As ecommerce has grown and payment methods have diversified, it has become increasingly important for businesses to adapt to new ways of conducting transactions. According to a 2025 survey conducted by Capital One more than half of Americans make no cash purchases each week. The same survey indicated that point-of-sale (POS) transactions were 85% cashless in 2024—a number that’s expected to grow to 89% of transactions by 2030.
By adopting advanced payment systems, businesses can provide simple, secure, and efficient transactions that increase revenue and enhance the customer experience. Below, we’ll cover the important aspects of credit card processing, including the key components that power the system, credit card processing fees, and proven strategies for building and maintaining a high-performing credit card payment system. Here’s what you should know.

What’s in this article?

• What is credit card processing?
  
• Key components of credit card processing
  
• How credit card processing works
  
• How to choose a credit card processing provider
  
• Credit card processing costs
  
• Credit card processing best practices
  
• How Stripe Payments can help
  

What is credit card processing?

Credit card processing is the system that enables businesses to accept credit card payments from their customers. By facilitating easy, secure transactions, credit card processing broadens the range of payment options available to customers and increases sales for businesses.

Key components of credit card processing

Credit card processing involves several different components. Here are the main players involved:

• Cardholder
  The cardholder is the customer who owns a credit card issued by a bank or financial institution.

• Merchant
  The merchant is the business or individual that sells goods or services and accepts credit card payments.

• Acquiring bank
  The acquiring bank, or acquirer, is the financial institution that partners with the business to process credit card transactions. The acquiring bank receives transaction information from the business and communicates with the issuing bank to obtain authorization.

• Issuing bank
  The issuing bank, or issuer, is the bank or financial institution that issues the credit card to the cardholder. The issuing bank approves or declines transactions based on factors such as the cardholder’s available credit and account status.

• Card networks
  Card networks are organizations—such as Visa, Mastercard, American Express, and Discover—that provide the infrastructure and rules for processing credit card transactions. Card networks act as intermediaries between acquiring banks and issuing banks to facilitate transaction communication, authorization, and settlement.

• Payment gateway
  A payment gateway is a tool that transmits payment information from the business’s point-of-sale (POS) system or ecommerce platform to the acquiring bank for processing. It encrypts the cardholder’s data and ensures the transaction complies with security standards.

• Payment processor
  A payment processor, or payment processing provider, is a company that manages the transaction process on behalf of the acquiring bank, handling tasks such as communicating with payment networks, obtaining authorization, and managing the settlement process.

• Merchant account
  A specialized bank account that allows businesses to accept electronic payments by temporarily holding money before sending it to a primary business account.

• Merchant services provider
  An entity that provides the infrastructure needed to accept online payments by working as an intermediary between a bank, a person or business, and a customer.

• POS system
  A POS system is the hardware and software businesses use to accept credit card payments. For in-person payments, this might include a card reader or a retail terminal. For online transactions, this would include the ecommerce platform and payment gateway.

• Processing fees
  A major aspect of credit card processing. These include interchange fees, which are paid to a cardholder’s bank by the acquiring bank.

These components ensure that credit card transactions are secure, efficient, and comply with regulations and industry standards, providing an easy and fast payment experience for customers and businesses.

How credit card processing works

Credit card processing includes a series of steps that give businesses the ability to accept credit card payments and process those payments. Here’s an overview of the process:

1. Transaction initiation

The customer provides their credit card information to the business, either by swiping, inserting, or tapping their card at a POS terminal or by entering their card details on an ecommerce website or mobile app.

2. Authorization request

The payment gateway securely transmits the payment information, encrypting the data before sending it to the business’s acquiring bank. The acquiring bank forwards the transaction details to the appropriate payment network to start the authorization process.

3. Transaction authorization

The payment network routes the transaction to the issuing bank, which verifies the cardholder’s account, checks for available credit or funds, and assesses the risk associated with the transaction. Based on these factors, the issuing bank either approves or declines the transaction.

4. Authorization response

The issuing bank sends the authorization response—either an approval or a decline code—to the payment network, which forwards it to the acquiring bank. The acquiring bank relays the response to the payment gateway, which ultimately passes it on to the business’s POS system. At this point, the business receives the approval or decline message.

5. Transaction completion

If the transaction is approved, the business provides the goods or services to the customer. The approved transaction is added to a batch of other transactions awaiting settlement.

6. Settlement

At the end of each day or at another predefined period, the business submits the batch of approved transactions to the acquiring bank. The acquiring bank requests funds from the issuing bank through the payment network. The issuing bank transfers the required funds to the acquiring bank, which deposits the money into the business’s account, minus any fees associated with credit card processing.

Typically, authorization takes a few seconds and settlement takes a couple of days. Go here for more details about Stripe’s payout timelines for businesses.

International credit card transactions

Many modern businesses also conduct cross-border commerce. Although the customer-facing process might look similar, the backend typically requires international credit card processing solutions that are more in-depth than domestic payments.

Along with the need for an international payment gateway, cross-border transactions can carry more fees, such as foreign exchange (FX) markups, fees for cross-border use of card network infrastructure, and fees paid to intermediary banks.

How to choose a credit card processing provider

When choosing a credit card processing provider, businesses should consider several factors to ensure they select the right partner for their needs:

• Assess your business needs
  Understand your transaction volume, average transaction size, and whether you require in-person, online, or mobile payment processing. Consider every market, audience segment, and channel where you currently do business or plan to expand. You’ll want a payment provider that accepts all the preferred payment methods and currencies in these areas.

• Compare pricing and fees
  Processing providers may charge various fees, including transaction fees, monthly fees, setup fees, and hardware fees. Compare different providers’ pricing structures to determine which one offers the best value for your business. Read here about Stripe’s payment-processing fee structure.

