Credit Card Processing

Find quick and useful ways to start processing credit cards without the hassle of working with a big bank. Our dedicated account managers will help you with approval, underwriting, setup, and security so you can start processing cards in no time.

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What Is Credit Card Processing?

Credit card processing is the process that allows your customers to pay you via card payments. Specifically, it’s the series of events that happen between a customer swiping their debit or credit card and you receiving the payment in your business bank account. This process applies for cards accepted in-person, online, or over the phone.

To accept cards, you’ll need a credit card processor. There are many different types of credit card processors, but the three most common are banks, independent sales organizations (ISOs), and merchant service providers (MSPs). Merchant service providers (MSPs) typically have the most flexible requirements and the lowest rates and fees.

No matter what kind of business you run, you can process card payments smoothly when working with an experienced and recognized merchant service provider. We pick the tools and solutions that work for your business in order to run more efficiently, safely, and quickly.

mobile phone card reader and terminals for processing credit cards
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Select from a wide variety of solutions

To process credit cards, you'll need a merchant account. There are hundreds of options available when it comes to choosing a merchant service provider.

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Secure credit card processing

From EMV and PCI compliance to encryption, SSL's, and more, access the technology that helps you keep your business’ and customers’ information safe.

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Fraud & chargeback reduction

Feel secure knowing that various fraud prevention tools and chargeback reduction techniques are working 24/7 to let you take card payments with ease.

10 Perks of Processing Credit Cards with PaymentCloud

Deciding to process credit cards is a big step for your business and opens up a whole new world of possibilities. As a small business owner, find relief knowing you can access customers not only in your city, but across the world. Find out why business owners are choosing PaymentCloud:

  • Seamless Digital Payments
  • Digitally Trackable Transactions
  • Chargeback and Fraud Protection
  • Full PCI Compliance
  • Process Card Payments from Anywhere
  • Providing Convenient Options
  • Securely Encrypted Transactions
  • Simple Contactless Payments
  • Access to a Global Customer Base
  • Increased Customer Trust

How Does Credit Card Processing Work?

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Credit card processing is more intricate than it seems. To the cashier or customer, it appears the card is either approved or denied: the end. But it is far more complex than meets the eye.

Now that we’ve explored who is involved in processing a transaction, let’s walk through the process and discuss the roles each party plays.

Who are the Parties Involved?

Processing a credit card takes mere seconds, but there are several parties involved in the process.

The parties involved in credit card processing: you, your customer, processor, customer's bank, your bank, card brand
  1. Your Business (Merchant). The first and most obvious party involved is your business. You offer a product or service to your customers in exchange for their money. In this context, you’re a “merchant.”
  2. Your Customer (The Cardholder). The next party is your customer. They have a credit card or debit card they want to use to make the purchase. In this context, your customer is a “cardholder.”
  3. Your Credit Card Processor (Payment Processor). A credit card processor or payment processor is the party that routes the transactions by facilitating data transfer between you and your customer. They are the party you sign a contract with to set processing fees and agreements.
  4. Your Customer’s Bank (The Card Issuer). Your customer’s credit or debit card links to a bank account. This could be a large bank like Wells Fargo, Bank of America, or a small bank like a credit union. The bank that houses the account is known as the “card issuer” because they issued the credit or debit card to your customer.
  5. Your Bank (The Acquirer). A bank houses your business bank account. Once again, this could either be a large bank like Wells Fargo or a small bank like a credit union. The bank that houses your account is the “acquirer” or “acquiring bank.” An easy way to remember this is to think that it acquires the funds at the end of the transaction.
  6. Your Customer’s Card’s Brand (The Network/Association). The network or association, also known as the card brand, is the brand of your customer’s credit or debit card. Besides being hosted by a bank, Visa, MasterCard, Discover, or American Express sponsor your customer’s card.

Credit Card Processing for Small Business in 7 Steps

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Step 1: The customer initiates a transaction

The customer (the cardholder) swipes/taps/inserts their card to pay for a transaction at the business (the merchant) and starts the credit card payment process.

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Step 2: The merchant accepts the information

Next, the merchant accepts and collects the cardholder’s payment information in person, online, or over the phone.

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Step 3: The information is sent

The merchant either manually or automatically sends the funds directly to the payment processor via the processing equipment: online through a payment gateway, or keyed in through a virtual terminal.

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Step 4: The information is verified

The network sends the transaction information to the customer’s bank (the issuer). The issuer then verifies the bank’s records match the information provided and the cardholder has enough money in their account to proceed. The processor checks for any signs of fraud and runs a data security scan.

globe with hexagon icon representing a network

Step 5: The processor is notified

The issuer notifies the processor, who then sends an “approved” message if everything checks out. If the information is incomplete, inaccurate, or the available balance doesn’t cover the purchase, the processor is notified and sends a “declined” message.

This entire process, to this point, takes mere seconds.

Receiving an approval message only half completes the transaction. It’s enough to let the customer take their purchase out of the store, but the merchant hasn’t been paid yet. The customer sees an authorization (or a pending charge) on their bank statement. This process freezes the funds so they cannot be used.

