A business owner’s guide to credit card processing: what you need to know in 2025

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.

There is no denying credit card’s role in global commerce. In fact, 39% of consumers prefer credit cards for international purchases. Additionally, the global credit card market was valued at $559.18 billion, with projections indicating it could more than double to $1.146 trillion by 2033, growing at a CAGR of 7.45%.

Businesses should aim to capture this growth in credit card usage by accepting credit cards at their checkout, while also being aware of processing fees , fund settlement delays, and chargebacks.

In this piece, we break down the essentials—how credit card processing works, what costs to watch out for, and what to look for in a credit card processing provider. Whether you’re just getting started or optimising your current setup, this guide will help you navigate the process and keep more of what you earn.

What is credit card processing?

Credit card processing is the method by which a business accepts and handles credit card payments. It involves multiple parties working together to approve, authorise, and settle transactions in real-time.

Learn more about the key parties involved and how credit card processing works below.

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 issues cards to customers. It approves or declines transactions based on available funds, credit limits, and fraud detection measures. Issuers can include major banks and fintechs.

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 works with the merchant to process payments. It ensures that transactions are completed and that funds from approved purchases are deposited into the merchant’s account.

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.

Let’s look at a 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 (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

Credit card processing isn't just about accepting payments, it’s about creating a convenient,   and safe payment experience for your international customer base that results in increased sales. Below are key reasons why credit card processing is important for your business. 

A more scalable payment system

Imagine if every business had to manually verify transactions by calling a customer’s bank before accepting a credit card payment. The process would be slow, inefficient, and prone to errors leading to lost sales and frustrated customers. Credit card processing automates communication between financial institutions, allowing credit card payments to be authorised, processed, and settled within seconds. This reduces checkout time, creating a smoother, more efficient customer experience.

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.

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 structuresand 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.

1. How much does it cost to process credit card payments?

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.

2. Does the processor fit your existing systems?

Not all credit card processors work seamlessly. You’ll need to figure out how it’ll fit in with your existing payment gateway,  with every eCommerce platform, or accounting software. 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. Assess based on whether this can be managed by your current resource.

• 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.

3. How secure is the payment provider?

Selecting a credit card processing provider isn’t just about pricing, it’s also about choosing a partner with robust security. Security breaches can lead to financial losses, legal liabilities and damage to your reputation. 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.

4. What protections do you have with chargebacks?

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.

What to consider when setting up credit card processing

The most important consideration when choosing a payment processor is understanding your business needs. For example, different processors may be better suited for different types of business.  Your transaction volume can also help decide what sort of pricing structure will work to your advantage.

Other considerations may include:

• Cost and fees: Look at total cost, including transaction fees, setup fees and monthly fees. Be aware of any additional charges such as chargeback costs.

• Compatibility with existing systems: A smooth integration enhances efficiency, reduces errors and leads to an improved operational performance.

• Security and compliance: Ensure that the processor is PCI DSS compliant, and that they employ encryption, tokenisation, and fraud detection tools.

• User experience: Ensure your processor supports a wide range of payment methods, including BNPL (Buy Now, Pay Later) and offer local currency checkouts especially if you operate internationally.

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

As you expand your business, choosing a credit card processing provider that offers a cost-effective, scalable, and secure partner is crucial. Airwallex Payments is an all-in-one payment service provider that combines various functions such as payment gateway, payment processing and merchant account.Airwallex also lets you to collect and settle funds in the same currency without the hassle of setting up multiple entities or paying conversion fees. 

Airwallex also meets the highest international security standards including PCI-DSS, SOC 1 and 2 compliance, in addition to our local regulatory requirements. Experience a truly global and secure payment processing solution with Airwallex Payments.

Sources:

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

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.