Credit card processing explained: the process, how it works & fees involved

Key takeaways: 

• Credit card processing enables businesses to accept card payments securely and efficiently.

• Choosing the right credit card processor can help reduce costs, improve cash flow, and prevent fraud.

• Airwallex provides cost-effective, secure, and scalable credit card processing solutions.

If you run a business in Australia, chances are your customers expect to pay with a card. Credit card processing is the technology that makes that possible — securely moving money from the buyer’s bank to yours in seconds. It’s one of the most common ways Australians pay, and it’s only growing. Recent figures show 39% of consumers prefer credit cards for international purchases¹, and the global credit card market is forecast to more than double to $1.146 trillion by 2033².

This guide covers everything you need to know about credit card processing in 2025: how it works, what it costs, the key players involved, and how to choose the right provider for your business. Along the way, we’ll share examples, highlight fees to watch out for, and explain how to protect against risks like fraud and chargebacks – so you can keep more of what you earn.

What is credit card processing?

Credit card processing is the system that allows businesses to accept card payments securely. Every transaction moves through several players, including the customer, the issuing bank, the card network, the acquiring bank, and the payment processor. Together they approve, authorise and settle payments in seconds, ensuring money flows quickly and safely from customer to merchant.

Below we explain the key parties involved and the step‑by‑step process in more detail.

Key parties involved in credit card processing

To explain how credit card processing works in an online transaction, it’s helpful first to outline the key parties involved and their roles:

1. The cardholder

The cardholder is the customer who initiates a purchase using a credit or debit card online, or via a mobile device.

2. The merchant (your business)

The merchant is any business that accepts card payments for goods or services. To process transactions, merchants need:

• A merchant account or a payment processor that facilitates these transactions.

• A payment gateway to collect customer payment details.

• A payment processor to securely handle transactions.

3. The issuer or issuing bank (cardholder’s  bank)

The issuer is the financial institution that provides credit or debit cards to customers. It is responsible for approving or declining transactions based on factors such as available funds, credit limits, fraud detection systems, and card validity. Issuers also handle billing, provide customer support, and manage rewards programs. Examples include Australia’s major banks and emerging fintech providers.

4. The card networks

Card networks like Visa, Mastercard, and Amex oversee the credit card ecosystem, ensuring secure and efficient transaction processing. They set interchange rates, establish qualification guidelines for approving and processing payments, mediate between issuing banks (which provide cards to customers) and acquiring banks (which process payments for merchants) while enforcing security compliance standards like PCI DSS to protect transaction integrity.

5. The acquiring bank (merchant bank)

The acquiring bank is the financial institution that partners with the merchant to process credit and debit card payments. It accepts the transaction details from the payment processor, communicates with the card networks and issuing banks, and ensures approved funds are deposited into the merchant’s account. Acquirers also manage settlement timelines, handle disputes, and provide merchants with tools to track and reconcile payments.

In Australia, acquiring banks are usually major financial institutions. However, some modern payment service providers, including Airwallex, can act as both the processor and acquirer. This means Airwallex manages the end-to-end flow — from authorisation through to settlement — giving businesses a streamlined, all-in-one solution without needing to open a separate account directly with a bank.

6. The payment gateway

A payment gateway acts as a secure bridge between the merchant’s website or app and the payment processor. It encrypts sensitive payment details before sending them for authorisation, ensuring customer data remains protected from fraud and breaches.

7. The payment processor

A payment processor is the intermediary that connects the merchant, acquiring bank, and issuing bank. It securely transmits transaction data, facilitates authorisation, and ensures correct fund settlement. Payment processors also handle security measures like fraud detection, encryption, and chargeback management.

Today, payment service providers (PSPs) offer an all-in-one solution that includes a merchant account, payment gateway, and payment processor, simplifying setup and reducing the need for multiple third-party integrations. By consolidating these essential services, PSPs eliminate the need for businesses to manage multiple vendors, simplify setup and provide flexibility which can be important for scaling businesses.

Now that we’ve covered the key players involved and their roles, let’s break down how credit card processing actually works.

How credit card processing works 

At its core, online credit card processing follows three key steps:

• Authorisation – The transaction is initiated, and the payment gateway transmits the payment information to the issuing bank for approval.

• Authentication – The transaction is verified to confirm the cardholder’s identity and checked for fraud risks.