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Step 6: The batch is closed

To get the money out of the customer’s bank account and into the merchant’s, the merchant must automatically or manually close the batch, or group of transactions. A merchant can close batches manually to include any number of transactions, or set them to close automatically in a given time period. Particularly, 24 hours is the common closing cycle for batches.

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Step 7: The money moves

Once the merchant has closed the batch, they’ve indicated to the processor that the transactions in the given batch are true, complete, and accurate.

That processor then routes the money over the network between the customer’s bank account (issuing bank) and the merchant’s (acquiring bank). The transaction is complete.

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Understanding Credit Card Processing Fees and Costs

Now you know who the parties are and how the steps work in processing a credit card transaction. Now, let’s talk about fees. We will touch on some of the more common fees below, but for an in depth breakdown, check out our complete guide on credit card processing fees.

Service Fees

Your monthly bill from your processor has these major categories:

merchant processing customer credit card with tap and pay terminal
  • Transaction fees. These fees correspond to individual transactions and make up the bulk of your total fees. These include any type of fixed percentage or flat amount charged on the transaction (including some interchange and retail fees under this type of charge). Examples include an authorization fee or a fixed percentage markup rate.
  • Recurring fees. These fees aren’t tied to individual transactions. For example, you may see monthly fees for things like PCI compliance, PCI non-compliance, account on file fees, statement fees, batch fees, etc.
  • One-time fees. One-time fees include setup fees, early termination fees, and chargeback or retrieval fees. A specific or unusual event triggers these fees.

Pricing Models

Payment Processors use several different pricing models to collect fees each month. As a result, your pricing structure and the complete cost you pay (anywhere from 2-4% on average) will vary. This depends on your business model, the inherent riskiness of your industry, credit card acceptance method, and more.

  1. Interchange Plus / Percentage Markup (or Cost +). Depending on the type of payment method used, the charge can vary (i.e., loyalty card, CNP, etc.). The interchange-plus pricing structure is the most transparent, which makes it the most confusing. Each party has its own fees for their involvement in the transaction. This pricing structure passes those wholesale fees to you, which can include any number of the 300+ possible interchange rates and dozens of association fees). It adds a small fixed percentage markup over cost that compensates your payment processor.
  2. Flat Rate. This pricing structure is the least transparent but easiest to understand. It bundles all the rates and fees you would pay into one easy-to-understand and predictable flat percentage each month. Flat rate pricing is the structure you’ll probably be most familiar with as it is the structure used by Stripe, Square , and PayPal.
  3. Tiered/(E)RR. The tiered pricing structure is similar to the flat rate pricing structure, but instead of one rate, there are a few. Your processor bundles the 300+ possible interchange rates into three ‘buckets’ (typically qualified, mid-qualified, and non-qualified) and charges you based on the transactions that fell into each bucket.
  4. Surcharge. This pricing structure passes the fees imposed from running the transaction to your customer. A surcharge program only applies to transactions that would incur processing fees. Surcharge programs can be confused with cash discounts, however, a surcharge is not a discount to your customers. Instead, a surcharge passes the buck from you to your customers, saving you money in processing fees.

Note : Payment service providers—such as Stripe, Square, and PayPal—only offer flat-rate pricing, which is not the most cost effective option for most businesses. At PaymentCloud, we examine every detail of your processing history to ensure you’re on the pricing plan most favorable for your particular business.

Types of Credit Card Processing Terminals

So what are your equipment options for processing credit card transactions? You connect to your payment processor through relevant credit card readers, so it’s an important consideration.

Your choice of equipment will depend on a few factors:

  • What your payment processor supports
  • Your needs as a business (are you operating in person or online? Do you need to take your equipment to your customer, or do they come to a register? Do you have other needs like inventory management? etc.)
  • The cost of the solution and future mobility (i.e., how much the solution will cost you in the long run)

POS Systems

POS system used for credit card processing

Point of Sale software systems (or POS solutions) are the gold standard in restaurants and retail locations. They handle credit card payment processing as a small part of their function. They can also help manage inventory and coordinate between the front and back of the house.

Not to mention, they’re perfect for collecting customer information for long-term retention. They come in many forms, so make sure to dig into your research on a POS system before purchasing. This will ensure it has all the features you need to run and scale your business.

Virtual Terminals

Virtual terminals are credit card payment processing software that run completely online. Because of this, you can access them by logging into a secure portal (or online payment interface) from any internet-connected device. A virtual terminal allows you to quickly process single (as well as recurring ) transactions directly through your portal. You are the one in control of entering the card data. This is most common with mail order, telephone order (MOTO) businesses.

Payment Gateway

This is often confused with a virtual terminal because they’re used interchangeably, but there are many key differences between virtual terminals and payment gateways.

A payment gateway provider such as attaches the technology that captures and sends encrypted transaction data from the customer to the acquirer to an online checkout page on a website. It verifies that the payment is not fraudulent and can even handle recurring billing, chargeback reduction, and PCI compliance.

