Who Pays Card Processing Fees?

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So, who pays for this whole process? And who gets paid? The merchant will foot the bill for any credit card transaction processes at the end of the day. The rate you will pay as a merchant on each credit card transaction is known as the qualified merchant discount rate. Your acquiring bank will determine this credit card processing fee. It will typically be determined by the interchange fees, service/assessment fees, and any markups encountered in between.

As a merchant, you can expect to be paying anywhere from 1% to 3.5% on cashless transactions. This will depend on your acquiring bank, transaction type, business volume, transaction values, and other factors that are outlined. As a merchant or retailer, you might have the option of putting a surcharge on your clients for credit card payments or offering discounts for cash payments. This is, however, different from state to state, which you can check out here.

Who Is a Part of Credit Card Processing Fees

Today’s business landscape is more heavily reliant on online and cashless payment methods than ever before, and the trend is projected to continue for the foreseeable future. This has only been accelerated by the conditions we’ve been subjected to as a result of the pandemic crisis.

The credit card processing industry has emerged as a powerful ally for businesses small and large. The industry comprises companies, banks, and institutions whose responsibility is to process payments made using cashless methods of various types. Small business owners can significantly increase their sales by implementing cashless payment methods into their systems.

In this piece, we’ll be taking a closer look at the credit and debit card processing industry and why you need to understand it. We will highlight not only the players and institutions involved but how the process itself works.

Let’s get right into it.

Card Transaction Processing Institutions

Let’s start with the players involved whenever someone pays with a debit or credit card:

The Buyers:

These are the clients making purchases using their cards, whether it’s online through a merchant’s website portal or in person at a brick-and-mortar shop. Cardholders get their cards from issuing banks or financial institutions.


A merchant is a business owner or operator that accepts payment for the goods and services they provide.

Merchant Banks/Acquirers:

As a business owner or merchant, you will need to be affiliated with a merchant bank. These institutions will allow you to open up and operate merchant accounts. Should you ever wonder who is the acquirer in credit card processing, then these are the guys you’re thinking about. According to recent reports, according to transaction volumes, some of the most popular acquirers are Vantiv, First Data, Chase, Bank of America, Worldpay, and Heartland.

Payment Processors:

Now, payment processors are the middlemen that connect merchant banks, merchants, card networks, and everyone else who plays a role in facilitating the transaction process.

Issuing Banks:

These institutions issue out credit cards and debit cards to the individual cardholders through the auspices of card associations. Issuing banks are traditional banks and associated credit unions, merchant associations, etc.

Card Associations:

These organizations are responsible for setting qualification guidelines interchange rates and performing other essential functions such as arbitrating disputes between the other players involved in the entire transaction process. If, for example, a cardholder feels that they are being overcharged on their card, the card association will step in to resolve the issue. Such associations include such household names as Visa, American Express, Discover, MasterCard, etc.

From the roles and functions we’ve outlined above, it will be fair to say that several parties handle the credit transaction process. Some might play a more significant role than others, but they all play essential roles in ensuring everything goes smoothly. Remember that you don’t have to be selling physical products or operating out of an office building. Rather, you can be sitting at home developing software or writing as a freelancer – and you’ll be able to register as a merchant.

The Transaction Processing Steps

There are three main steps involved in the credit card processing pipeline. These are the authorization, settlement, and funding stages. Here’s how things work at each stage:


The beginning step is the cardholder’s presentation of their card to a seller to pay for the goods or services they are purchasing. This might be through physical POS (Point Of Sale) systems, credit card terminals, eCommerce gateway portals, in-app payment services, or other digital and physical methods.

Once this is done, the seller will then transmit the information provided by the card to the payment processor for further action. This information will include the card’s serial number, time, date, and all the details of the transaction. This is the information that will be given to the processors to transmit to the relevant card association.

This association will be the one to then deliver the transaction request to the issuing bank. There will be plenty of information that the card processors hold in this information package, including card expiry dates, CVV parameters, and Address Verification Status (AVS).

With this information, the issuing bank will then be able to make an informed decision on whether or not to accept or decline the transaction depending on the cardholder’s account status, whether their account is active and valid, whether they are of legal age to make such a purchase, and so on.

Whether the payment is accepted or declined by the issuing bank, this information will then be sent back to the card association, then to the issuing bank, before it finally gets back to the merchant who received the card from the cardholder.

This can be considered the first leg of the transaction processing process as it chiefly concerns the cardholder’s interaction with the card processing bodies. The second leg is more concerned with how the merchant interacts with them and gets the funds transferred from the client’s account to theirs, as follows below.


Merchants will collect batches of authorized transaction information from various clients and send it to their merchant bank. These will communicate this information to the card associations that will then divert it to the appropriate issuing bank.

Issuing banks will then follow the direction of the card associations to deduct the appropriate amount from the cardholder’s account and reroute it to the merchant bank.

When sending these funds, they will charge an interchange fee, where the processing bodies and card associations get their profit. Cardholders are never directly charged for card processing, but the cost is usually

reflected in a purchase price.


Funding refers to depositing the funds in question in a merchant’s account. In the past, settlement, and funding used to take a couple of business days. Still, advancements in technology and streamlining of protocols have brought this down to a matter of hours. This allows merchants to receive their payments almost overnight. Authorization, however, will typically take a matter of seconds. Cardholders can make payments and leave a store as quickly and conveniently as possible.

Who Pays Card Processing Fees? Final Thoughts

The card processing process is much more transparent than it used to be. Now it’s a part of any business plan that hopes to be competitive in today’s digital age. Reach out to Payline to see why more than 25,000 business trust us to take care of their payments.

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