The Four Parties in Every Transaction
A card payment involves four parties, and understanding them explains almost every fee on your statement. The cardholder holds the card. The issuing bank issued that card and carries the credit risk. The acquiring bank (through your processor) holds your merchant account and deposits your funds. The card network — Visa, Mastercard, Discover, American Express — sets the rules and moves the messages between the banks.
Your processor is not the party that keeps most of your fees. The majority of what you pay goes to the issuing bank as interchange, which is why no processor can beat interchange — only the markup on top of it is negotiable.
Authorization: The First Few Seconds
When a card is dipped, tapped, or entered online, your terminal or gateway sends an authorization request to your processor, which routes it through the card network to the issuing bank. The issuer checks the account for available funds, verifies the card is not blocked, runs its own fraud scoring, and returns an approval or decline.
An approval places a hold on the cardholder's funds. No money has moved yet. This entire round trip usually completes in one to three seconds.
Batching and Settlement
At the end of your business day, your terminal or gateway submits the day's approved authorizations as a batch. The processor sends that batch through the network for clearing, the issuing banks transfer funds to the acquiring bank, and the acquirer deposits the net amount into your business bank account.
The gap between batch and deposit is your funding time — typically next business day, sometimes same day depending on your batch cutoff. Missing a batch cutoff is the single most common reason a deposit appears late.
Debit vs. Credit: Where the Path Differs
Debit transactions can route two ways. A PIN debit transaction goes through a debit network and typically carries lower, often flat-rate interchange. A signature (or PIN-less) debit transaction routes through Visa or Mastercard like a credit transaction.
Regulated debit — cards issued by banks above the Durbin Amendment asset threshold — is capped at roughly 0.05% plus 22 cents, far below credit interchange. If your customer base is debit-heavy, a processor that passes regulated debit through at cost saves you meaningfully more than one that blends everything into a single flat rate.
What You Actually Pay
Your total cost breaks into three layers, and only one is negotiable:
- Interchange — set by the card brands, paid to the issuing bank, identical for every processor
- Assessments — the card network's own fee, roughly 0.13%–0.15%, also non-negotiable
- Processor markup — your provider's margin, plus monthly, statement, batch, PCI, and gateway fees; this is the only layer that is actually competitive
Why Pricing Model Matters More Than the Headline Rate
Flat-rate pricing charges one percentage for everything, so you overpay on low-interchange debit and regulated cards. Tiered pricing sorts transactions into qualified, mid-qualified, and non-qualified buckets that the processor defines and can change. Interchange-plus passes the true interchange through and adds a disclosed markup, which is why it is the only model you can audit against a published interchange table.
A quote of "2.6% flat" and a quote of "interchange + 0.25%" cannot be compared directly. Only the effective rate — total fees divided by total volume — tells you which one costs less for your specific card mix.