If you’ve ever asked yourself…
“What is a credit card processing company?”
Let’s get clear on the basics.
A credit card processing company acts as the middleman that enables businesses to accept credit card payments from customers. They manage the technology and relationships to move money from a customer’s credit card to the merchant’s bank account.
In 2025 and beyond credit card processing is not just a nice-to-have, it’s a non-negotiable for any business that wants to stay competitive.
Whether you’re an agent looking to get started in merchant services, or run a brick-and-mortar shop, an online store, or a service-based business, the ability to process payments efficiently and securely impacts a merchant’s bottom line.
In this guide we’ll break down:
- How credit card processing works
- What a processing company actually does
- Types of companies available
- What features to look for
- How to choose the right provider
- Common challenges
- The future of payment processing
Let’s dive in.
How Credit Card Processing Works
The number one thing any credit card processing company needs to do successfully is process a transaction.
Every time a customer swipes their card on a credit card machine this is what happens:
Step-by-Step Breakdown of a Transaction:
- Customers initiate a purchase by inserting, tapping, or entering their credit card info.
- The payment processor sends the transaction details to the credit card network (Visa, Mastercard, etc.).
- The issuing bank (the customer’s bank) approves or declines the transaction.
- The acquiring bank (the merchant’s bank) accepts the funds.
- The payment is settled into the merchant’s account, minus credit card processing fees.
There’s also a few key players involved with every transaction.
Without them you wouldn’t be able to swipe at any store.
- Customer: Uses a credit card to make a purchase.
- Merchant: Accepts the payment.
- Issuing Bank: Issues the customer’s credit card.
- Acquiring Bank: Receives funds on behalf of the merchant.
- Payment Processor: Connects all parties and ensures the transaction flows correctly.
Now that you know how a transaction works…
Let’s cover exactly what a credit card processing company actually does.
What a Credit Card Processing Company Does
A credit card processing company plays a big role in making the 5 step transaction process run smoothly and securely.
They are responsible for:
- Facilitating credit card payments between customers and businesses
The core function of a credit card processing company is to move money securely from a customer’s credit card to the business’s bank account.
It sends data to the credit card network (like Visa or Mastercard), which routes it to the issuing bank.
The issuing bank approves or declines the transaction, then the acquiring bank (merchant’s bank) deposits the funds, minus fees, into the business account.
- Providing payment terminals, online checkout software, and mobile card readers
Processing companies provide the hardware and software businesses need to actually accept payments.
Examples are Point of Sales systems for swiping, dipping, or tapping cards, checkout plugins or hosted payment pages for e-commerce, and card readers connecting to phones or tablets via Bluetooth or plug-in for mobile or remote businesses.
Basically, if you need physical equipment to accept payments, a payment processor has it!
- Offering virtual terminals for phone and manual orders
Virtual terminals allow merchants to manually key in credit card numbers—ideal for phone orders, invoices, or mail-order sales.
This is for service-based businesses, B2B transactions, subscription billing, remote teams processing customer payments
- Ensuring all transactions meet PCI DSS compliance standards
PCI DSS (Payment Card Industry Data Security Standard) is a mandatory set of rules designed to protect cardholder data.
Credit Card processing companies handle this to help merchants avoid avoid penalties, reduce data breach risks and build trust with customers
- Offering chargeback management and fraud prevention tools
Chargebacks happen when a customer disputes a transaction. Processors help prevent, detect, and resolve these events.
Long story short…
They manage everything back to front related to processing credit card payments so merchants can focus on running and growing their business.
Types of Credit Card Processing Companies
Not all credit card processing companies are the same.
There are 4 main categories.
1. Merchant Service Providers (MSPs)
Full-service providers offering hardware, software, and support. A good example is Clover.
2. Payment Gateways
Online-only platforms that integrate with eCommerce websites to process credit card payments. A good example is Authorize.Net.
3. Independent Sales Organizations (ISOs)
Third-party resellers of processing services. Often offer lower rates, but most have less support to help agents and merchants.
That’s why if you’re looking to go the ISO route it’s crucial to find the RIGHT company to work with.
4. Third-Party Processors
Companies that handle everything under one roof with flat-rate pricing. Examples of this are Square, Stripe, PayPal etc.
“Ok…so how do I know which one is best?”
That depends on the business and its needs.