Mobile/Wireless Terminals

mobile terminal used for processing credit cards

Mobile or wireless terminals have become increasingly popular in retail environments due to their ease-of-use and portability. Mobile is often used interchangeably to describe the app-based process where your smartphone becomes the terminal. To access, you log into an account from your device within an app.

It connects you to your processor to process transactions. These transactions have two options. You can either manually key them into the app or swipe/tap/dip them through physical hardware attached to your smartphone.

A wireless terminal is similar to a countertop terminal (the traditional machine you’ll still see on countertops), yet they are wireless and don’t require any cords. Wireless terminals operate via a rechargeable battery, so charging is easy. Secondly, they connect to the Internet through either WiFi or a 3G/4G subscription to process transactions. This process is similar to a traditional countertop terminal.


EMV is a credit or debit card with an embedded security chip. This technology replaced the magnetic stripe on the back of cards as a more secure alternative. Moreover, to reduce storing direct information on your device, EMV tokenizes (or encrypts) customers’ card data. Make sure to employ best practices when storing credit card information.

An EMV Terminal is a traditional countertop terminal (or credit card machine) that processes payments utilizing that chip.

Online Shopping Carts

customer shopping on phone while holding credit card

If you have or plan to start an eCommerce business , you’ll need an online shopping cart to make it run. An online shopping cart utilizes a virtual terminal on the backend to create a front-end store your customers can use to buy items. Because of this, it allows your customers to make purchases without your direct involvement.

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How to Choose a Credit Card Processor

You should now be familiar with how to accept credit card payments for your business. Next, let’s talk about how to find the right processor for your business. Choosing from the multitude of credit card processing companies is one of the most important choices you’ll make in growing your business.

While cost is important, it’s equally crucial to consider a credit card processing company. Consider who picks up the phone when you call with an issue and is compatible with your business and equipment needs. And most importantly, focus on keeping your business transactions secure.

Merchant Services

Your credit card processor is your merchant services provider. Accordingly, merchant services is a term that encompasses a wide range of business financial services. The most common of which is credit card processing.

It may also, depending on your business, include things like ACH (automated clearing house) transactions or electronic checks. Not to mention physical check processing, gift card, loyalty programs , etc.

Additional Services

Along with the merchant services offered by a credit card processor, there are more services they may offer. These include things like:

  • Merchant cash advances or loans
  • Payroll management
  • Inventory management
  • Accounting and invoicing services
  • Customer loyalty programs
  • Fraud prevention tools
business owner scanning inventory in warehouse


Many payment processors offer integrations with other service providers. Further, this ensures you have the most comprehensive solutions available to you. If there’s a service you need that your credit card processor doesn’t offer, check with them for any relevant integrations that they have available.

PCI Compliance

PCI Compliance (also known as PCI DSS compliance) is adherence to a set of comprehensive security standards set by the PCI Security Standards Council. They aim to reduce fraud and related costs for businesses around the globe utilizing credit card processing. Failing to meet these standards may come with exorbitant costs, so this is an important one.

You’ll want a credit card payment processor that is both compliant with these standards themselves as well as willing/able to help you certify your compliance.

Fraud and Risk Protection

Accepting credit cards does come with a set of risks that you need to consider. For example, a transaction completed fraudulently at your store without your due diligence is a risk. One that may result in your loss of both the merchandise/service and the money rendered for it. This is because cardholders have protection from fraud.

The true cardholder can dispute transactions with their bank and issue a chargeback. Indeed, this process is essentially a mini court case surrounding the transaction. Your business practices and the industry you operate in impact your rate of chargebacks. Industries or businesses that are considered high risk are more affected by chargebacks and fraud.

Having a merchant service provider who is looking out for your best interest is key. It will also help reduce your risks of fraud and chargebacks while doing business. It will save you time and money in the long run with credit card processing.

Our PCI-compliant payment gateways can be automated to effortlessly protect against fraud and mitigate the likelihood of chargebacks with integrations including:

  • CVV requirements
  • Velocity settings
  • Specified ticket parameters
  • IP velocity settings
  • Limited access to certain geographical locations
  • Chargeback detection
  • Analytics that pinpoint vulnerabilities

At PaymentCloud, we provide the best of both worlds by customizing payment channels to provide maximum security, reducing the risk of chargebacks and fraud without deterring legitimate sales.

Responsive Customer Support

No solution is perfect. Sometimes the power goes out, your terminal malfunctions or a point-of-sale system unexpectedly goes offline. Finding a payment processor that has responsive customer support when you need them will make all the difference.

Credit Card Processing: Closing Thoughts

Accepting credit cards is essential for your business. Therefore, we hope you feel empowered to sort through credit card processing companies to find the right partner for your business and understand it a bit better after reading through this complete guide to credit card processing.

Contact our team at PaymentCloud to discuss your business needs. In fact, we just might be the right solution for your business’ credit card payment processing needs.

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What Our Merchants Say

Serious merchants turn to PaymentCloud. With a proud average of 4.8 stars across all review sites, PaymentCloud is excelling in solutions and support. But don’t take our word for it! Here’s what our merchants have to say: