card terminal.
- Start the process of authorizing and accepting credit card payments from the merchant services provider/acquiring bank.
- If the transaction is approved, retrieve the terminal and print receipts.
- Go back to the POS, manually mark the purchase as paid, and complete the checkout process.
If the merchant is using an integrated payments platform, the transaction amount is automatically pushed to the terminal instead of being manually entered. It is also automatically reconciled and marked as paid once payment has been processed.
As such, integrated payment solutions combine payment processing systems with feature-rich technology that helps automate the payments process. By using integrated payment services, you cut through the redundant work required by traditional payment systems.
That’s why most business owners now prefer using integrated payment solutions as opposed to traditional payment systems.
Apart from making credit card payment processing easier, integrated payment solutions also bring other benefits to the table.
If you use multi-channel payments, then integrated payment solutions also help you manage your transactions from different avenues. For instance, if you have multiple stores or if you sell your services at a storefront as well as online, then you can see all your transactions in one place.
What are the costs of credit card processing?
Before you sign up with a merchant solutions provider, it is essential to be mindful of the costs. Know that while some charges are set in stone, certain fees are variable and might even be negotiable.
While some merchant account providers charge you a separate fee to pay for credit card networks, others do not require you to do so. Some merchant service providers may ask you for a higher setup fee for your credit card readers, while others may offer their equipment at a lower price.
The charges for processing credit card payments depend upon the merchant services provider. It is best to shop around and compare fees, as well as services, before you sign up with a provider. This way, you can make sure that you are getting the best deal for your business.
It also helps to understand the pricing structure of different payment processors. These pricing structures include:
Tiered pricing. With this pricing method, the payment processor places transactions into three tiers: qualified, mid-qualified, and non-qualified.
How a transaction is categorized is based on factors like what card was used or where the transaction took place. Premium credit cards, such as travel and reward cards, are usually placed into the non-qualified tier, which incurs higher payment processing fees.
Meanwhile, transactions that involve debit cards and basic credit cards are usually placed in the qualified tier and get lower rates.
The tiered pricing structure lacks transparency because the processor has discretion over how transactions are categorized into their predetermined tiers, often pushing lower-cost cards into a higher-cost category.
As a result, this structure makes tiered models the least transparent. It’s difficult to figure out how much you’re actually paying, given that the processor doesn’t disclose their methods for how transactions are qualified.
Interchange-plus pricing. With this pricing structure, the payment processor separates the interchange fees for processing payment. Your payment processor adds a markup to the cost of interchange (and assessment), which is clearly indicated in your statements.
Interchange-plus pricing is a much more transparent pricing structure, as it enables you to see how much of your fees are paid to credit card networks/banks and how much goes to your processor.
Flat rate pricing. Sometimes referred to as blended pricing, companies that implement a flat rate structure charge you one easy-to-understand rate for credit card processing.
This pricing method blends the interchange rate and the processor’s markup into one competitive fee. Your processor will charge you a flat percentage for every card transaction—regardless of its type.
While it’s easy to understand, you may end up paying a lot more for transactions that typically cost less to process, such as debit card transactions.
Subscription pricing. Payment processors that implement membership pricing give you access to direct interchange rates. The fixed subscription fee is based on your processing volume tier, but instead of adding a percent markup to each transaction, you’re simply charged a flat monthly fee.
This often turns out to be more cost-effective in the long run as your business scales and you process more (including being able to directly benefit from Level 2 and Level 3 interchange rates).
Stax is one example of a provider that implements subscription pricing.
A note on payment processing fees
When determining the right merchant services provider, look beyond their payment processing fees. Some companies charge additional costs on top of processing expenses, so be sure to ask about any extra fees you may encounter.
Here are some of the most popular fees or costs that you will see during the process.
- Setup fees
- Admin fees
- PCI compliance fees
- Interchange fees
It is also prudent to remember that while not all merchant account providers charge you the same amount, most of them charge you for each transaction they process. Some of these fees are industry standard, but the actual fee varies on a case-by-case basis.
Step-by-step checklist to start accepting credit cards
Here’s a detailed roadmap to help you accept payments confidently:
1. Research payment providers
Start by identifying payment processors that align with your business model, customer base, and tech infrastructure. Look at:
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- Pricing models: flat-rate, interchange-plus, tiered, subscription
- Fees: monthly fees, chargeback costs, setup costs
- Time-to-funding: the speed at which funds are settled into your bank account
- Ease of setup: user-friendly set-up with readily available reference tools
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- Contract terms: length, cancellation policies
- Supported platforms: POS, ecommerce, mobile, omnichannel
- Customer support: 24/7 availability, live chat, account management
- Integration capabilities: your website, app, or POS
- Positive reviews: check Trustpilot, Capterra, etc.