Which is why it’s important to know what you absolutely need and features that are tailored to a specific business…
Key Features of a Good Credit Card Processing Company
No matter which processing company you go with…these are NON negotiables to always look for.
These 5 pillars are like a FOUNDATION for a house. If any are missing the entire structure crumbles:
- Find a Competitive Credit Card Processing Fee and structure: Flat-rate, interchange-plus, or subscription models are all options depending on volume. You can see a more in depth breakdown of each of these in my article: How much do credit card companies charge merchants
- Security & PCI Compliance: Tokenization, encryption, fraud detection
- POS & eCommerce Integration: Easy connection to platforms like Shopify, QuickBooks, WooCommerce
- Responsive Customer Support: 24/7 availability, setup guidance, dispute resolution
- Transparent Pricing: No hidden fees, clear contract terms
I’ll break down how you can choose the right credit card processing company below.
Choosing the Right Credit Card Processing Company
There’s a few factors to Consider before choosing a credit card processing company.
- Monthly volume of credit card payments
- Type of business (online, retail, service-based)
- Need for mobile or virtual payment options
- Your current POS or eCommerce setup
- Contract length and cancellation terms
You want to make sure your solution fits your business like a glove.
You can check out a few popular options and which business and transaction volume they can fit best below:
Challenges in Credit Card Processing
Even with the right provider you can still face challenges.
A few to look out for include:
1. Chargebacks and Fraud
Disputes can lead to tons of losses. Look for providers with chargeback protection and real-time alerts.
2. Compliance Requirements
PCI DSS regulations are complicated, but your processor should handle all this for you (or at the very least guide you through the steps)
3. Hidden Fees
Make sure to always read the fine print. Watch out for setup, batch, statement, and early termination fees, these are bogus charges you shouldn’t be paying!
Knowing these things upfront can help you avoid potential losses and help you make smarter decisions.
Even if you choose the right processor for your business in 2025…
This industry is always evolving so you need to stay up to date in case a better option arises.
Future Trends in Credit Card Processing
The credit card processing system is always growing and evolving.
If you’re looking to find the best payment solution for the next 5, 10 or 15+ years here’s what to watch:
1. Contactless & Mobile Payments
Apple Pay, Google Wallet, and tap-to-pay cards are quickly becoming standard. Make sure you have a setup that can accept these.
2. AI & Machine Learning
Processors are starting to use AI to detect fraud patterns, predict chargebacks, and automate approvals. As AI in payment processing gets more cost effective to implement it’s worth asking your provider about any developments.
3. Blockchain & Cryptocurrency
Blockchain and Crypto is becoming a way to offer fast, borderless transactions with enhanced transparency.
Instead of paying with a traditional card some customers might start paying with Bitcoin or other cryptocurrencies.
This can have benefits of lower fees and faster settlements but also come with risks, such as volatile currency and lack of chargeback protection.
Conclusion
So, here’s the bottom line…
A credit card processing company is a crucial partner that enables your business to accept credit card payments smoothly and securely.
From handling transactions to providing hardware and software, these companies are the backbone of modern payment processing. With the right provider, you can reduce costs, improve efficiency, and deliver a seamless customer experience.
However before signing any agreement, compare features, fees, and support options from multiple credit card processing companies. Take your time because this is a key decision that affects your bottom line.
The cool thing is credit card processing isn’t just useful for merchants and business owners.
It’s a great industry for average people to make passive income as well.
Because if you’re able to place a credit card machine inside a local business, you can enjoy around 1% of the transaction volume in monthly residuals.
This means if a local bakery processes $50,000 a month…
Placing a credit card machine inside the store with the right software can make you $500 per month in residual income.
Over 1000+ people at Cash Swipe are already doing this to make residuals while they sleep.
Our top students are actually making over 10,000 in monthly residual income (in less than 2 years).
If you’re someone who’s looking to build residual income with credit card processing there’s no place to get started than Cash Swipe.
Because we partnered with a reputable ISO out of Los Angeles called Paybotx, with tens of thousands of accounts and a generous residual structure for any beginner looking to generate residual income for a fraction of investing into real estate.
If looking more into this sounds interesting to you…
Also, check out these free additional resources:
- Download our 2025 Guide to generating residual income with credit card processing.
- Join our Facebook Group, Credit Card Processing for Beginners for free to get LIVE training from industry experts weekly and ask questions in real time.
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