Customer using a Pineapple POS credit card terminal.

Understanding the Mechanics of Credit Card Processing for Small Businesses

Are you a small business owner looking to accept credit and debit payments? Credit card processing can be a great way for your business to increase sales and offer customers the convenience of using their preferred payment method.

But with all the features, fees, technology, and legal requirements involved, understanding the basics of credit card processing for a small business is no small feat. Discover how credit card transactions work and where any cost markups may arise along the way.

How Credit Card Processing Works

From start to finish, it’s important to know and understand how credit card transaction processing happens. There may be variations depending on each merchant services provider, along with the hardware and software used.

  • Payment initiation: The cardholder chooses to pay with a credit card or debit card at an in-person point of sale or online checkout from their shopping cart.
  • Authorization: The POS system sends transaction details, which include credit card or debit card information, to the payment processor or acquiring financial institution.
  • Verification: A payment processor forwards the transaction request to the correct credit card network.
  • Network approval: The credit card company verifies the credit card and if there are available funds, along with other security measures. When approved, the company sends an authorization code back to the payment processor.
  • Payment settlement: Whether it’s at the end of the business day or a sort of grace period, the business batches all authorized transactions for processing.
  • Transfer: Funds are transferred from the customer’s credit card to the merchant account.
  • Depositing: The acquiring bank deposits the money into the business’s merchant account. This is usually within a few days.
  • Reconciliation: Transactions are reconciled, verified, and matched with appropriate sales or invoices.
  • Fees: The business may have some processing costs per transaction.
  • Record keeping: The business keeps records of sales receipts, settlement reports, and financial statements.

This all happens in a relatively short time, which is why it’s important to make sure your POS system is strong. It’s common for small businesses to pair up with a credit card processing company or bank.

Choose a Processing Company

Many things go into deciding on a credit card processor, starting with identifying your business needs.

  • Do you need a processor that accepts e-commerce and online payments along with in-person payments?
  • How many credit card readers do you need? How about a mobile card reader?
  • Will you accept all credit card types or stick with the most popular ones? (American Express, Visa, Mastercard, Discover)
  • Do you want to offer contactless payments through Apple Pay, PayPal, and other types of payment gateways, virtual terminals, or wallets?

Cons of Poor POS Systems

While you’re considering a POS system for your small business, it’s important to do your homework. Using a poorly designed merchant service will impact your business. It’s crucial to invest in a payment processor that aligns with your business, ensuring a smooth and efficient operation.

Poor Customer Service

Longer wait times, regular glitches during payment processing, or incorrect pricing can lead to frustrated customers (and employees).

Data Security

Inadequate encryption, weak authentication, or even outdated software can expose customers’ sensitive data, like bank account and card information. This could lead to legal and financial consequences for your business.

Unable to Grow

You don’t want a system that can’t grow with your business and sales volume. Limited scalability keeps you from opening new locations and handling increased transaction volume.

Poor Support and Maintenance

When issues arise and you need customer support, you may not receive timely help or resolve technical problems. This leads to longer downtimes, low-volume sales, and upset customers and staff.

Types of Fees

Some credit card processing fees go into credit card payments. As you research credit card processing, get familiar with these terms and how they work.

Setup Fees

A fee occurs when an organization sets up an account.

Interchange Fees

Credit card networks charge interchange fees based on the card type (rewards, credit), industry, and transaction amount. These are also known as interchange rates.

Early Termination Fees

When a business leaves a contract.

Monthly Fees

Different from a per-transaction fee, think of this as a monthly subscription. Credit card processing company Helcim has a $0 monthly fee but has higher swiped and online transaction fees.

Batch Fees

These are applied each day transactions are processed, no matter how many transactions there are on those days.

PCI Compliance Fees

Ensures compliance with the Payment Card Industry Data Security Standard (PCI DSS).

Chargeback Fees

Merchants are charged this whenever they have a chargeback (disputed or fraudulent transaction).

If you want to avoid paying fees, you don’t have to accept credit cards. Be prepared, however, to lose sales. An astounding 80% of consumers prefer to use plastic over cash.

How Others Stack Up

Now that you have an idea of what happens per credit card transaction, it’s time to look at a handful of POS/payment solutions.

Pineapple POS

We’re partnered with SkyTab POS, which is owned by Shift4. This software offers a range of functionality: full-service and real-time customer service, in-store or curbside pickup, in-house table service, in-person transactions, and contactless payments like mobile payments made on mobile devices. Keep track of your transactions and make inventory management easier, even with third-party integrations.


A mobile POS system now known as Bock, there’s a 2.6% processing rate, a 10-cent fee per transaction, and a tight margin.


Limited flexibility can dampen workflows, and it becomes costly if you need multiple POS systems.


Through a dashboard, merchants use this largely user-friendly company, but it’s limited to e-commerce or online businesses.

National Processing

Interchange-plus pricing and a monthly fee of nearly $10 are included in rate plans through this company. Transaction fees are between 0% and 1.5%, working with high-risk merchants.


Subscription-based, this may not be optimal if you have low-volume transactions. There’s also an interchange rate per transaction, plus 15 cents on top of that.


Since 2011, Stripe has processed credit card transactions and has strong security. High processing fees add up fast at 2.9% plus 30 cents per transaction.

Process Credit Cards With Us

It can be overwhelming to research credit card processing for small businesses. Pineapple POS offers a transparent pricing structure with no hidden fees. Process payments easily, whether you’re a brick-and-mortar or online store.

Contact Pineapple POS today for the best credit card processing experience.