Everything You Need to Know About Credit Card Processing (2021)

I’ll be the first to admit, credit card processing can be overwhelming, expensive, and confusing. It gets a bad reputation as that “necessary evil” for your business, but it doesn’t have to be all that bad. The first step to creating a more positive payment processing experience is to gain a better understanding of exactly what’s going on, what you’re being charged for, and what your options look like.

If you’re in a hurry to get to the bottom of it, you can watch the video below on unnecessary fees or head over to this article on the key credit card processing companies providing payment processing services. Stick around, though, and you’ll learn about the players, the process, the credit card processing fees, the risks, and everything in between.


Credit Card Processing: The Parties Involved

There are a number of parties that jump into action when your customer swipes their card.

Merchant: The business owner who is accepting the payment and is in need of credit card processing.

Cardholder: The customer who owns the credit card being used for purchase.

Card Association: VISA, Mastercard, American Express, and Discover. These are not banks, but rather governing bodies that set interchange rates, arbitrate between acquiring and issuing banks and maintain and improve their networks.

Acquiring Bank: The merchant’s bank. They hold the merchant’s funds and acquire the money from a sale. In this context, they accept the funds from the sale once a card is authorized and deposit them into the merchant’s bank account.

Issuing Bank: The cardholder’s bank. They issue cards to consumers and are a part of card associations. Issuing banks pay acquiring banks for the purchases their cardholders make. The cardholder then has the responsibility to pay back that amount in accordance with their credit card agreement.

Payment Processor: The credit card processing company handles the processing and batching of purchases made with credit, debit, or gift card payments. They typically assist with technology needs and customer service as well, acting as middle-men to the card associations and banks.

Contract RequiredNoNoNoNoYes
Early Termination FeesNoNoNoNoYes
Card Present Processing Pricing$99/month
+ 8¢ per transaction
+ interchange
2.9% + 30¢ per transaction
(includes interchange)
2.6% + 10¢ per transaction
(includes interchange)
2.7% per transaction;
3.5% + 15¢ for
key-in and scanned cards
1.8-3.5% per transaction
+15-30¢ per transaction
 Card-Not-Present Processing Pricing$99/month
+ 15¢ per transaction
+ interchange.
2.9% + 30¢ per transaction
(includes interchange)
3.5% + 15¢ per transaction
(includes interchange)
2.9% + 30¢ per transaction
(includes interchange)
1.8-3.5% per transaction
+20-30¢ per transaction

The Payment Process

Whenever one of your customers uses a credit card to make a payment, each of the above parties is involved. Here’s a quick breakdown of the payment process and where each party plays a role.

Step 1: The customer purchases an item with a credit card.

Step 2: The credit card is swiped through a processing terminal and that terminal recognizes the card and contacts the credit card processing company.

Step 3: The card is authorized.

Step 4: The credit card processing company sends the payment to the merchant’s bank through a certified merchant services provider. *

Step 5: The merchant’s bank deposits the payment into the merchant’s bank account.

Step 6: At the end of the month, the statement is sent to the merchant that details the interchange for all transactions that month – which is the fee set by credit card companies for merchants to accept their cards as payment.

Credit Card Processing Service Fees

Now that we have a pretty good understanding of the parties involved and how they all work together, we can take a look at what types of fees can be associated with a transaction. These vary based on your merchant services provider, so pay attention to your monthly bill to ensure you aren’t overpaying for your credit card processing.

Transactional Fees

These are fees that are associated with each transaction you run. They can be broken down into interchange and cents per transaction. Both of these are the only mandatory fees associated with credit card processing since they are set by the credit card companies themselves. You are essentially paying Visa, Mastercard, Amex, and Discover for the ability to accept their cards.

Interchange rates vary based on the type of card you are running. The more expensive it is for the credit card company to maintain the card – rewards, cash back, perks – the more expensive the interchange. This means that debit cards are typically the lowest and business credit cards are typically the most expensive.

Recurring Fees

On top of interchange, a lot of providers like to make an extra profit by charging merchants fees for anything under the sun. These are typically seen on your monthly statement, time and again, and are never actually required in order to accept credit card payments.

Keep an eye out for monthly minimum fees, statement fees, batch fees, next day funding fees, annual fees, IRS report fees, and others on your statement each month.

One-Off Fees

Believe it or not, there are even more fees that can be triggered by individual actions. These can include terminal fees, early termination fees, setup fees, reprogramming fees, PCI compliance fees, address verification fees, chargeback and retrieval fees, and payment gateway fees.

Needless to say, there are a number of things you need to keep an eye out for on your credit card processing statement every month. Merchant services providers make huge profits off of the fact that most merchants aren’t even aware of what they’re paying and why. With Fattmerchant, your payment processing statement is simple. All you pay is a monthly membership in exchange for the direct cost of interchange and cents per transaction. We take pride in never adding hidden charges or online credit card processing fees just for the sake of profit.

Read on to the next section to learn more about pricing models and how merchants typically save around 40% on Fattmerchant’s innovative subscription-based system.

Credit Card Processing: Pricing Models

Percentage Markup

This pricing model is just how it sounds – providers will charge an additional percentage on top of interchange for each transaction run. Since interchange varies based on card type, there is no good way to predict what you’ll be paying each month with this pricing model. The more you process, the more in markups you’ll have to pay.

Flat Rate

Flat rate is a variation on percentage markup models. Instead of charging a percentage extra on top of the interchange (which means each card’s final cost will be different), flat-rate models make each card the same percentage. The most popular example of this is Square. No matter what card is being used, you’ll always pay 2.9% with Square. This might seem like a good system at first, but the more you process, the more expensive it gets. This is especially true if you process a lot of cards with low interchange rates, like debit cards. These cards average around .5% interchange – so 2.9% is a very significant markup.

Tiered Rate

By far one of the most expensive pricing models, tiered rates put different cards in different tiers and charge based on those qualifications. The important thing to remember with this model is that the tiers are arbitrary and determined by the provider. They can take a look at the most popular card types, and then make sure they are in the most expensive tier or tack on extra fees for various and vague online credit card processing services.

These models are rarely questioned since merchants often believe there is some sort of reasoning behind the groupings. Since there isn’t, it pays to have a frank conversation with your provider if you see any terms like “qualified”, “mid-qualified” or “non-qualified” on your statement.

Simple Flat Rate Subscription

Our bread and butter, subscription-based pricing models are very often the best choice for merchants. A monthly membership is paid in exchange for the direct cost of interchange. This means that no matter how much you process, you only ever have to worry about the direct cost of the cards you’ve processed and a flat membership.

There are a handful of other companies that use subscription-based pricing, but Fattmerchant is the only provider that can guarantee unlimited credit card processing with absolutely no hidden fees.

Talk with one of our payment consultants today and we’ll tell you what pricing model you’re currently on, and how we can help save you money!

Payment Processing Technology

Every business is unique, especially when it comes to accepting payments. The technology that you use to run your business is vital to your success, so it pays to really understand your needs and get the best payment technology solution possible.

Online Invoicing

Invoices are an essential part of billing for a large number of businesses. Many business owners still rely on very manual processes in order to create invoices, like templates in Excel. While this might seem like a cost-effective solution, the time wasted in creating your invoices and lack of connectivity between your data can be highly detrimental.

EMV Smart Terminal

Physical credit card processing terminals are great for businesses with brick and mortar locations. If your customers are physically coming to you and swiping (or dipping) their cards, this is the solution for you. An important thing to remember is to make sure whatever machine you decide to purchase comes with full EMV and NFC technology-enabled. This means you’ll be able to accept chip cards as well as contactless payments like Apple Pay.

Mobile Payment Solutions

Perfect for the on-the-go business owner, mobile payment technology can be a game-changer for your business. Some businesses can get by with just a mobile solution, but a large majority use their mobile card swipers and apps for trade shows and field reps to be able to take payments on the spot.

Online Shopping Cart

Online shopping carts are powered by payment gateways and are essential for any eCommerce business. Even if you operate a mainly brick-and-mortar location, having an online store is a great way to reach more people and get your product out there! Processing payments through an online shopping cart couldn’t be easier, and typically involves a quick phone call with your provider to activate the payment gateway.


Point-of-Sale solutions are huge for restaurant and retail locations. These are large, integrated machines with a computer monitor, cash register, and an online credit card processing solution. POS’s come in a wide variety of shapes and sizes, so make sure you do your research and choose one with all of the right features for your unique business.


If you’re needing a very specific payment solution for your website or app, a payment processing API is probably the way to go. Some merchant services providers offer their API technology to developers to integrate into their proprietary applications, making it the perfect online credit card processing solution for companies needing something a little more customizable.

Security & Compliance

Accepting credit cards means you’re responsible for the proper handling of your customer’s sensitive information. There are two major ways merchants can make sure they stay secure and compliant with industry standards – PCI and EMV compliance. Read on to learn what each of these means and how your business can stay compliant.

PCI Compliance

PCI, which stands for Payment Card Industry, is a set of standards put in place to protect the sensitive information of consumers and ensure proper security measures are being taken at establishments that accept credit cards. To become PCI compliant, you must complete a short questionnaire once a year.

If you are not PCI compliant, you run the risk of being charged a PCI non-compliance fee from the credit card companies themselves. This is not a fee associated with your merchant processor, which is an important distinction to make. Fattmerchant helps ensure all of our members are compliant within the first 60 days of membership with us, helping you avoid that fee and keep your information safe.

EMV Compliance

As I’m sure most business owners are aware by now, EMV is the chip card technology that has been rolling out across the USA over the past few years. This change has been taking place due to the considerable security improvements that the chip technology provides. Magnetic stripes store information statically on the card – meaning that the information can be “copied” from the card by scammers.

Chips uniquely encrypt the card information each time it is used. This means that “skimmer” technology cannot pull your sensitive information from the card and use it to make unauthorized purchases.

EMV technology has gotten some pushback since its rollout in 2015, with business owners citing longer checkout times and frustrated customers. Improvements are being made continuously to improve the speed of the transactions, plus the added security is worth the few extra seconds at the checkout counter. To avoid frustration, make sure your staff is trained on chip technology so that your customers don’t accidentally take out their card too soon or insert the card incorrectly into the machine.

As of October 2015, all businesses that accepted credit cards were required to be able to accept chip cards as well. If you’re still not EMV-compliant at your business, you run the risk of being liable for any fraudulent activity. Before the EMV shift, that risk was put on the banks. Now, if you’re not accepting chip cards, the risk is on you as the business owner.

The only way to truly avoid that risk is to have EMV compliant payment technology. Fattmerchant offers a full line of compliant terminals and can integrate with thousands more – we’d be happy to find you the perfect machine to help keep you compliant as well as efficient in your payment process.

Chargebacks and Risk Holds

No one likes it when things don’t go according to plan, especially when it comes to your business’s finances. That’s why it’s so important to understand the possibilities and what to do in case of a chargeback or risk hold. Step one in both cases is not to panic. Read on for more specifics.


Chargebacks were created in order to protect consumers from fraudulent activity. They occur when a consumer disputes a certain charge to their account. If a chargeback is issued for a lost or stolen card, the bank will issue a reversal of funds. This means that your business is responsible for the cost of the chargeback.

If your business is not EMV compliant, meaning you do not have a chip reader, you’ll be held responsible for all chargeback liability. If you are EMV compliant, that liability typically falls on the cardholder.

Once you receive notice of a chargeback, it is important to remember that the process can take weeks to complete – during which time the funds from the transaction are held by the bank. The bank will typically ask for proof of purchase from the merchant and use this proof to make an ultimate ruling on the chargeback.

Here are some ways to avoid chargebacks at your business, or at the very least, avoid excessive penalties from chargebacks:

  • Follow proper credit card processing procedures.
  • Make sure to use an online credit card processing company with strong security standards and clear payment descriptors.
  • If your business provides a service rather than a product, it’s always a good idea to have a contract in place that details exactly what the payment is for, minimizing the risk of confusion over delivery and payment.
  • Always provide exceptional customer service and encourage your customers to try and resolve any issues with you directly before escalating it to the banks.
  • Train your employees to look for signs of fraudulent activity at your business to try and prevent chargebacks before they happen.

Risk Holds

A risk holds is a routine procedure that most merchants experience within the first few weeks of processing with a new merchant services account. It might sound scary, but they are put in place to ensure that fraudulent activity is not being conducted – ultimately protecting you and your customers.

When you sign up for a new merchant services account, your provider will typically ask what your average ticket size is, as well as your highest possible ticket size. Your account will then be approved by the underwriters for a certain amount of money per transaction based on your business type, processing history, and ticket size.

If you process sales that are outside of that approved range, the underwriters will issue a risk hold. This means the funds from the transaction are held until proper documentation can be provided for the sale. Once the sale is confirmed, the funds are released and your merchant services provider will work to re-establish your maximum ticket size with the risk department if necessary in order to avoid a repeat occurrence. In order to try and minimize the risk of this happening at your business, it is very important to be as accurate as possible on your merchant services application.

That’s It!

Congratulations on making it to the end and learning more about credit card processing! As you continue to learn and search for the perfect credit card processing company for your business, I encourage you to let us help! Contact Fattmerchant today to learn how our leading technology, award-winning customer service, and money-saving subscription model will bring your business to the next level!

2 Responses

  1. Thanks for pointing out that online shopping carts can also be something that can be managed with credit card processing. I might consider looking into that because I’ve been planning with my best friend to open a fashion boutique someday. If the pandemic doesn’t get any better soon it would be best to try to find ways to be able to sell our products online.

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