What Is Credit Card Processing?

Credit card processing is the way in which merchants have the ability to accept and receive funds through their customers' credit and debit cards. Typically, credit card processing involves signing a contract with a credit card processing company who then deposits proceeds from credit card sales into the merchant's checking or savings account.


Around 78 percent of all households in the United States have at least one credit or debit card that they use on a regular basis. Marketing studies have concluded that whether or not a business accepts credit cards is a determining factor for many consumers as to where they do business. Some even report being willing to pay additional for a product to be able to use their credit cards. These factors make accepting business cards through credit card processing an important need for many businesses.


Through credit card processing, merchants receive authorization that a credit or debit card has sufficient funds available to process the sale. During the course of the day, the credit card purchases are totaled in an electronic file, and at the end of a sales day, the electronic file is sent for processing. The third party processor then transmits information to the issuing credit card companies so the customer can be billed and the merchant can receive their funds.


Standard equipment for credit card processing is a terminal with a card reader, where the card is swiped. Keys on the terminal are used to enter the purchase amount, and the terminal sends the information through a phone or data line. After approval is received, a receipt is printed for the customer to sign either through the terminal itself or a peripheral printer.


Fees for credit card processing are determined by a number of factors, including whether the card information is swiped or keyed, the average dollar amount of the business' transactions and what type of card is used. Typically, credit card processors charge a per transaction fee of less than one dollar on top of an additional 1 to 7 percent of the purchase price, which is sent to directly to the credit card company for the use of the card. Other fees may be assessed such as compliance fees, statement fees, batch fees, set-up fees, equipment rental fees and fees for supplies.


Some merchants prefer to utilize a computer system for processing credit cards, which is used in place of a terminal. These computer systems are available through credit card processors or through online services like PayPal.