Credit Card Payment Processing For Merchants: The Complete Guide

The heavy adoption of credit cards for purchases has shifted payment transactions. Credit cards are increasingly becoming merchants’ first choice, whether online credit card payment or offline deals. This guide is designed to help merchants understand the stages of credit card payment processing and the charges involved. 

Parties Involved in the Credit Card Payment Processing

Credit Card Holder 

The person with a bank card, either a bank credit or debit card.

Acquiring Bank 

The acquiring bank is the one that evaluates a merchant’s qualifications to approve them to accept card transactions. Since they ride the risk associated with merchants’ approval, Acquiring banks are required to be bonafide participants of the card associations.

Card Associations 

An Independent Sales Organisation (ISO) or a Merchant Service Provider might share this risk (MSP) with merchants. To provide credit card services to customers and merchants, banks, ISOs, and card associations govern MSPs. To name a few, VISA, American Express, and MasterCard make up the Card Associations.

Independent Sales Organisation (ISO) 

A third-party firm that collaborates with card association participants to offer merchant services to companies.

Merchant Service Provider (MSP) 

It can either be a third partnering with the acquiring bank or be a department within the acquiring bank. Before bestowing the acquiring bank with underwriting documentation, an MSP does most of the underwriting for a new merchant.

Issuing Bank 

The issuing bank is the financial body that authorises the cardholder. It is usually tasked with receiving the request for a payment transaction and replying with an approval or a refusal.


A retail store or business that accepts transactions via credit card and debit card as payment for tangible goods or services provided.

Payment Management Solution/Payment Gateway 

This is the avenue for card transactions on the front end, where the software allows approval and denial of required cardholder information.

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Different Stages of Credit Card Transaction


Once the cardholder gives the retailer their credit card information, the gateway makes a payment request when the seller enters the card number. The card details can be fed into the system via a unified dashboard or the POS terminal. Then, the merchant sends the payment request for authorisation to the respective processor.

The processor subsequently sends the request for the transaction to the appropriate card issuer with the issuing bank. The authorisation request comprising the credit card information used in the transaction is delivered to the issuing bank.

Once the issuing bank has confirmed the decline or approval, it is sent to the issuing card bank. This is transferred to the merchant via the merchant bank. If the transfer is declined, it is usually due to a glitch in the address verification services (AVS), expired payment date and card verification value (CVV).

Final Settlement

The last phase of the transaction is a settlement when the merchant receives the money from the client who uses their credit card paid to purchase the products and services. Once the merchant sends a bunch of authorised payments, the payment processor transfers the requests to the concerned card association. 

Once the card association intimates the bank of the requested debit amount, the issuing bank debits the cardholder’s account with the same to fulfil the payment, which is then transferred to the merchant bank. The final settlement step involves the merchant bank crediting the required funds into the merchant’s account.

Credit Card Payment Processing Rates and Fees

Interchange Rates and Fees (Pass-Through Fees) 

MasterCard and Visa set their respective non-negotiable rates that encompass what’s being paid to the issuing bank for accepting credit card transactions.

Statement Fee 

This fee is charged for printing and mailing credit card statements, which can be avoided by opting for the paperless electronic option.

PCI Service Fee 

You could be charged this fee if a merchant assists you with PCI (Payment Card Industry) Compliance from a third party. It guarantees that retailers comply with PCI regulations for accepting credit cards.

PCI Non-Compliance Fee 

A non-compliance fee may be assessed to a merchant that fails to comply with PCI standards, such as completing a self-assessment questionnaire or taking security awareness training (as required by Payment Card Industry rules).

Monthly Minimum Fees 

As the name suggests, certain merchant service providers levy this fee if a merchant processes less than the specified monthly volume.