Card transactions represent more than 60% of overall U.S. consumer payments today, according to Federal Reserve Data. Accepting credit cards can significantly boost sales and improve customer satisfaction by offering convenience and flexibility. Understanding the essentials of card and electronic payment processing can help business owners navigate this critical aspect of their operations.

Understanding credit card and payment processing

What is payment processing?

Payment processing is the backbone of modern commerce. It is a series of steps that facilitates electronic transactions between buyers and sellers. This process allows the seller to receive the funds from the buyer for the goods or services provided. Key players include cardholders, merchants, issuing banks on a cardholder’s end of the transaction, acquiring banks on the merchants’ end, and payment   processors  as an intermediary. While payment processing is the end-to-end journey, the payment processor is the facilitator and works on behalf of the acquiring bank.

Key steps in the transaction process are:    

• Authorization—confirming that the purchaser has sufficient funds to complete the transaction.
• Authentication—verifying that the initiator of the transaction is the authorized accountholder. Some tools can pre-validate customer account data to help ensure payment security.
• Clearing—verifying a payment by confirming transaction details, analyzing for fraud and checking for compliance with legal requirements.
• Settlement—the final transfer of funds from the buyer’s account to the seller’s account, minus any processing fees.

Payment processing can encompass a wide range of methods, including credit cards, debit cards, electronic checks, mobile payments and digital wallets. Payment processing systems are designed to handle these payment types, integrating with different sales channels to offer flexibility to the businesses that use them.

Credit card processing

Card networks—like Visa, Mastercard, American Express, Discover, UnionPay and JCB—provide the communication infrastructure that issuing banks and businesses use to process credit card transactions.

The predominance of card payments in the consumer landscape underscores the importance of card processing in the payment world. 

While other payment methods are gaining popularity—including digital wallets like Apple Pay and Google Pay, bank transfers, and buy now, pay later (BNPL) services—credit cards remain a dominant force in the payment landscape.

Types of card and payment processing systems

Businesses have several options for processing credit card payments, including:    

• Point of sale (POS) systems: Ideal for brick-and-mortar businesses such as retail stores, restaurants and cafes, POS systems—including advanced payment devices—offer a comprehensive solution that integrates sales, inventory management and customer relationship management. They deliver a seamless checkout experience and are particularly suited to businesses that require detailed sales reporting and analytics.
• Mobile credit card readers and tap to pay devices: Suitable for businesses that operate on the go and service providers who visit clients at home, these easy-to-use portable devices allow businesses to accept card payments anywhere with a smartphone or tablet. They are cost-effective and provide flexibility for businesses that do not have a fixed location.
• Online payment gateways: Essential for any business that sells products or services online, online gateways are highly secure, enable businesses to accept payments from customers worldwide and often support multiple payment methods.
• Virtual terminals: Useful for businesses that need to process card payments by phone, virtual terminals allow businesses to manually enter card details to process payments without the need for a physical card reader.
• Merchant services: Suitable for businesses of all sizes that need a comprehensive payment processing solution, these comprehensive sets of payment processing resources benefit businesses seeking a one-stop solution to manage all aspects of payment processing.

Choosing a payment processor

Selecting the right payment processor involves considering factors like fees, contract terms, customer support, data and insights, security, and integration capabilities. Your payment processor should also have a deep understanding of network rules and regulations, as well as foresight to help you manage the ever-evolving payments landscape.

Payment processing fees

Low transaction rates may seem attractive, but don’t be blinded by them. Instead, familiarize yourself with the different types of fees, including transaction fees, monthly fees, chargeback fees and any additional service fees. Determine the effective rate by dividing the total fees by the total sales volume. (This will give you a clearer picture of the overall cost.) Pay particular attention to hidden fees such as setup fees and early termination fees. Choose a pricing model that aligns with your transaction volume and average ticket size.

International and cross-border payments

You should also consider your business’s needs when choosing a processor. If your business does international or cross-border transactions—or you plan to soon—you need to carefully consider the abilities of you processor. Major considerations when choosing an international payments processor include:

• Ability to handle and process multiple currencies
• Foreign transaction fees and exchange rates
• Robust security with international standards, as international transactions can be more susceptible to fraud
• A range of accepted payment methods that are popular in your target markets, as well as local payment options

Security and compliance

Different payment processors offer varying levels of security support and Payment Card Industry Data Security Standard (PCI DSS) compliance assistance. The PCI DSS requires all organizations handling cardholder data to maintain specific security protocols—from encryption standards to employee training. 

A processor’s approach to security affects both implementation costs and ongoing operations, particularly in how they handle fraud monitoring, chargeback management and compliance documentation. Some processors include these security features in base fees, while others treat them as premium features.

Setting up to accept card payments

Payment processor implementation involves several key technical and operational steps. After establishing your merchant account with a processor, select and integrate a payment gateway that matches your sales channels—whether in-store terminals, e-commerce platforms or both. Implementation requirements vary by processor and platform, affecting setup time and complexity. Most e-commerce platforms offer ready-to-use integrations with popular payment gateways, while custom implementations may require more developer resources.