• Settlement – Funds are transferred from the customer’s issuing bank to the merchant’s account.

Each of these stages happens within seconds, but a lot goes on behind the scenes to ensure transactions are completed accurately, securely, and in compliance with financial regulations.

Credit card processing in action

Let’s look at ‌how credit card processing works from start to finish with audio store, Luxe & Co. A customer, Alex, decides to buy a pair of headphones using their credit card. Here’s what happens behind the scenes:

Step 1: Transaction initiation by cardholder (authorisation begins)

Alex adds the headphones to their cart and enters their card details at checkout. The payment gateway then encrypts and securely transmits the transaction request to the payment processor.

Step 2: Payment processor forwards the request

The payment processor forwards Alex’s payment details to the card network (e.g. Visa, Mastercard, etc.), which then relays the request to Alex’s issuer (XYZ).

Step 3: Issuing bank approves or declines the transaction

XYZ verifies:

✅ If Alex has enough available credit.

✅ If the transaction aligns with their usual spending patterns (fraud prevention).

✅ If the card is valid and not blocked.

If approved, XYZ sends an authorisation code back through the card network to confirm the purchase. If flagged for fraud or if Alex does not have sufficient credit, the transaction is declined.

Step 4: Transaction confirmation (authentication and completion)

Luxe & Co.’s payment gateway receives the approval, finalising the order. Alex gets an order confirmation email, and the payment is now pending settlement.

Step 5: Settlement and funding

The acquiring bank then collects funds from XYZ, and deposits the money into Luxe & Co.'s merchant account. Depending on their payment provider, funds may be available in their account the same day or take 1-3 business days to settle.

Why credit card processing matters for businesses in Australia

Credit card processing in Australia is more than just a payment option. It allows local businesses to provide customers with a convenient and secure way to pay, whether they are shopping in‑store, online, or from overseas. By offering fast and reliable card payments, Australian businesses can build trust, improve sales, and stay competitive in 2025. Below are the key reasons why credit card processing matters in the Australian market.

A more scalable payment system

For Australian businesses, scalability is about handling growing volumes of online and in‑store transactions securely across multiple channels and currencies. Modern credit card processing in Australia uses advanced technology to connect banks, networks and processors, authorising and settling payments in real time. This reduces checkout friction, keeps cart abandonment low, and ensures customers enjoy a smooth experience whether they tap a card in‑store, pay with a mobile wallet, or complete an order online.

A quicker way to move money 

Typically, businesses will need to wait for 1-3 business days before funds are moved or settled from the merchant account to your business account. However, some providers offer same-day settlements, allowing businesses to access funds faster. Other providers offer like-for-like settlement which allows you to receive the payment in the currency it was collected in, reducing FX fees when you pay out from the same currency.

Positive impact on the bottom line

Beyond credit cards, payment providers can offer local payment methods such as bank transfers and digital wallets, which can have lower processing fees than credit cards. Some providers also offer bundled pricing, consolidating multiple payment services into a single, cost-effective solution. This approach reduces administrative overhead while giving businesses greater control over transaction costs, positively impacting the bottom line.

Provide safeguards against fraud

Regulatory compliance is essential for ensuring secure transactions and protecting sensitive customer data. A good payment processor will adhere to PCI DSS compliance standards and incorporates tokenisation and encryption to keep customer data safe. Features such as Smart 3DS authentication will dynamically select the best security protocol based on transaction risk and regulatory requirements, ensuring a balance between fraud prevention and a seamless customer experience.

Help you manage chargebacks and disputes

An effective credit card processing system should also include measures to mitigate chargebacks when they occur. While chargebacks are designed to protect the consumer, friendly-fraud can occur when customers dispute legitimate transactions to get a refund fraudulently. Some payment processors offer pre-chargeback programmes and real-time fraud detection to flag suspicious transactions before they result in disputes. This reliability gives businesses the confidence to process large volumes of credit card transactions worry free.

Getting started with credit card processing

If you’re new to credit card processing in Australia, here’s a practical checklist to help you get set up:

1. Confirm your business details – Make sure your ABN/ACN, registration and identification documents are up to date.

2. Choose a credit card processor – Compare providers on fees, settlement times, integrations and security standards.

3. Set up a merchant account or processor account – This is where your card payments will be deposited.

4. Integrate with your sales channels – Connect your POS system, eCommerce platform, or invoicing tools (e.g., Xero, Shopify, MYOB).