• Evaluate the provider’s customer support
  Issues with your processing system can directly impact your sales and customer experience. Look for reviews from other businesses to gauge the provider’s reputation and reliability and consider asking for recommendations from your industry peers. Make sure you choose a provider that offers reliable customer support. Here are more details about the channels where Stripe customers can access support 24/7.

• Consider the provider’s security and compliance measures
  Ensure that the provider complies with the Payment Card Industry Data Security Standard (PCI DSS) and other relevant security standards to protect your customers’ sensitive data and minimize the risk of fraud.

• Review integration compatibility
  Check if the provider’s payment-processing solution is compatible with your existing POS system, ecommerce platform, and accounting software, to ensure that integration is as seamless as possible and future operations run smoothly.

• Analyze additional features and services
  Some providers may offer value-added services, such as advanced reporting, recurring billing, or multicurrency processing. Determine which features are necessary for your business and which features would be a nice addition.

Carefully evaluating these factors and comparing different credit card processing providers is the best way for businesses to make an informed decision that suits their requirements, budget, and long-term goals.

Credit card processing costs

Credit card processing costs can vary depending on the provider, transaction type, and other factors, so it’s important to understand what credit card processing fee structures look like for different payment processors. Common costs associated with credit card processing include:

• Transaction fees: These are fees that the payment processing provider charges per transaction, usually expressed as a percentage of the transaction amount plus a fixed fee (known as interchange-plus pricing).

• Monthly fees: Some providers charge a monthly fee for their services, which may include access to a payment gateway, reporting tools, or other features. This fee is often reflected on a merchant statement, which is a document from a payments provider detailing card sales, fees, and net deposits, among other information.

• Setup fees: Some providers charge a one-time setup fee for creating and configuring your account.

• Terminal or equipment fees: If you require physical equipment to accept payments in person, such as a card reader or POS system, there might be costs associated with purchasing or leasing this hardware. This is especially important to consider for businesses that need to accept in-person payments at scale.

• PCI-compliance fees: Some providers charge an annual fee for maintaining PCI compliance or assisting your business in achieving compliance.

• Chargeback fees: If a customer disputes a charge, you may be subject to a chargeback fee, which is typically a fixed amount per disputed transaction. These fees tend to be greater for high-risk businesses or those with a history of high chargeback ratios.

• Hidden credit card processing fees: Some credit card processors also charge more non-transparent fees beyond the typical swipe charge. These often show up on monthly statements as network fees or statement fees.

Credit card processing best practices

With cashless transactions on the rise, businesses should take a strategic approach to credit card payments. By carefully considering their payment-processing systems and practices, businesses can reduce costs, minimize risks, and enhance the customer experience. Businesses that want to create a frictionless, secure, integrated credit card payment system should follow these best practices:

• Align your approach to your sales channels
  There isn’t a single credit card processing strategy that fits every use case. For example, a platform business supporting a large number of users that need to accept in-person credit card payments in a number of global markets will have different requirements than an ecommerce retailer that doesn’t operate any in-person sales channels. Understanding your specific needs will allow you to vet the best options for your business.

• Choose the appropriate fee structure for your business
  Some businesses benefit from an interchange-plus pricing model, which is often more transparent than other fee structures. Additionally, encouraging debit payments or implementing a surcharge to pass some costs to the customer are two other strategies for reducing the sting of credit card processing fees for your business.

• Implement fraud-prevention measures
  Fraud prevention is built in to most credit card processing solutions, but businesses still need to make sure they are protected from fraud, depending on where and how they conduct transactions. You can use basic tools, such as address verification service (AVS) and card verification value (CVV) checks, and advanced fraud-detection software to minimize the risk of fraudulent transactions.

• Monitor and analyze transactions
  Regularly review your transaction history to detect unusual patterns, identify potential issues, and refine your processing strategy. Make sure your payment processor offers this type of monitoring. Stripe Radar uses machine learning to detect and prevent fraudulent transactions.

• Create clear, accommodating refund and chargeback policies
  Establish transparent, fair refund and chargeback policies to reduce disputes, maintain customer satisfaction, and avoid unnecessary fees. Effective chargeback prevention best practices, including using tools like Stripe Radar, can help reduce the number of disputes.

• Offer multiple payment options
  Cater to a wide range of customer preferences by providing multiple payment options, including credit cards, debit cards, digital wallets, and other alternative payment methods. This doesn’t mean you need to accept every payment method. Instead, research how your customers prefer to pay and which payment methods are most commonly used with the types of products and services you offer.

• Maintain up-to-date hardware and software
  Keep your POS systems, payment gateways, and other processing components updated to ensure smooth operations, enhanced security, and improved customer experiences.

How Stripe Payments can help

Stripe Payments provides a unified, global payments solution that helps any business—from scaling startups to global enterprises—accept payments online, in person, and around the world.

Stripe Payments can help you:

• Optimize your checkout experience: Create a frictionless customer experience and save thousands of engineering hours with prebuilt payment UIs, access to 125+ payment methods, and Link, a wallet built by Stripe.
  
• Expand to new markets faster: Reach customers worldwide and reduce the complexity and cost of multicurrency management with cross-border payment options, available in 195 countries across 135+ currencies.
  
• Unify payments in person and online: Build a unified commerce experience across online and in-person channels to personalize interactions, reward loyalty, and grow revenue.
  
• Improve payments performance: Increase revenue with a range of customizable, easy-to-configure payment tools, including no-code fraud protection and advanced capabilities to improve authorization rates.
  
• Move faster with a flexible, reliable platform for growth: Build on a platform designed to scale with you, with 99.999% historical uptime and industry-leading reliability.
  

Learn more about how Stripe Payments can power your online and in-person payments, or get started today.