In this section, we’ll look at the details of how card processing works, the multiple parties involved, and how to assure customers’ payments go through smoothly.

Credit and debit card transactions likely account for the majority of your payments. So it’s vital that (where possible) these are authorized without a hitch.

How does card processing work?

Card processing works as follows.


The payment processor passes transaction details to an acquirer.


The acquirer sends a request to the customer’s bank (the issuer).


The issuer reviews the transaction and replies with a response: Approved or declined.

What’s an acquirer?

An acquirer is a bank or financial institution that acquires funds from a shopper. It’s responsible for sending the authorization request to the issuer and passing the response back to the merchant.

So, the acquiring bank (also known simply as an acquirer) is the institution that processes credit or debit card payments on behalf of a merchant.

In order to get the best from your card processing, it is vital to understand the factors that impact the result. These are processing costs and authorization rates. 

Card processing costs 

There are fees in Credit card processing.
Processing fee: Which is charged by your payment provider for processing the transaction.
Card scheme fee: Charged by the card schemes for the right to use their network.
Interchange fee: Charged by the issuing bank.

These fees change depending on the type of transaction, your location, and business model — among others. These fees can have a significant impact on your bottom line. The good news is that, when it comes to interchange fees, there are things you can do to lower costs down.

Interchange fees explained

Interchange is usually the most significant expense when it comes to card processing. It’s also very complex, since the structure and fees vary for each market, and they change all the time. 

Fortunately, efforts are being made to standardize interchange with stricter rules and the introduction of fee caps in various markets. Europe kicked this level of standardization off back in 2015, and Australia jumped on the bandwagon in 2017. 

Other factors impact how much interchange you pay:

Domestic processing

Just like with mobile roaming fees, transactions are generally cheaper if processed locally. So it’s better to use a local acquiring connection if you can to benefit from local regulations and incentivized rates.

Incentivized rates

Interchange fees vary from market to market. In the US and Australia, for example, Visa and Mastercard grant lower rates to specific businesses like charities, travel agents, streaming services, and utilities. So you want to ensure your transactions are going through under the correct category. 

Very important: if your payment provider bills your business using the interchange++ pricing model, any savings made will be automatically passed onto you.

What is interchange++ pricing?

It is a pricing model that adjusts based on interchange rates.

Interchange++ vs Blended

With a blended rate, you pay an average processing cost, plus a fixed markup. You get the same price for every transaction, which keeps things simple, but you’re also likely to be subsidizing larger businesses that have the leverage to negotiate lower fees. 

Interchange++ pricing tracks the interchange rates. So when they go down, your costs go down. And you get to see what your exact fees are for every transaction — so there’s no danger of hidden costs or additional surcharges.

Card authorization rates 

25% of the declined transactions lack valid reasons. 

Logically, there are good reasons to decline a transaction, like insufficient funds or suspected fraud. But frequently the card is declined because there was a temporary outage at some point in the network, or the issuing bank’s reading of the payment request was different to the acquirer’s.

So what can you do about it? 

The key lies in understanding the reason why the card was declined in the first place. If you have this information, you’ll be able to discern if the decline is valid and if not, take action. 

Here is where your acquirer comes in. 

The acquirer is usually another 3rd party provider in the payment process. But, in PayXpert’s case, acquiring is built into our platform, so we pass the information from the issuing bank directly to our customers. This way, you can see which card payments were unsuccessful and more importantly, the reason why, so you can act to minimize rejections.

A common example. 

An Italian issuer was declining recurring transactions outright because no CVV was submitted. Once we knew this, we submitted the payment with the CVV field included (left blank). After that, the issuer started to approve transactions and the problem was solved.

Get the most from your card processing with PayXpert

You don’t have to be a payment genius to turn declined card payments into approvals. And you don’t have to spend time distressing about oscillating interchange fees. We will do it for you.

We created smart data tools to detect downtime and spot irregularities in banking systems. We use this information to adjust payment requests in real-time, maximizing the chances of approval.

We’ll keep you up to date about any changes to interchange rates that will affect you, and our dedicated team monitors rates and regulations to ensure you get the best costs. Plus, our local acquiring licenses in critical markets around the world give you access to lower domestic rates.

Discover | PayXpert’s optimization tools


Our Account Managers will support you in the process of integrating digital payments solutions to allow the best experience to your future customers.

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