5. Test transactions – Run a few sample payments to ensure everything is working smoothly.

6. Go live and monitor performance – Track fees, settlement times, and customer experience. Adjust as needed.

Following these steps ensures your business can accept credit card payments quickly, securely and with minimal friction.

How to choose the right credit card processing provider

Selecting the right credit card processing provider can impact your business’s bottom line, payment security, and customer experience. However, payment processors have varying fee structures and pricing models, and understanding these differences ensures you select a provider that aligns with your business needs without running into hidden fees. 

Here are the four key factors to consider when choosing the right credit card processing partner for your business.

Processing cost

Credit card processing fees directly impact profitability, so knowing what to look out for can be helpful. Some processors may charge you a flat rate regardless of the card type or transaction volume. Although it is easy to understand, it may be expensive for low-value transactions. 

Other processors may charge you interchange plus pricing, which is a markup over the interchange fee set by the card networks. This is transparent since you’re able to see how much goes to the network versus the processor. 

In an interchange-plus pricing model, processors add a markup over the interchange fee set by card networks. For example:

Aside from transaction fees, businesses should be aware of one-time charges such as application and setup fees, which may apply when onboarding a new payment processor. Additional costs to factor in include chargeback fees, the fee charged to merchants when a customer disputes a transaction, PCI compliance costs, fees incurred for maintaining security standards required for credit card transactions, and cross-border transaction fees, which can creep up if you accept international payments.

Fit with your existing systems

Choosing a processor that integrates with your existing tech stack ensures a smoother payment experience and minimises the number of vendor relationships you’ll need to pay for.

Here are some questions you can ask your provider:

• How difficult is it to implement the payment processor onto your store?  - Some processors offer plug-and-play integrations, while others require custom development or API work.

• Does it accept mobile, digital wallet, and local payment methods? – If your business serves an international customer base, choosing a processor that accommodates your customer’s payment preferences can improve checkout conversion rates.

• What other integrations does it support?– Integration with accounting software like QuickBooks, Xero, or other financial tools can simplify reconciliation and reporting, while integration with your eCommerce platforms like Shopify, and WooCommerce can help you get up to speed quicker.

Security

A secure provider will comply with industry standards like PCI DSS (Payment Card Industry Data Security Standards). These standards are designed to ensure that all companies that process, store, or transmit credit card information maintain a secure environment.

Secure payment processors also utilise tokenisation and encryption, fortifying transaction security. Tokenisation replaces sensitive data with unique identifiers, while encryption converts data into a coded format, making it difficult for unauthorised parties to access or steal information. These technologies significantly reduce the risk of data breaches and protect both businesses and customers from potential fraud.

Chargeback protections

Chargebacks can lead to financial losses, but there are several protections that a payment processor may offer so you can manage them effectively. While the security measures a payment processor provides may reduce fraudulent chargebacks, a strong payment provider will also offer chargeback management programmes that are designed to help businesses detect chargebacks by monitoring transactions and alerting you to unusual patterns that could indicate a chargeback. Some solutions will also offer dispute resolution tools that automate the process, provide evidence allowing businesses to respond quickly and efficiently to chargeback claims.

Credit card processing fees in Australia (2025)

Credit card processing fees in Australia can vary depending on the provider and pricing model. On average, merchants can expect to pay between 1–3% per transaction, although rates differ for domestic and international cards. The Reserve Bank of Australia (RBA³. reports that average merchant service fees for credit cards are around 1%–1.5%, while debit card fees are often lower.

Here are the most common fees Australian businesses may face:

• Setup fees – Some providers charge an upfront cost to establish your merchant account.

• Monthly account fees – Flat fees for maintaining a merchant facility or processing account.

• Transaction fees – These are usually a percentage of the transaction value, plus a fixed fee (e.g. 2.9% + $0.20).

• Interchange fees – Set by card networks (Visa, Mastercard, American Express) and paid to the issuing bank. These vary depending on the card type (credit, debit, rewards).

• Assessment fees – Charged by the card networks for using their payment rails.

• Payment processor markup – Additional margin added by your processor for handling the transaction.

• Cross-border fees – Extra charges for processing payments from overseas cards.

Understanding these costs helps businesses choose the right provider and pricing model.

