Small business credit card processing: What you need to know in 2026

A credit card processor enables businesses to accept debit and credit card payments from their customers. Generally, payment processing services cost a percentage of each card-based transaction they support, though fee structure varies significantly. To get started processing card-based transactions, you’ll need to work with a payment processor — this guide will help you better understand how payment processing works so you can choose the best credit card processor for your business

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What is credit card processing, and how does it work?

Credit card processing is a series of steps that occur after a buyer initiates a credit card transaction with a seller. Here’s how it works:

1. Purchase: The buyer presents a credit card as payment for goods or services.
2. Payment initiation: The buyer initiates payment. For in-person transactions, they’ll use the business’s point of sale (POS) system or credit card machine to swipe, insert or tap their card. For online transactions, they may enter card information manually or select a saved payment method.
3. Transaction data communication: The POS system sends the transaction data to the business’s credit card processor.
4. Authorization process: The credit card processor communicates with the card network (e.g., Visa or Mastercard) which in turn communicates with the issuing bank to authorize the purchase.
5. Transaction approval: The issuing bank verifies the customer’s identity and ensures sufficient credit or funds are available. It will approve or deny payment authorization and share this information with the card network. The card network will then inform the credit card processor of the decision.
6. Transaction finalized: The business’s POS system receives the transaction approval or denial. If approved, the transaction proceeds, and the business completes the sale.
7. Merchant settlement: When sales are completed for the day, the business sends all approved transactions to the credit card processor so it can settle the payments. The processor sends this information to the various card networks.
8. Transfer of merchant funds: The card networks and issuing banks transfer the appropriate funds to the business’s merchant account. The processor’s fees will be deducted automatically.
9. Cardholders charged: The issuing banks will add the transaction details to the cardholders’ accounts.

How much does it cost to work with a credit card processing company?

Not all processors charge the same way. The pricing model your processor uses has a significant impact on your total costs (sometimes more than the stated rate itself.) The four most common models are flat-rate, interchange-plus, subscription and tiered pricing.

Flat-rate pricing 

With flat-rate pricing, you pay a single fixed percentage on every transaction regardless of card type, often with a small per-transaction fee added. Rates typically fall between 2.6% and 2.9% plus $0.10–$0.30 per transaction.

• Pros: Simple, predictable, and easy to budget for. No monthly fees in many cases.
• Cons: Often more expensive for higher volumes because you’re subsidizing the processor’s margin on lower-cost card types.
• Best for: New businesses, low-volume sellers, or merchants who prioritize simplicity over cost optimization.

Interchange-plus pricing 

Interchange-plus (also called cost-plus) separates the wholesale interchange rate — set by card networks like Visa and Mastercard — from the processor’s fixed markup. You might see this expressed as “interchange + 0.3% + $0.10.”

• Pros: Highly transparent. You pay the true cost of each transaction plus a consistent markup, which tends to be the most cost-effective model at moderate to high volumes.
• Cons: Monthly statements are more complex and harder to reconcile. Some processors reserve this model for established businesses.
• Best for: Businesses processing $10,000 or more per month that want cost transparency and are comfortable reading itemized statements.

Subscription pricing 

Subscription pricing (sometimes called membership pricing) charges a flat monthly fee in exchange for access to near-wholesale interchange rates. Instead of a percentage markup on every transaction, you pay a small per-transaction fee on top of raw interchange.

• Pros: Can offer the lowest effective rates at sufficient volume. Costs are predictable and the model rewards businesses as they scale.
• Cons: The monthly fee creates a fixed cost floor that makes it inefficient for low-volume merchants.
• Best for: High-volume businesses processing $50,000 or more per month, where the monthly fee is quickly offset by savings on per-transaction costs.

Tiered pricing 

Tiered pricing groups transactions into categories — typically “qualified,” “mid-qualified,” and “non-qualified” — each carrying a different rate. Processors determine which tier a transaction falls into based on card type, entry method, and other criteria they define.

• Pros: Simple on the surface, with a clear rate for each tier.
• Cons: Least transparent of all models. Processors control tier assignments, and many transactions end up in higher-cost mid- or non-qualified buckets. This model is widely regarded as the least favorable for merchants.
• Best for: Approached with caution. It can work for businesses with predictable, low-risk transaction types, but most merchants would benefit from comparing it carefully against interchange-plus or subscription alternatives before committing.

