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How Does Credit Card Processing Work?

How Does Credit Card Processing Work?


Credit card processing is a critical component of running a modern business that few merchants can do without.

Cash-only operations are still found here and there, but such a business model stifles its full potential.


Accepting Credit Cards


Not only do most Americans prefer to pay with a card for the added convenience and perks many credit card companies offer customers, but in the age of exponential digital expansion, only accepting cash payments cuts a business off from potential customers who might otherwise order their products or services online. 

For access to these opportunities, businesses must accept credit cards—and that means working with a credit card processor

What Is Credit Card Processing?

Credit card processing encompasses the multiple steps through which a payment made by a customer using a credit card is transferred to the business they purchased from. While the basic premise sounds fairly simple, the mechanics behind it all can oftentimes seem confusing.

This comprehensive guide to everything you need to know about credit card processing will help you navigate and better understand these phases and procedures, breaking down the fundamentals of accepting card payments, and outlining all the additional benefits inherent to working with a merchant services provider. 

The Benefits of Accepting Credit Cards

The Benefits of Accepting Credit CardsCredit card processing services carry an expense, but accepting credit cards yields a number of important benefits and doesn’t have to cost as much as one might think.

These days, more and more customers prefer to pay with a card, with fewer and fewer carrying cash on them at all. Cash may not require the use of a credit card processor, but relying on it as your only form of acceptable payment is extremely limiting—even more so than in previous decades. A major reason for this is the explosive growth of eCommerce.

Back in the day, when business clientele didn’t extend much farther than its immediate proximity, refusing credit cards might have had less disadvantages. Today, however, not accepting credit cards is essentially cutting your business off from an entire world of consumers. 

Therefore, when done with the right credit card processor, accepting credit cards actually becomes a major asset to a business.

How Do Businesses Start Accepting Credit Cards?

Doing this requires a bit more than going out and buying a cash register. 

Cash registers, point-of-sale (POS) systems, and even mobile devices all serve as the base equipment necessary to swiping credit cards. This hardware enables the entire process to function! (More on this later.) Actually extracting a payment from that card and transferring it to a business’s own account, though, takes more than simply buying a credit card machine. It requires specific processes supported by third-party vendors. 

One of the first decisions a business should make to begin the journey toward accepting credit cards is whether or not to open what’s called a merchant account.

What Is a Merchant Account?

A merchant account is an agreement between a business and merchant services company outlining the exact services available to the business, including credit card processing and additional resources. The terms of the account will detail the length of the agreement, price, and all other necessary components.

Services such as Square are simple vendors that enable users to swipe cards and process payments for a given rate without opening a merchant account. These are less expensive, but extremely limited in their capabilities, and offer little additional support to customers. 

Opening a merchant account with a payment processing company such as MerchantPro Express, on the other hand, introduces that business up to a suite of additional options to help optimize its operations, beyond just accepting a card payment. 


What is a merchant account?


While a service such as Square will only include payment processing services with basic functionality, creating a merchant account with a payment processor means a business can take advantage of additional services, including:

  • Acceptance of other types of cards
  • Inventory management
  • Chargeback management
  • Live customer support 

All of the above are necessary for streamlining a business, but would have been left for the merchant to figure out on their own if not for their merchant services provider.


Apply for a merchant account

The Three Key Elements

There are three key elements of credit card processing with a merchant account. 

Business owners should take interest in each when looking to obtain a merchant account, since they all play a role in the type of merchant services you will receive.

These include:

Merchant Acquirer
Merchant Acquirer

The company with whom you negotiate rates and sign a contract with for merchant services

Processing Platform
Processing Platform
The company with the infrastructure to process electronic payments to ensure you get paid for transactions you process

Funding Bank
Funding Bank

The bank guaranteeing payments to your account, so you can get paid long before your customers pay their credit card issuer

These three pieces need to fit together for credit card payments to be accepted. Merchants have a choice in the merchant acquirer that they decide to use, however. The difference comes down to whether or not that business would like to open a merchant account. 

What Does Credit Card Processing With a Merchant Services Provider Cost?

This is among the most common questions of business owners and managers exploring how to accept credit cards. The answer depends upon a number of factors, and differs, for every business. 

Credit card processing fees as a whole are a combination of those charged by the major entities mentioned above. 