Tips for minimising credit card transaction fees

While some costs are unavoidable, there are ways to reduce how much you pay in processing fees:

• Add a surcharge (with transparency) – Many Australian businesses pass on card fees to customers, provided they comply with RBA guidelines and disclose costs clearly.

• Encourage in-person payments – Fees for card-not-present (online or over the phone) are usually higher than contactless or chip payments.

• Negotiate with your provider – If your business processes high volumes, ask for reduced rates or tailored pricing.

• Optimise payment routing – Some processors (like Airwallex) use smart routing to reduce costs on international payments.

• Review your statements regularly – Keep an eye on hidden or unexpected charges and renegotiate if fees increase.

By combining the right provider with smart practices, Australian businesses can keep credit card processing costs under control and protect their margins.

Scale smarter with a cost-effective, secure credit card processor

Growing a business in Australia means finding a payment partner that cuts costs, scales with you, and keeps every transaction secure. Airwallex Payments is an all-in-one solution that combines gateway, processing, and merchant account in one simple setup. Collect and settle in the same currency without opening multiple entities or losing money to hidden FX fees.

Airwallex is PCI-DSS and SOC 1 & 2 compliant, and meets all local regulatory requirements. Power your growth with a trusted, global credit card processing solution built for modern Australian businesses.

Credit card processing: frequently asked questions

How much are credit card processing fees in Australia?

Credit card processing fees in Australia usually range between 1%–3% per transaction. According to the Reserve Bank of Australia, the average merchant service fee for credit cards is around 1%–1.5%. Fees vary by provider, card type and whether the transaction is in-person or online.

Is credit card processing safe?

Yes. Credit card processing in Australia follows strict security standards including PCI DSS compliance, encryption and tokenisation. Reputable providers like Airwallex also offer fraud detection tools and chargeback protection to keep businesses and customers safe.

Which is the best credit card processing company for small businesses?

The best provider depends on your business needs. Square and Smartpay are popular for simple, flat-rate pricing, while Airwallex offers lower FX fees, Global Accounts, and strong integrations. For small businesses wanting to scale internationally, Airwallex credit card processing is often the most flexible option.

What is the difference between a payment gateway and a processor?

A payment gateway is the technology that captures and encrypts card details at checkout. The processor is the service that routes the transaction through banks and card networks for authorisation and settlement. Many providers, including Airwallex, combine both functions.

How long does settlement take in Australia?

Settlement times vary. Traditional banks may take 2–3 business days. Fintech providers like Airwallex can settle most domestic card transactions within one business day, helping businesses improve cash flow.

What’s the difference between debit card vs credit card processing?

Debit card processing moves money directly from the customer’s bank account, often at lower fees. Credit card processing involves the issuer providing short-term credit, which typically has higher fees but also offers merchants wider acceptance and customers more flexibility.

How long does it take for a credit card to be processed?

Authorisation happens in seconds, whether the transaction is online or in-store. Settlement (moving funds into the merchant’s account) takes longer, usually 1–3 business days, depending on the provider.

What does it mean when a credit card is processed?

Processing means the card details have been transmitted through the gateway and processor, authorised by the issuer, and approved for settlement. Once cleared, the funds are scheduled for transfer to the merchant.

Who pays for credit card processing?

The merchant pays the processing fees, although some businesses add a surcharge to recover these costs. Australian law allows surcharging as long as it is transparent and doesn't exceed the cost of acceptance.

How do I take credit card payments on my website?

You need an eCommerce platform or website with a payment gateway integrated. Popular options include Shopify, WooCommerce or custom APIs. Providers like Airwallex offer all-in-one solutions to accept online card payments securely.

What other types of payments should you accept?

Alongside credit card processing, Australian businesses should consider offering debit cards, mobile wallets (Apple Pay, Google Pay), bank transfers and Buy Now Pay Later options. Providing multiple payment methods improves checkout conversion and customer satisfaction.

Sources:

1. https://www.airwallex.com/ecommerce-campaign-2024

2. https://www.sphericalinsights.com/reports/credit-card-market

3. https://www.rba.gov.au/payments-and-infrastructure/review-of-retail-payments-regulation/2024-10/pdf/merchant-card-payment-costs-and-surcharging-oct-2024.pdf

This information doesn’t take into account your objectives, financial situation, or needs. If you are a customer of Airwallex Pty Ltd (AFSL No. 487221) read the Product Disclosure Statement (PDS) for the Direct Services available here.