Fees

In addition to the pricing model, a payment processor may charge a range of fees that add to your total costs. Here’s a general overview of the fees and costs you might expect:

• Setup fees: Some processors charge a one-time setup fee.
• Interchange fees: Interchange fees typically range from 1.5 percent to 3.5 percent of each transaction, depending on the card type and network. In-person transactions usually incur lower interchange fees than card-not-present transactions (e.g., online and phone purchases.)
• Payment processing fees: Your processor may charge a per-transaction fee or a monthly service fee. Some processing companies charge a flat rate plus a percentage of the sale, while others charge only a percentage of the sale.
• Monthly minimum fees: If you don’t meet the minimum monthly requirement as specified in your credit card processing service agreement (usually between $10 and $25), you may need to cover the difference.
• Monthly statement fees: Many processors charge a fee to send you a monthly paper statement; check whether the processor has an electronic alternative you can opt into.
• Early termination fees: Canceling your contract early could incur an expensive early termination fee — sometimes hundreds or even thousands of dollars. To avoid this fee, look for processors that offer flexible month-to-month service options instead of long-term contracts.
• Hardware costs: Depending on your setup, you may need credit card processing equipment, including card readers and POS terminals. You may have the option to rent or purchase this equipment. Costs vary widely; some processors even provide free equipment.
• Chargebacks: If a customer disputes a credit card transaction or returns a purchase, your processor may issue a chargeback fee.

What types of credit card processing hardware are there?

The hardware you need depends on how you accept card payments. Most processors support several equipment options, and some offer free basic hardware as part of their service agreement. Here’s a breakdown of the four main types:

Standalone terminal 

A dedicated countertop device — like the Verifone or Ingenico lines — that processes card payments independently of any other system. It typically supports swipe, chip and contactless payments.

• Best for: Brick-and-mortar retailers and service businesses with a fixed checkout counter that don’t need inventory management or advanced reporting built into their payment system.

POS tablet system 

A tablet-based setup — such as Square for Retail or Clover Station — that combines payment processing with software for inventory tracking, sales reporting, employee management and customer data.

• Best for: Restaurants, boutiques, and multi-employee businesses that want an all-in-one solution and are willing to invest in a more robust (and typically more expensive) hardware setup.

Mobile card reader 

A compact device that attaches to a smartphone or tablet via Bluetooth or headphone jack, processing payments through a companion app. Common examples include the Square Reader and PayPal Zettle.

• Best for: Mobile businesses, independent contractors, market vendors and pop-up retailers who need to accept payments on the go without committing to stationary hardware.

Virtual terminal 

A virtual terminal isn’t physical hardware, but instead a browser-based interface that lets you manually key in card details from any computer or device, typically used to process payments taken over the phone or by mail.

• Best for: Service-based businesses, B2B companies or any merchant that regularly processes card-not-present transactions without an e-commerce storefront. Keep in mind that manually keyed transactions typically incur higher interchange rates than card-present transactions.

Credit card processors compared

What are the pros and cons of accepting credit card payments?

While accepting credit cards is likely a great move for most businesses, some drawbacks are involved.

The upsides of accepting credit cards include the following:

• Accepting credit cards brings more customers. Cash is no longer king. According to the Federal Reserve’s 2025 Findings from the Diary of Consumer Payment Choice, cash accounted for just 14 percent of all payments, continuing its year-over-year decline. If you don’t accept credit and debit card payments, you risk losing out on a significant share of sales.
• Accepting credit cards increases revenue. Since credit cards don’t require immediate payment by consumers, accepting credit card payments can encourage customers to spend more.
• Accepting credit cards streamlines finances. Accepting credit card payments can automate your business financial management through your POS system far more easily than cash.

However, accepting credit cards may bring the following downsides:

• Accepting credit cards means risking fraud. PCI compliance rules have made credit card acceptance more secure than ever. Still, the threat of payment fraud exists. Credit card fraud can be costly for businesses. They might not receive money for goods sold, and credit card companies may hold them, not the scammer, liable.
• Accepting credit cards incurs costs. Credit card processing fees and miscellaneous charges can add up. Finding a processor with an ideal pricing model for your business is crucial.

Credit card processing requires the right processing partner

Credit card processing is a requirement for accepting card and digital payments. While it takes time to thoroughly understand the process and research potential processors, it’s a worthwhile investment. Your credit card processor is a valuable business partner that facilitates seamless payments and boosts customer satisfaction. Choosing one that suits your needs and budget can help set you up for success and improve customer relationships.