The Future of Payments: Credit Card Processing in 2022

Any retail business‘s foundation is credit card processing. It allows customers to pay your products using a variety of payment methods such as credit cards and mobile payments.

Small business owners are often confused about how this works, as consumers use more and different ways to pay for goods, particularly through fast-growing Contactless Payments.

Your business must route a payment to a customer through multiple parties. Many of these parties charge different fees.

It doesn’t matter if you need a credit processor for your brick and mortar store or an online store. Accepting credit cards is difficult as well as processing payments. This article will explain how it works.

What is credit card processing?

Credit card processing is the process of completing payments online, by phone or mail using a credit card. It is an essential part of retail as it allows customers to check out quickly.

It sounds easy in theory. The operation sounds simple enough. Customers swipe their cards and you get paid. However, there are many parties involved when collecting payments at your point-of-sale (POS).

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  • The cardholder.The person who makes a payment.
  • The merchant is a business that sells a product or service.
  • The acquiring banking institution: a.k.a. The merchant bank is an account that allows your business to take money from payments.
  • Payment Gateways:these services connect with credit card companies so that you can accept payments. You can also allow your customer to use the payment method of their choice. The payment gateway gathers the payment information from the transaction and sends it to a merchant bank or payment processor.
  • Payment processor: The system that connects the merchant and the card network to the cardholder’s banks.
  • Issuer bank: The consumer bank that decides if the cardholder is able to fund the transaction. It will release funds for payment if it is approved.
  • Card associations also known as The credit card networks are responsible for setting interchange fees and compliance standards.

How credit card processing works

In seconds, the credit card processing process takes place. This is amazing considering how many steps are required to settle a purchase through your store.

  1. Customer pays for order
  2. The processor receives payment
  3. Bank approves (or denies) transaction
  4. The processor is notified of approval
  5. Settlement

Customer pays for order

Customers can swipe their credit cards at the terminal. The merchant then receives their banking information. There are many ways to make in-person payment:

  • Swiping a magnetic stripe credit card
  • Get an EMV card chip card
  • Tap a contactless card
  • Use digital wallets such as Apple Pay and Google Pay

Online customers can pay online through your website and apps using payment gateways. This technology captures payment data from the customer and transfers it to their bank.

The processor receives payment

Once a customer has made a payment, the payment information is sent by the processor. Through their card networks (Mastercard, Visa and Discover), the processor connects with the customer’s bank.

The transaction is approved or denied by the bank

The cardholder’s bank will determine if the funds are available to cover the transaction. The bank may also conduct a security check to determine if the transaction was fraudulent.

There are three common reasons why payments can be declined:

  1. Credit limit reached The customer does not have sufficient credit to pay the bill.
  2. Insufficient funds The customer does not have enough money in his bank account to pay for the purchase.
  3. Unauthorized Purchase: When a card has been reported lost or stolen.

The processor is notified of approval

The bank will then notify the payment processor of their decision. This sends the information back to your terminal, or credit card reader. It tells you whether or not the cardholder has been approved.


The approved transactions are then batched and ready for settlement at the close of each business day. Once the transaction is settled, the customer’s bank account is charged with the transaction and the money is deposited to your bank account.

Processing fees for credit cards

A business must pay three fees when it processes credit card transactions: service, interchange, and processing. These fees make up the total payment fee.

When you’re choosing a payment processor, it is important to fully understand the fees. There are many fees that can impact your bottom line.

Transfer fee

Card networks charge interchange fees to merchants who process debit or credit card payments. This interchange fee is a non-negotiable standard fee that card networks collect, but is paid to the customer’s bank.

Visa and Mastercard card networks facilitate credit card payments. They charge an interchange fee for this service. This is the largest portion of the total payment fee.

Credit card interchange fees average 1.8% while debit card interchange fees average.03%. The exact charge you pay will vary depending on which card you have. Premium cards such as American Express Black cost more than standard debit cards from your bank.

Service fee

Card networks are charged a service fee, also known as a network fee or assessment fee. This fee is non-negotiable and varies depending on the card network and card type.

The transaction’s basic assessment fee is 0.1% to 0.15%. The markup may change depending on:

  • Country of the cardholder
  • The merchant’s address
  • Currency
  • Type of card

Processing fee

Processing fees are charged by your payment processor or its affiliates. This fee is negotiable and separate from all other payment processing fees.

