Credit Card Processing
The system that enables businesses to accept credit card payments from customers.
Definition
Credit card processing is the system of networks, banks, and technology that enables merchants to accept credit card payments. When a customer pays by card, the transaction travels through the payment gateway, processor, card network (Visa, Mastercard), and issuing bank before funds are authorized and eventually settled to the merchant's account.
Processing involves multiple fees: interchange fees (paid to the issuing bank), assessment fees (paid to the card network), and processor markup. Total fees typically range from 1.5% to 3.5% depending on card type, transaction method, and business category.
Why It Matters
Accepting credit cards is essential for most businesses—customers expect the convenience. However, processing fees directly impact profit margins. Understanding fee structures helps you negotiate better rates and make informed decisions about which cards to accept.
For invoicing, offering credit card payment often accelerates collections despite the fees. The math often works: paying 2.5% in fees to get paid immediately beats waiting 60 days for a check.
Examples
- 1
A B2B service provider pays 2.9% + $0.30 per transaction for credit card payments on invoices, but gets paid 45 days faster than check-paying clients.
- 2
A merchant negotiates interchange-plus pricing, paying actual interchange rates plus a fixed markup, saving 0.5% compared to flat-rate pricing.
- 3
A business passes credit card fees to customers as a "convenience fee" for card payments while offering no-fee ACH as an alternative.
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