If you run a business, chances are you accept credit cards as a form of payment. But do you know how credit card processing works?

In this guide, we'll go over everything you need to know about credit card processing, from the basics of how it works to the different types of fees involved. We'll also provide some tips on how you can save money on credit card processing fees.

So, let's get started!

What is Credit Card Processing?

Credit card processing is the process of taking a customer's credit card payment and turning it into cash that can be deposited into your business bank account. This process typically involves four steps:

  1. The customer makes a purchase with their credit card.
  2. The credit card processor (e.g. Square, PayPal, etc.) captures the customer's credit card information and submits it to the credit card network (e.g. Visa, Mastercard, etc.).
  3. The credit card network approves or declines the transaction.
  4. If the transaction is approved, the credit card processor deposits the funds into your business bank account.

Types of Credit Card Processing Fees

There are three main types of fees involved in credit card processing: interchange fees, assessment fees, and processor markups.

Interchange Fees

Interchange fees are the fees charged by the credit card network (e.g. Visa, Mastercard, etc.) for each transaction. These fees are typically a percentage of the total transaction amount, plus a fixed fee. For example, Visa's interchange fee for a retail transaction is 1.51% + $0.10.

Assessment Fees

Assessment fees are the fees charged by the credit card associations (e.g. Visa, Mastercard, etc.) for each transaction. These fees are typically a fixed fee and are assessed on top of the interchange fee. For example, Visa's assessment fee for a retail transaction is $0.11.

Processor Markups

Processor markups are the fees charged by the credit card processor (e.g. Square, PayPal, etc.) for each transaction. These fees are typically a percentage of the total transaction amount and are assessed on top of the interchange fee and assessment fee. For example, Square's markup fee for a retail transaction is 2.75%.

How to Save Money on Credit Card Processing Fees?

There are a few things you can do to save money on credit card processing fees:

  • Negotiate with your credit card processor.
  • Choose the right pricing model.
  • Use a flat-rate pricing model.
  • Use a tiered pricing model.
  • Use a bundled pricing model.
  • Shop around for the best rates.

Final Thoughts

We hope this guide has helped you better understand how credit card processing works and the different types of fees involved. If you have any questions, feel free to leave a comment below!