This covers processing and gateway fees as well as acquiring fees. You can negotiate according to the volume of transactions, chargebacks, and industry. Talk to a representative of your potential payment processing company about your options.

Pricing structure for credit card processing

Payment processors may use a mixture of pricing models. Here are the most common types.

  • Flat rate
  • Interchange plus
  • Subscribe
  • Tiered

Flat rate

Flat rate pricing is popular for credit card acceptance. This model charges you a flat percentage of the volume. All credit and debit card transactions are subject to a single fee.

Flat rates can be packaged as a base rate of 2.75%. It can also combine a per-transaction amount such as 2.75% + $.20 to $.30 per transaction.

The type of transaction is what payment processors charge. Card-present transactions, such as in-store payments, have a lower rate that card–not-present transactions because they are less risky.

Interchange plus

Merchants use the interchange-plus pricing model to determine their per-transaction costs. It is composed of two components:

  • The card network determines the interchange rate
  • A markup that is set by the payment processor

Due to its transparency, this model is considered one of the most fair and balanced pricing models in the industry.

Pricing for Interchange-plus is around 2.2% + $0.22 on average per transaction

This model allows you to see how your costs will vary depending on which cards you use. An interchange rate for a Mastercard swiped debit card could be 1.05% + $0.15. Your business will pay more for a Visa Rewards Signature card, which costs around 2.3% + $0.10.

The interchange rate will rise the more expensive a card is.


Flat rate subscriptions are where payment processing companies charge a flat cost rather than a percentage of sales.

It is different from interchange Plus because the markup is applied in a flat monthly fee or per-transaction fee, and not a percentage of sales volume.

The processor only charges the business interchange fees. This model is cost-effective for growing retail businesses.


Tiered pricing is also known as bundled pricing and charges a fee depending on which card type the consumer uses. It allows processors the ability to group interchange fees into rate levels of their choosing. It is opaque, costly, and can be used to hide fees that you don’t wish to pay.

These options are more cost-effective and transparent than the ones we have already mentioned. It is not a good idea to stick with a tiered pricing structure for any payment-processing company.

How to choose the right credit card processor

A credit card processor is essential for your business, considering that nearly 55% customers prefer to pay by credit or debit card. How can you choose the best credit card processor?

When choosing a payment processor, you should consider the following:

  • Transaction speed
  • Rates and costs
  • Uptime and reliability
  • Security
  • Customer support

Transaction speed

There are many credit card processing services that don’t work in the same way. When processing card payments, technical limitations can slow down payment transactions.

Consider retail environments. A few extra seconds between two terminals can lead to a lot of wasted time.

As more people pay their bills online, customers have come to expect faster payments. Customers may leave if they are not satisfied with the speed of payment. Or even worse, never return.

There is always a challenge to what is considered fast enough. Today, most processors can complete transactions in less than two seconds.

Ask prospective credit card processors about their average transaction speed. You might consider moving on if they can’t complete transactions in less than two seconds and aren’t actively improving performance.

Rates and costs

When choosing a credit card processor, pricing is an important component.

As mentioned above, all credit card companies charge an interchange fee for transactions–they’re unavoidable. These fees can range from 3% to 3% depending on which card they use and where they are made.

You should look at the charges that the processing company makes to you.

  • Is it a monthly charge?
  • Are they able to process a minimum volume of orders without additional charges?
  • What is the minimum monthly fee?

Some processors may also charge an extra fee for cancelling your contract before the end of the term. This can be as high as a few hundred dollars.

The processing costs will vary from company to company. It is important to fully understand the terms and fees. Ask a sales representative if you have any questions. You might consider looking for another company if they are unable to give you a satisfactory answer.

Uptime and reliability

The percentage of time that a processor is available and working, also known as uptime. If your authorization networks fail, you will lose more revenue.

You want a company that has a history of reliability. Find out how they deal with outages, if any. Ask the processor how often they experience downtime.

Let’s say, for example, that a payment network uses a processor that is down for maintenance every night between 3-4 a.m. If you sell online 24/7, they should warn you not to use this processor.

Although they cannot prevent outages from happening, processors can reduce the impact on your business.


Security is another important aspect to consider when choosing a payment processor. Security is vital for both your customers and you, as a security breach could cause disaster for all.

