The complete guide to credit card processing

Credit card processing is how businesses handle payments made with credit cards. When a customer swipes, inserts, or taps their credit card to make a purchase, the transaction goes through several steps to ensure the payment is approved and transferred from the customer's account to the business's account. Effectively, it is the same as payment processing, but involves the buyer paying with a credit card online, in-person, or through a virtual terminal like Pay by link.  

Processing time takes a few seconds, but it’s still complex and involves many different parties including:

• Cardholder

• Business

• Payment gateway: helps to initiate the payment, but isn't directly involved in the money flow

• Processor: receives the information from a payment gateway and communicates between the credit card scheme, acquirer and issuer

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

• Issuer: is a bank that provided the customer with their card. This is sometimes also called the cardholder's bank

• Acquirer: is the bank that partners with the enterprise to process credit card transactions. The acquirer receives transaction information from the business and communicates with the issuer to obtain authorization.

1. After initiating a credit card payment, the business sends the cardholder's details to the payment gateway.

2. The gateway transforms the information in adherence to proprietary standards and shares it with the credit card processor.

3. The card processor shares the information with the card scheme, which shares it with the customer's bank, which performs several checks, e.g., to find out whether there are enough funds in the account.

4. Based on the outcome of the checks, the customer's bank tells the card network whether the transaction is approved or declined.

5. The card network passes the message to the credit card processor, which passes it to the gateway, communicating it back to the enterprise business and customer to complete the purchase.

6. The funds are transferred from the customer's bank account to the acquirer's and then to the enterprise's bank account. Settlement happens over the next few hours or days.

Rather than the consumer, the business is responsible for paying credit card processing fees. These fees can vary depending on the pricing model of the processing company; some processors charge a percentage-based fee, while others impose a flat fee per transaction. A fixed fee structure might be more cost-effective for enterprise businesses with a high volume of transactions. You might see either a total fee (blended pricing) or a detailed breakdown of costs on your invoice. These fees are accumulated at different stages of credit card processing; 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

Interchange fees are usually the biggest expense when it comes to processing credit cards. Interchange fees typically range from 1.5% to 3.5% depending on the card type, transaction method, and other factors. 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. 

Additional fees to be aware of:

Credit card processing fees can vary based on factors such as the type of transaction, location, and enterprise business model. Additionally, processors may impose one-off costs like setup or integration fees. They might also offer value-added services such as 3D Secure, fraud protection, or authorization optimization, which can affect overall costs but significantly benefit your business. Payment device or terminal fees may also apply. 

You can refer to our pricing page for a detailed understanding of credit card processing fees.

Leveraging local acquiring globally

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. Leveraging local acquiring connections helps reduce reliance on interchange networks, leading to significant savings. 

How Adyen can help: Our global reach, facilitated by local licenses and connections, enables efficient payment processing with a single API.

Offering the right payment mix

Popular alternative or local payment methods can result in substantial savings and an enhanced customer experience. Enterprises can reduce their reliance on costly card schemes by offering customers their preferred payment options like Pay by Bank. 

How Adyen can help: Our platform allows access to over 200 payment methods through a single API, supporting major credit card schemes and widely used local payment methods worldwide.

Routing the payment through the right channel

Payment routing is inherently complex, but advanced machine-learning models streamline the process by directing transactions over the most cost-effective and best performing networks, effectively reducing subscription and ecommerce fees. 

How Adyen can help: We analyze BINs from your traffic to spot dual or multi-branded cards, selecting the optimal route to minimize costs.

Using an Address Verification Service for credit cards

Address verification service (AVS) is a system that verifies the cardholder's billing address with the card issuer. It's a well-known fraud-fighting tool that significantly benefits the card-not-present world. But not many know that it can also significantly reduce costs.

Visa and Mastercard both support AVS globally. In the US, Visa incentivizes businesses to use AVS by providing a lower interchange rate when you perform an AVS check on transactions.

How Adyen can help: By integrating AVS and other advanced fraud prevention measures, we help enterprise businesses reduce the risk of fraudulent transactions and optimize their payment processing costs.

The definition of best is highly dependent on your needs. Here are some factors to help shape your considerations.

Security and compliance

Security is non-negotiable. Your chosen fintech platform must offer robust security measures to protect sensitive payment information. To safeguard customer data, look for PCI DSS compliance, tokenization, and encryption. Additionally, consider a platform with built-in fraud detection and prevention mechanisms to mitigate risks and ensure compliance with evolving regulations.

Scalability and global reach

As your business expands, your platform should scale effortlessly. Opt for a solution that supports high transaction volumes without compromising performance. Also, if your enterprise operates internationally, ensure the platform can handle multiple currencies and payment methods, providing a consistent experience for customers worldwide.

Integration and flexibility

Integration with existing systems should be smooth and straightforward. A flexible API allows seamless integration with your ERP, CRM, and other business applications, streamlining operations and reducing manual intervention. Consider platforms offering developer tools and extensive documentation to facilitate customizations and future enhancements.

Customer experience

A seamless checkout experience can significantly impact conversion rates. Choose a platform that offers a variety of payment options and supports one-click payments, mobile wallets, and other modern payment methods. Features like auto-updates for stored card information and intuitive, user-friendly interfaces enhance customer satisfaction and loyalty.

Analytics and reporting

Access to detailed analytics and reporting capabilities is crucial for informed decision-making. Your platform should provide real time insights into transaction data, helping you spot trends, monitor performance, and optimize your payment processes. Comprehensive reporting tools can also aid in reconciling accounts and managing disputes efficiently.

Support and reliability

Reliable customer support is essential. Ensure the platform offers 24/7 support and is known for prompt and effective issue resolution. High uptime and reliability are critical to avoid disruptions and maintain business continuity.

Total cost of ownership

Evaluate the total cost of ownership, including transaction fees, setup costs, and hidden charges. While cost is a significant factor, it should not come at the expense of critical features or service quality. A transparent pricing model helps in budgeting and ensures you get the best value for your investment.

Choosing the right financial technology platform is a strategic decision that impacts your enterprise's efficiency, customer experience, and bottom line. By prioritizing security, scalability, integration, and support, you can select a solution that meets your current needs and supports your future growth.

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 receives a ‘first 90 days’ set-up service to ensure you’re set up for success, and you’ll always have access to ongoing support.