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The complete guide to credit card processing

Learn how credit card processing works, what the fees look like, and how you optimize payments online and in person.

October 31, 2022
 ·  6 minutes
Abstract illustration of credit card being processed

If you accept payments, you almost certainly process credit cards. But how much do you know about what happens once your customer hits ‘pay’?

In the following milliseconds, that payment passes through several systems. If it’s successful, your customer goes about their day. If it’s not, well ... you know how frustrating that is for everyone.

The more you know about your credit card processing, the more control you have over its outcome.

This article will walk you through a card payment process and explain how, with the right information and technology, you can increase your card approval rates, your conversions, and ultimately your revenue. 

What is credit card processing?

Credit card processing is the complicated information exchange and money movement that all happens when you make a payment.

Which parties are involved?

There are many different parties involved in credit card processing. Here's a quick summary of some you may be less familiar with:

  1. A payment gateway helps to initiate the payment, but isn't directly involved in the money flow

  2. A payment processor receives the information from a payment gateway and communicates between the credit card scheme, acquirer and issuer

  3. A credit card scheme is the brand of card (e.g. Mastercard, Visa) that sets the rules and provides the infrastructure for the customer's card

  4. The issuer is a bank that provided the customer with their card. This is sometimes also called the cardholder's bank.

How does credit card processing work?

Here’s a breakdown of how card processing works step-by-step:

  • The shopper enters the merchant's store or website and goes to pay.

  • They enter their details via the payment gateway (or checkout) and hit 'pay'.

  • The risk management system checks the transaction to ensure it’s not fraudulent.

  • The acquirer routes the transaction via the card schemes (Visa, Mastercard, Amex, etc.) to the customer’s bank and requests authorization.

  • The payment processor receives a response from the acquirer and either processes the payment or tells the merchant it was declined.

  • If the payment is authorized, the money is settled into the merchant's bank.

That’s a whole load of action, which should happen incredibly quickly. If it goes well, neither you nor your customer should notice it. But, as you can see, there are plenty of potential failure points along the way. This is especially the case if you have different providers taking care of each step. Systems don’t connect properly, or they time-out. The result: failed payments.

Credit card processing fees - who pays?

The merchant pays the credit card processing fees, not the consumer. For each step a card payment goes through, there's a charge. Here’s a breakdown of those fees:

  • Processing fee: Charged by your payment provider for processing the transaction

  • Card scheme fee: Charged by the card schemes for using their network

  • Interchange fee: Charged by the customer’s bank

  • Acquiring fee: Charged by the acquirer

These fees vary depending on the type of transaction, your location, and business model (to name but a few). It’s confusing, but it can have a significant impact on your bottom-line.

Interchange fees are usually the biggest expense when it comes to processing credit cards. They're also the biggest headache. The structure and fees vary for each market, as do types of cards (consumer debit, commercial debit, pre-paid, and so on). And they change all the time. Fortunately, there are ways to bring your interchange fees down:

Local acquiring

Just like mobile roaming fees, transactions are generally cheaper if processed locally. It’s better to use a local acquirer where possible because this is the only way to benefit from local regulations and incentivized fees.

Incentivized fees

Interchange fees vary from market to market. For example, in the US and Australia, Visa and Mastercard grant lower rates to specific businesses like charities, travel agents, streaming services, and utilities.

3 ways to optimize your online credit card processing

Getting your customer to the point of payment is an achievement in itself. A great checkout will make it easy for the customer to complete the payment, helping you close the sale. Here are some ways to ensure your online card processing runs as smoothly as possible:

1. Make your checkout easy to use

Speed your customer through the checkout process with these conversion optimizers:

  • Mobile-friendly, responsive design

  • Relevant choice of payment options, from cards, to ewallets and local payment methods if you’re selling overseas

  • No redirect: keep your customers on your site

  • Clearly displayed security logos

2. Block fraudsters, not customers

Risk management is both a science and an art. Set your defences too high and you’ll block legitimate customers; set them too low, and you’ll leave yourself vulnerable.

The answer lies in data. The more data points your risk manager has, the more accurate its response. With information such as IP, email address, phone number, and postcode, a risk engine can run a check across its platform, identify patterns, and stop fraud before it happens. So, the more data you can capture at the checkout, the better.

3. Ensure uninterrupted subscriptions

If you run a subscription service or process recurring payments, you’ll want these to go through every time. Here’s how to achieve unstoppable subscriptions:

  • Keep your cards-on-file up-to-date with automatic ‘account updater’ services that ensure card details are correct even in the case of lost or expired cards

  • Automatically retry transactions that failed for technical reasons within milliseconds

  • Fine-tune your billing strategy to take pay-day into consideration

3 ways to optimize your in-store credit card processing

If you’re accepting cards in store, or in-person, you’ll want to ensure the process is quick and easy. Long queues are a big turn off for shoppers and, in a world of social distancing, unnecessary interaction should be kept to a minimum. Here’s how to optimize your card processing in person:

1. Contactless

Tap-to-pay is standard these days, and, since everyone wants to keep their distance, you can take contactless one step further and let customers pay via self-service kiosks.

2. Digital wallets

Digital wallets are easy to use and secure. Apple Pay and Google Pay™️ have the added benefit of helping to blur the lines between online and point of sale transactions so your customer can move seamlessly between the two. Amazon Pay lets customers pay using information already stored in their Amazon account. In all cases, they remove the need for customers to go digging around in their purse.

3. Mobile point of sale (mPOS)

There’s a lot to be said for bringing the payment to the customer and not sending them off to join the back of a queue. Mobile point of sale (mPOS) terminals provide greater flexibility by letting you take payment from anywhere. Now, there’s a new generation of smartphone-style terminals that let you manage several POS functionalities from one device.

One global platform for credit card processing

When you’re setting up your card processing, you’ll need a payment gateway, an acquirer, a risk management tool, and a payment processor. If you’re selling in store as well, you’ll also need a POS terminal provider and in-store payments processor. If you’re operating in different regions, this set-up quickly duplicates.

With Adyen, you get all of this in one. One global payment platform for all your channels, regions, and payments processing. This not only streamlines your business but gives you a single view of your payments in one system. You can track your performance and get to know your customers better. You can also offer customers total flexibility since it won’t make any difference to you where, how, or when they choose to buy. It all goes to the same place.

Data-driven fraud defense and authorization rate optimization come as standard. You don’t need to be a payments whiz; these tools work automatically. We’ll dig into the data and suggest adjustments to your settings.

Whether you’re integrating via your ecommerce platform, using our drag-and-drop elements, or building your own payments experience with our API, we’ve got you covered. And there’s always someone on hand to offer guidance if needed. Every customer gets a ‘first 90 days’ set-up service to make sure you’re set up for success, and you’ll always have access to ongoing support.


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