A processor that is specialized in omnichannel solutions will be able to process multiple retail payments. You should look for one that can handle all aspects of a transaction, from your POS to checkout pages such as Shopify payments.

You should look for a processor which covers:

  • EMV chip readers.These help prevent counterfeit cards in-store. The dynamic cryptogram makes each transaction unique. You can be charged with fraud if you don’t own an EMV reader.
  • Compliance with the PCI. Payment Card Industry Data Security Standards (PCI DSS), provides guidelines to merchants on how they can protect customer information and prevent payment fraud. PCI compliance is essential to protect your business and customers from risk.
  • Tokenization. You should not store customer data when you accept online payments. Tokenization is a method that encrypts data before it can be stored on outside servers. It is used by payment processors to ensure card information does not touch your server.
  • Smartphone processing. It is essential to have a system that can process mobile wallets, given the rapid growth of mobile payment options such as Apple Pay and Samsung Pay. These mobile options are becoming more popular due to their ease-of-use and security benefits.

Customer support

What should you do if your credit card machine has a problem? Have questions about your bill statement? A payments processor can provide 24/7 merchant services that will help you resolve any issues. You should be able to understand any charges they charge.

Hardware needed for credit card processing

In just one year, many consumer payment preferences changed. Wild growth was seen in markets such as local delivery and contactless payments. People want to minimize contact but not sacrifice speed and convenience.

Let’s take a look at the hardware that you will need to quickly and safely process payments.

Point of sale (POS).

A reliable POS system is essential for your back office. A reliable POS system will give you all the tools that you need to manage your company and accept payments from anywhere.


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Shopify PO gives you access to our point of sale app that allows you to accept most payment methods. The retail stand is for iPad ,to allow customers to flip the iPad or remove it from its base.

We love that every member of staff has a mobile device so they can use Shopify POS to place orders and check stock availability.

Shopify POS integrates with Shopify Payments to offer competitive card rates. Shopify POS hardware comes with a 1-year warranty and 24/7 support. This will ensure that shoppers can checkout easily, regardless of where they are located.

LEARN MORE: What exactly is point-of-sale software? Here’s a checklist to help you choose the best POS for your business.

Contactless payments

Consumer preferences are shifting away from cash and swiping cards to pay with cash. These changes are not just for consumers. More than 80% merchants agree that contactless payments make their checkouts more secure and keep their stores safer.

Accepting contactless payments as a small business owner is essential to satisfy modern consumer demand.

Visa discovered that US contactless usage grew by 150% between March 2019 and March 2020. The US is expected to generate $358 million in revenue by 2025 from contactless methods alone.

Contactless payments are transactions that are made by tapping on a contactless card or smartphone onto a payment terminal. They must be placed in close proximity to your POS terminal. Once a wireless connection has been established, payment processing can begin.

Contactless payments are considered more secure. Hackers cannot copy customer data onto another card using the magnetic stripe of chip-and-PIN cards. Customers can also use this payment method to make their purchases faster and more convenient.

The shift to contactless payments was accelerated by the pandemic. 70% of UK shoppers said that contactless payments were important to them.



Contactless payments are not just a trend in the UK. American Express’s 2020 Digital Payments Survey found that 58% of those who have used contactless payment options say they are more likely post-pandemic to use them. Half of respondents claimed that contactless payment options are safer than using cash, swiping, or inserting credit cards.

The Shopify Tap & Chip Card Reader allows you to accept contactless payments in addition to standard chip-and pin cards. Contactless payments are the best option for retailers looking to accept payments in a cost-effective, secure and easy way.

LEARN MORE Click to Buy: Should I offer contactless payments in my retail store?

Readers for credit cards

These days, small business owners are in high demand. You may find that people are reluctant to pay cash if you sell at farmer’s markets or other local events. Credit card readers are here to help.

Credit card readers decode personal and financial data from the customer’s mobile phone, microchip or magnetic strip. Merchants use them to accept debit and credit cards, EBT payments, or any other payment method.

Most POS systems include credit card readers. Shopify POS provides a Tap & Chip Card Reader that allows you to accept chip payments at the curb or counter wirelessly. The dock can be used to charge your Tap & Chip Reader for a secure and smooth checkout.

Start credit card processing in your store

A good credit card processor will have a positive impact on your business. It’s important to partner with a reliable company to help you run your retail business.

Shopify POS allows retailers to offer different payment options, which is a great way to win shoppers over.

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