These include:

  • Interchange Fee charged by credit card issuer
  • Assessment Fee charged by credit card network 
  • Fees charged by processor for their services

These fees aren’t the same for every business, either. They’re affected by dozens of factors specific to each operation, meaning every merchant account could have different terms. Some of the most common factors influencing a business’s total credit card processing cost include: 

  • The size of business
  • Frequency of card transactions
  • Average transaction value 
  • Where payments are collected (in person vs. remotely)
  • Credit card types accepted

Therefore, it’s important to find a credit card processing company willing to invest the time into carefully examining your business, to ensure they’re creating a processing solution that is unique and the best fit.

Finding the Best Credit Card Processing Company

Identifying the best credit card processing company can be difficult. With so many options out there, finding one with the right combination of competitive pricing, additional services, customer support, and more can feel like searching for a needle in a haystack. Securing the perfect match is all about doing your homework and asking the right questions. 




Some important questions to keep in mind:

  • What credit card types do you accept?
  • What processing platforms and funding banks do you work with?
  • What kind of fees do you charge?
  • Do you raise rates without notice?
  • How long will funds take to appear in my account?
  • Who can I contact with any future questions?

Remember: Every business is different! If you have questions or concerns specific to your business or industry, don’t be afraid to ask. If the company isn’t able to sufficiently address your inquiries within a timely manner, it might be a sign you should look elsewhere. 

Instant PDF Download – Case Study

Find out how one small business owner found the best credit card processing

Once you’ve enlisted the perfect credit card processor, you’ll also need to acquire a credit card machine. These come in all shapes and sizes, so it’s important to evaluate your options and choose the one best suited for your business. 

The right equipment will depend on the needs of your business and nature of your customers. One of the biggest considerations is whether or not you’ll need a stationary POS system, credit card terminal, or a combination of the two.


The difference is in mobility.

Mobile POS systemPOS systems are typically stationary, most similar to what many might simply call a cash register, though not exactly interchangeable. POS systems are larger and normally have more potential for additional features and attachments, such as cash drawers and receipt printers. Credit card terminals, on the other hand, are smaller, more lightweight and convenient for processing transactions on the go. A business does not simply have to choose one or the other, though! Many will have an in-store POS system for purchases at the counter, accompanied by mobile terminals to meet customers elsewhere. 


Be sure to pick the best options. 

A good POS system will:

  • Be easy to use
  • Accept a variety of payment methods
  • Have opportunities for customization
  • Have functions beyond payment acceptance
  • Offer live support


Similarly, there are several features no mobile credit card terminal should be without, including:

  • Robust security features
  • EMV chip reader
  • Lightweight design

Accepting Credit Cards and Cash Payments

Accepting credit cards doesn’t mean you cannot encourage cash payments.

Despite the dominance of card payments in shopping today, cash remains king, and carries with it a number of advantages for a business. These include a reduced risk of chargebacks, and an immediate access to funds. It’s also common for businesses to retain the option to accept card payments so as not to alienate a large market of potential customers, while also implementing methods to encourage customers to pay with cash. 


Accepting Cash Payments


One such option is to introduce a cash discount program into credit card processing services. 

Cash discount programs, such as MPX’s No Cost Processing, provide a simple solution that incentivizes customers to choose cash, and can even eliminate as much as 90% of total credit card processing costs for a business.

This is done by charging a flat service fee on any customer purchases equaling whatever percentage of the total would go to the credit card processor of the business. The equivalent of this service fee is then discounted from the total of customers paying with cash. Therefore, cash-paying customers are not affected by the service fee. Conversely, card-paying customers pay for their purchases, as well as the service fee, and do not receive an equivalent discount, essentially covering their own credit card processing costs. 

Unlike other methods of encouraging cash payments, such as surcharges, cash discount programs are legal in all 50 states—just as long as merchants implement them properly. Cash discount program stipulations include taking the proper steps to inform customers about the service fee before they make purchases. 

Closing Summary

Credit card processing is a necessary service all businesses should take advantage of—but this doesn’t mean finding the best provider at the best rate must be difficult. MerchantPro Express has been providing businesses first-rate credit card processing, merchant services, and POS solutions for more than a decade.

Our clients enjoy competitive rates, transparent communication, and best-in-class customer service. 

Request your personalized quote today to find out how MerchantPro Express can help your business save money on your processing. 


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