Credit Card Processing, Explained

Credit card processing is the system that moves money from a customer's card to your business bank account when they buy something from you. Every card transaction touches four parties: the customer (cardholder), the merchant (you), the bank that issued the customer's card (issuing bank), and the bank that holds your business deposits (acquiring bank). A processor sits between all of them, handling the data, the authorization, the settlement, and the rules each card network requires.

Most business owners do not need to think about the internals. What matters is whether your processor approves your business model, whether the funds actually land in your account, and whether the rates and reserves stay reasonable as you scale.

This page explains how the system actually works, where the costs come from, the difference between a true merchant account and a payment aggregator, and what to look for when choosing one. If you have already been through the wringer with an aggregator that shut you down without warning, skip ahead to the section on when an aggregator is the wrong choice.

The decision happens in about four seconds at the point of sale. The money itself moves over the next one to three business days behind the scenes.

1. Authorization request. The customer enters card details on your checkout page or terminal. Your processor encrypts those details and sends an authorization request to the customer's issuing bank.
2. Risk checks. The issuing bank checks the card is valid, the funds are available, and the transaction does not look fraudulent. This is also where AVS and CVV checks run.
3. Authorization response. The issuing bank sends back an approval, a decline, or a referral. Your customer sees this as the success or failure message on screen.
4. Capture. For an approved transaction, the funds are reserved on the customer's card. Most ecommerce platforms capture immediately. Some delay capture until the order ships.
5. Settlement. At the end of the business day, your processor batches every captured transaction and submits the batch to the card networks. The networks coordinate fund movement between the issuing and acquiring banks.
6. Funding. Net funds land in your business bank account, typically one to two business days later. The processor's fees are either pulled from each transaction or invoiced separately at month-end.

The three common pricing models are interchange-plus, flat rate, and tiered.

Interchange-plus is the most transparent: you pay actual interchange plus a fixed markup, listed on your statement line by line. Flat rate (used by most aggregators) bundles everything into one number, usually 2.9 percent plus 30 cents per transaction. Tiered pricing buckets transactions into qualified, mid-qualified, and non-qualified rates, which sounds simple and almost always favors the processor.

Easy Pay Direct uses interchange-plus pricing because it is the only model that lets you see what you are actually paying.

1. You are processing more than $50,000 per month. Aggregators are calibrated for small-volume merchants. Once you cross five figures monthly, you are statistically more likely to trigger a review.
2. You sell subscriptions, payment plans, or anything recurring. Aggregator models flag continuity billing as high-risk because of chargeback exposure. A true merchant account is built for it.
3. Your average ticket is over $500. Higher-ticket transactions are higher risk to aggregators. They will freeze funds while they review. A merchant account is underwritten with your average ticket in mind.
4. You sell anything in a regulated or sensitive category. Coaching, nutraceuticals, CBD, firearms, adult, gaming, and many more verticals are simply not allowed under most aggregator terms of service. They will not tell you up front. They will close you later.
5. You have ever had funds held for more than 24 hours unexpectedly. This is the canary in the coal mine. It almost never gets better on the same processor.

1. Do they underwrite your business before you start, or after? Pre-underwriting is the difference between a stable account and a surprise shutdown. Ask explicitly.
2. What pricing model do they use? If they cannot say interchange-plus without hedging, they are using tiered or flat rate. That is a margin choice in their favor.
3. Who owns the merchant account? If it is the processor's master account, you are with an aggregator. If it is opened in your business name with an acquiring bank, it is a true merchant account.
4. What is the funding schedule, and can it change? A processor that can change your funding schedule unilaterally can hold your cash flow hostage. Get the schedule in writing.
5. Do they support your specific vertical? Vague answers here mean trouble later. The right processor will explicitly tell you they have approved businesses like yours before.
6. What happens during a chargeback, and what tools do they give you? A good processor gives you chargeback alerts (so you can refund before a dispute opens), representment tools, and a real human to escalate to.
7. Who is the single point of contact when something goes wrong? If the answer is a support email or live chat, your account is one of thousands. If the answer is a named person, your account is being managed.