A credit card processor is the company that moves money from your customer's card to your bank account, taking a cut along the way.
When a customer swipes, taps, or enters their card details, the processor doesn't just hand you the cash. It talks to the card network (Visa, Mastercard, American Express), the customer's bank, and your bank. It checks whether the card is real, whether the account has funds, and whether the transaction is fraud. Then it settles the money into your account — usually within one to three business days — and charges you a fee for doing it.
The fee structure is where most business owners get confused. You're not paying one flat rate. You're paying interchange (set by the card networks, not the processor), assessment fees (also set by the networks), and the processor's own markup. A processor might quote you 2.9% plus $0.30 per transaction, but that's only part of what you'll actually pay. The rest depends on the card type, whether it's present or not, and dozens of other variables.
Understanding what a processor does — and what it costs — matters because the difference between a good rate and a bad one can be hundreds of dollars a month on a small business's volume.
Key Takeaways
- Credit card processors charge interchange fees set by card networks, assessment fees, and their own markup — not a single flat rate.
- Interchange rates vary by card type (debit, credit, rewards) and transaction method (in-person, online, phone), so your actual cost per transaction is never the same twice.
- Processors settle funds into your account in one to three business days, not when ready, and they hold a small reserve on some transactions as fraud protection.
- The processor you choose affects which payment methods you can accept and what tools you get to manage refunds, disputes, and recurring charges.
- Comparing processors means looking at the full cost picture — not just the advertised rate — and understanding what happens when a customer disputes a charge.
How the money moves from card to your account
The processor sits in the middle of a chain. Your customer's bank (the issuer) holds their card account. The card network (Visa, Mastercard, Discover, American Express) owns the rails the transaction travels on. Your bank (the acquirer) holds your business account. The processor connects all of them.
When a transaction happens, the processor sends it to the card network, which routes it to the customer's bank for approval. If approved, the customer's bank sends the money back through the network to your processor, which then sends it to your bank. This whole cycle takes seconds for authorization but days for settlement — the actual movement of funds into your account.
Settlement usually takes one to three business days. Some processors offer next-day settlement for an extra fee. During that gap, the processor holds the money in a clearing account. On high-risk transactions or if you're new to the processor, they may hold back a percentage as a reserve — typically 5% to 10% — and release it after 90 to 180 days with no chargebacks.
What you actually pay: interchange, assessments, and markup
Interchange is the largest piece of your cost, and you don't negotiate it. Visa and Mastercard set interchange rates, which vary by dozens of factors: whether the card is debit or credit, whether it has rewards, whether you swiped it or the customer typed the number, whether you're in the US or abroad. A rewards credit card swiped in-person might cost you 2.22% plus $0.10. A basic debit card might cost 0.05% plus $0.22. An online transaction with a card-not-present code might cost 2.29% plus $0.30.
Assessment fees come next. Visa charges a percentage of your monthly volume (around 0.11% for most businesses). Mastercard charges a similar amount. American Express charges higher interchange and assessment combined. These are also non-negotiable.
On top of that sits the processor's markup — the part you can negotiate. A processor might add 0.25% to the interchange rate, or charge a flat $0.10 per transaction on top of interchange and assessments. Some processors bundle everything into a single rate (called "blended" pricing) and don't break out the components, which makes it harder to compare.
The result: you might pay 2.5% on one transaction and 3.1% on another, even though both came from the same customer. This is why comparing processors on advertised rate alone is misleading.
Processor types and what each one offers
Processors fall into a few categories, and each one has different costs and features.
Traditional processors like Square, Stripe, and PayPal Here charge a percentage plus per-transaction fee. They're straightforward to set up, they handle disputes and chargebacks, and they don't require a contract. They're also more expensive than other options because they bundle everything and don't negotiate on interchange. Square charges 2.6% plus $0.10 for in-person card transactions; Stripe charges 2.9% plus $0.30 for online payments.
Wholesale processors like Authorize.net or Worldpay separate interchange from their markup, so you see exactly what the networks charge and what the processor takes. They're cheaper if you have volume, but they require more setup and often require you to sign a contract. You'll also need to handle disputes yourself or pay extra for that service.
Integrated processors are built into your point-of-sale system or e-commerce platform. Shopify Payments is an example — it's built into Shopify, so you don't install separate software. The tradeoff is you can't easily switch processors without switching platforms.
ACH processors move money directly from a customer's bank account instead of their card. They're much cheaper (usually $0.25 to $1.00 per transaction) but slower (three to five business days) and customers are less familiar with them.
Chargebacks, disputes, and what happens when a customer says no
When a customer disputes a charge, the processor doesn't decide who's right. The customer's bank does. The processor's job is to collect evidence from you and send it to the bank. If the bank sides with the customer, the money comes back out of your account — plus a chargeback fee, usually $15 to $100 per dispute.
Some processors make it straightforward to respond to chargebacks. They give you a dashboard where you can upload receipts, shipping confirmations, and customer communications. Others make you email documents or call a support line. The difference matters because you have a limited window — usually 7 to 10 days — to respond before the chargeback is final.
Chargebacks are also tracked. If your chargeback rate gets too high (usually above 1% of your volume), the processor can terminate your account or raise your rates. This is why keeping good records — receipts, delivery confirmations, customer emails — is part of managing your processor relationship.
Recurring charges and subscription billing
If you bill customers on a schedule — monthly subscriptions, retainers, installment plans — your processor needs to support recurring charges. Most do, but the setup varies. Some require you to store the customer's card on file and charge it on a schedule. Others let the customer authorize a recurring charge and handle the rest. A few charge extra for this feature.
Recurring charges have higher chargeback rates because customers forget they signed up or don't recognize the charge on their statement. Processors know this and often charge slightly higher rates for recurring transactions. Some also require you to send a reminder email before each charge, or they won't process it.
If you're running a subscription business, ask the processor upfront what their recurring charge process looks like, whether they charge extra for it, and what their chargeback policy is for recurring transactions.
International payments and multi-currency processing
If you sell to customers outside the US, your processor needs to handle international cards and currency conversion. Most major processors do, but the cost is higher. Interchange rates for international cards are typically 1% to 2% higher than domestic rates. Currency conversion adds another 1% to 3% on top of that.
Some processors handle conversion automatically and charge you a markup. Others let you choose whether to convert at the time of transaction or let the customer's bank do it later. The customer's bank rate is usually worse, so it's better to convert yourself if you can.
If you're selling internationally, compare processors on their international rates specifically. A processor that's cheap for US transactions might be expensive for European or Asian cards.
Frequently Asked Questions
How long does it take to get paid after a customer swipes their card?
Authorization happens in seconds, but settlement — the actual money hitting your account — takes one to three business days with most processors. Some offer next-day settlement for a fee. Weekends and holidays extend the timeline. If you process a transaction on Friday evening, you might not see it until Tuesday.
Can I negotiate the interchange rate my processor charges?
No. Interchange is set by Visa and Mastercard and is the same for every business in your category. What you can negotiate is the processor's markup on top of interchange. Wholesale processors are more willing to negotiate markup if you have high volume.
What's the difference between swiping a card and typing the number?
Swiped or tapped transactions (card-present) have lower interchange rates because fraud risk is lower — you've verified the card is real. Typed or online transactions (card-not-present) have higher rates because fraud risk is higher. The difference is usually 0.5% to 1% of the transaction amount.
What happens if a customer disputes a charge and I lose?
The money is reversed out of your account, and you pay a chargeback fee (usually $15 to $100). The customer keeps the money and the product or service. If your chargeback rate gets too high, the processor can raise your rates or close your account.
Do I have to use the processor my bank recommends?
No. Your bank may recommend a processor, but you can use any processor that's compatible with your business type. Shop around and compare rates. The processor you choose doesn't affect your banking relationship.