Understanding who gets paid every time a customer taps, inserts or swipes their card — and why changing processors doesn't necessarily change every cost.

A $100 Sale Isn't as Simple as It Looks

A customer walks into your business.

They purchase $100 worth of products or services.

They tap their card.

The transaction is approved, and the funds eventually make their way to your bank account.

From the customer's perspective, the entire process may have taken only a few seconds.

Behind the scenes, however, several different organizations helped make that transaction possible.

And that's where one of the biggest misunderstandings about payment processing begins.

When a business owner sees processing fees deducted from sales, it's easy to assume:

“My processor is keeping all of that money.”

It isn't that simple.

Every Transaction Has Multiple Participants

Although the payment process can become technically complicated, business owners don't need to understand every step of authorization and settlement to make better decisions.

What matters is understanding the major participants.

The Customer's Issuing Bank

This is the financial institution that issued the customer's credit or debit card.

Among other responsibilities, the issuing bank approves or declines the transaction and assumes various costs and risks associated with the card account.

A significant component of card-processing cost — interchange — is generally paid to the card-issuing financial institution.

The exact interchange amount can vary depending on factors such as the type of card, how the transaction is accepted and characteristics of the transaction itself.

That's one reason two businesses can process similar sales and still experience different processing costs.

The Card Networks

Card networks such as Visa and Mastercard provide the infrastructure and rules that allow issuing banks, acquiring institutions, processors and businesses to communicate and transact.

They receive various assessment and network-related fees associated with transactions.

These are different from interchange and different from the processor's own pricing.

That distinction becomes important when you're trying to determine where your processing costs are actually coming from.

Your Payment Processor and Other Payment Providers

Your processor — along with other providers that may be involved in your particular payment setup — provides the technology and services necessary for your business to accept and manage payments.

Depending on the solution, that can include authorization, settlement, reporting, equipment, gateways, software integrations, customer support and other services.

This is also where the processor's own markup and certain service-related fees may appear.

And this is where business owners need to make an important distinction:

The total amount you pay for processing is not necessarily the amount your processor earns.

Why That Distinction Matters

Suppose you're paying what appears to be a high effective processing cost.

Your first reaction might be:

“I need a cheaper processor.”

Maybe.

But before making that decision, you need to understand what is actually creating the cost.

Some components may be associated with interchange.

Some may come from card-network assessments or other network charges.

Some may be related to the way transactions are being accepted.

Some may come from equipment, gateways, software or additional services.

And some may represent processor pricing where a better option really does exist.

Until those pieces are separated, simply comparing one advertised “rate” against another can give you an incomplete picture.

This Is Why I Don't Start With the Rate

When I review a merchant statement, I'm not looking for a reason to tell a business owner to switch processors.

I'm trying to understand what they're paying, who is receiving it and why.

That's a very different objective.

If the existing setup is competitive, works well for the business and the numbers make sense, changing processors simply for the sake of changing doesn't accomplish much.

On the other hand, if the statement reveals unnecessary markup, avoidable fees, inefficient transaction methods or a payment setup that no longer fits the business, then there may be a legitimate opportunity to improve it.

The recommendation should come after the analysis — not before it.

A Processing Statement Tells a Story

This is also why merchant statements can look so complicated.

You're often looking at charges associated with different parts of the payment ecosystem all appearing in one place.

Instead of asking:

“Why is my processor charging me all of these fees?”

A better first question may be:

“What are these fees, who receives them and which ones can actually be influenced?”

Once you start looking at a statement that way, it becomes much easier to separate:

Normal costs of accepting cards from Costs that deserve a closer look.

And that's where a useful payment review really begins.

Key Takeaway

Your processor doesn't keep your entire processing fee. Every card transaction involves multiple participants, and different portions of your processing cost can go to the issuing bank, card network, processor and other parties involved in making the transaction happen.

Understanding who gets paid — and why — can help you determine which costs are simply part of accepting cards and where opportunities for improvement may actually exist.

What I Would Tell a Business Owner

Don't switch processors simply because someone promises you a lower rate.

And don't assume that every fee on your statement is unavoidable either.

First, understand what you're paying.

Understand where the money is going.

Then determine whether your current setup still makes sense for the way your business operates today.

Sometimes that analysis uncovers meaningful savings.

Sometimes it identifies a better way to accept payments.

And sometimes it confirms that what you already have is working just fine.

All three can be good outcomes.

Because the purpose of a payment review shouldn't be to find a reason to change.

It should be to know before you change.

Continue Learning

Next in the SwipeLogic Payment Processing Explained series:

Why Small Fees Like NABU Usually Aren't Your Biggest Problem

We'll look at why individual statement fees can attract a lot of attention — while much larger opportunities may be hiding elsewhere in your overall payment costs.

About SwipeLogic

SwipeLogic helps businesses throughout San Antonio and South Texas understand their payment costs, evaluate payment technology and make informed decisions about how they accept payments.

Our approach begins with understanding what's already in place — not assuming something needs to change.

Understand. Compare. Save.

Questions About Your Payment Setup?

If you'd like to better understand where your processing costs are going — or simply determine whether your current setup still makes sense — SwipeLogic offers a complimentary payment statement review.

No assumption that you need to switch. Just a clearer understanding of what you're paying and why.

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