Create a shortlist and schedule demos to get a feel for the interface and responsiveness of each provider. Moreover, be sure to compare features and tools like: integrated payments with your POS, ecommerce, and CRM tools, AVS (address verification system) for CNP security, virtual terminal access for remote sales, etc.
2. Apply for a merchant account
To accept credit card payments, you’ll need either:
- A traditional merchant account through a bank or processor, or
- An aggregator account which could be faster, but with less control.
Be ready to provide:
- Business license or registration documents
- Federal Tax ID (EIN)
- Business bank account details
- Owner/partner identification
- Sales history or projected revenue (especially for higher-risk businesses)
Note: High-risk industries may face stricter underwriting or higher fees.
3. Set up your hardware and software
Your setup depends on how and where you sell:
- In-person: Order and install POS systems, card readers, and terminals (contactless and EMV chip readers recommended)
- Online: Install your payment gateway, configure checkout pages, and test API/webhook integrations
- Mobile: Set up mobile readers or tap-to-pay solutions that pair with smartphones or tablets
4. Configure your payment settings
Fine-tune your pricing strategy, including compliant surcharging or non-cash adjustment settings, to ensure accurate cost recovery. Be mindful of:
- Tax configurations based on local/state laws
- Receipt settings (email, SMS, printed)
- Tipping options for service businesses
- Refund and return policies
- User permissions and roles for your staff
- Notifications for payments, disputes, or failed transactions
5. Train your team
If you have a team, invest time in training them on:
- How to run transactions, process refunds, and print/send receipts
- What to do in case of a declined card or chargeback
- How to recognize and prevent suspicious transactions
- Basic hardware troubleshooting (e.g., connectivity issues, printer jams)
A well-trained staff can reduce costly errors and improve the customer experience.
6. Go live and monitor performance
Once everything’s tested and your team is ready, launch your payment system and start processing. Keep an eye on:
- Transaction reports and cash flow
- Refunds and chargebacks
- Payment failures or declines
- Customer feedback on checkout experience
Use your dashboard or reporting tools to identify trends, adjust settings, and improve operations over time.
How to start accepting credit card payments
Thankfully, advancements in the payments sector allow business owners to easily obtain the required services for processing credit card payments. At Stax, we offer an array of credit card payment processing services to help you take your business to the next level. Through Stax’s integrated payment solutions, we can help you run and grow your business..
Stax offers a superior customer experience due to our dedicated success and support teams, flexibility, and advanced processes and systems. Our transparent pricing options, including the subscription-based model, eliminate percentage markups and the cost anxiety of tiered pricing, ensuring cost visibility and informed decision-making. We provide advanced, unified solutions (CNP, mobile, and in-person) that grow with your business.
Reach out to Stax for a consultation today.
Quick FAQs about accepting credit card payments
Q: What is credit card payment processing?
Credit card payment processing refers to the series of steps involved in facilitating transactions made using credit cards. It begins from the moment the customer makes a card payment to the point when the transaction is authorized and settled. This can be done through various channels.
Q: How do businesses accept credit card payments?
Businesses can accept credit card payments either through a traditional payment solution or an integrated payment platform. They could use a point-of-sale (POS) system, hardwired credit card reader, or a mobile credit card terminal depending on their preference and business model.
Q: What are the key parties involved in processing a credit card transaction?
The key parties involved in processing a credit card transaction are the merchant, customer, acquiring bank, issuing bank, credit card associations, and payment processor.
Q: What are the costs of credit card processing?
Costs of credit card processing are not standardized and depend upon the merchant services provider. They could include setup fees, admin fees, PCI compliance fees, and interchange fees. The pricing structures could be tiered pricing, interchange-plus pricing, flat rate pricing, or membership pricing.
Q: How can a business start accepting credit card payments?
A business can start accepting credit card payments by choosing between a traditional or integrated payment platform. It is also straightforward to obtain online payment solutions or mobile payment solutions from a reliable provider that offers these services.
Q: What is the role of credit card associations in payment processing?
Credit card associations, such as Visa and MasterCard, power the credit cards for the cardholder. Each association has its own interchange fee, which forms a core part of your overall transaction fees and is included in your processing fees.
Q: What is an acquiring bank or merchant service provider?
An acquiring bank or merchant service provider is a financial institution that accepts the payment and deposits it into the business account. They also play the role of the payment processor, making them a critical part of the transaction.
Q: What is the difference between traditional and integrated payment systems?
In a traditional POS method of credit card processing, the transaction amount needs to be manually inputted into the terminal. In an integrated payment system, the transaction amount is automatically pushed to the terminal. Integrated payment solutions also bring other benefits, such as managing transactions from different avenues and automating the payments process.
Q: What is the impact of credit card payments on business growth?
If a business refrains from accepting credit cards as a mode of payment, it can have detrimental effects on the business’s growth. With 81% of Americans owning at least one card, credit card purchase volumes have significantly increased over the last decade, making credit card payments a crucial part of any business.
