Credit Card Processing 101 for Small Businesses

Credit card processing 101

Accepting credit cards is essential for modern businesses—but understanding what you’re actually paying for is far less straightforward. Between interchange, markups, and POS fees, many business owners aren’t sure whether their rates are competitive.

This guide explains the basics so you know how processing fees work and where your money goes each month.

What happens when a customer pays

When a customer taps, inserts, or swipes their card, a few things happen in seconds. Each participant takes a small portion of the transaction as their fee.

• The card is authenticated by the network (Visa, Mastercard, Amex, etc.).
• The transaction routes through a processor or POS provider (Square, Clover, Toast, Stripe).
• The issuing bank approves or declines the charge.
• Funds are deposited into your account, usually the next business day.

Interchange fees

These go to the customer’s card-issuing bank (Chase, Bank of America, etc.) and are set by Visa/Mastercard. They’re non-negotiable and make up the bulk of your total cost.

Interchange depends on card type (debit vs. credit, rewards, corporate), how the card was accepted (tap, swipe, keyed, online), and your industry category. A restaurant might pay different rates than a medical practice even at the same volume.

Processor markups

This is what your processor or merchant provider charges on top of interchange. It might be a flat percentage, a percentage plus per-transaction fee, a monthly subscription, or bundled into a “flat rate.”

Markup is the portion you can compare or negotiate—and it’s where most savings come from.

Additional and hidden fees

Beyond interchange and markup, extra programs can significantly affect your total cost. These often slip onto statements unnoticed and drive “rate creep.”

• Monthly statement, batch, or platform fees
• PCI compliance or non-compliance fees
• Non-qualified or downgrade surcharges
• POS or software fees tied to processing
• Service or “program” fees

Flat-rate vs. interchange-plus

Most small businesses use one of these pricing models. Flat-rate plans (Square, Stripe) are simple and predictable (typically 2.6%–2.9% + 10¢) and best for very small or new merchants. They become less cost-effective as volume grows.

Interchange-plus is transparent and usually cheaper for established businesses because it shows the markup separately. It requires understanding interchange tables but gives you better leverage when negotiating rates.

How to know if you’re overpaying

Even if your statement is confusing, these signs often mean you’re paying more than necessary:

• Effective rate (total fees ÷ total volume) consistently above 3.0%
• Charges like “non-qualified,” “standard,” or “mid-qualified” throughout the statement
• POS systems adding monthly “program” or “software” fees tied to processing
• Plans that haven’t been reviewed for years and keep creeping up
• New fees or surcharges appearing without explanation

Final thoughts

Credit card processing is complicated, but understanding the basics gives you control over an expense that affects your business every day. Whether you stay with your current provider or explore alternatives, knowing how fees work puts you in a better position to negotiate.

If you want a simple, no-pressure fee analysis, upload your latest statement through our merchant intake. We’ll send a transparent breakdown within 24–48 hours so you can see exactly where your money goes—and whether savings are available.