Payments
15 min read
How card transactions actually work, from swipe to deposit.
Every control here should be treated as a test. Start small, measure, then roll out.
Quick Answer
| Looking for... | Go here |
|---|---|
| Which processor should I use? | Processor Comparison |
| How much will processing cost? | Total Cost Model |
| Why are transactions failing? | Auth Optimization |
| How does settlement work? | Settlement |
| What payment methods should I accept? | Payment Methods |
| Understanding my statement | Reading Statements |
Are You Card-Present or Card-Not-Present?
Not sure? If customers swipe/tap in person, you're CP. If they type their card online, you're CNP.
Pick Your Mode
- Calculate your effective rate (total fees / total volume). On interchange-plus pricing, above 2.9% deserves investigation. On aggregator pricing (Stripe at 2.9% + $0.30, Square at 2.6-3.3% depending on plan), your effective rate will naturally be 3.0-3.5% depending on average ticket size - that's normal for that pricing model.
- Pull your top 5 decline codes from last month. Pick the most common one and read what it means.
- If you have recurring billing: check how many customers failed payment in the last 30 days. Are you retrying intelligently?
That's it. Dashboards and optimization can wait.
Under $50K/month: Use a simple all-in-one processor (Stripe, Square, PayPal). Don't negotiate rates yet. Your volume doesn't justify it. Focus on getting paid reliably.
$50K-$150K/month: You have some negotiation leverage but limited. Focus on: checkout conversion (highest ROI), making sure guest checkout works smoothly, monitoring your auth rate monthly (should be at least 85-90% for US domestic CNP), and verifying your effective rate isn't creeping up. Don't optimize interchange yet. Don't add fraud tools yet. Don't add payment orchestration. This is the range where most SMBs should focus on growing revenue, not optimizing payment costs.
$150K-$1M/month: Your effective rate matters now. Compare your rate to benchmarks, ask your processor about interchange-plus pricing, and start tracking decline codes monthly.
Over $1M/month: Negotiate interchange-plus pricing if you haven't. Consider a dedicated payment gateway vs. all-in-one. Auth optimization becomes worth the effort.
Over $10M/month: Multi-processor strategy, dedicated payment operations person, and formal vendor reviews. See Scaling Milestones.
How a Transaction Flows
From checkout to cash in your bank account.
| Phase | What Happens | Timing |
|---|---|---|
| Authorization | "Can this card pay?" - Funds reserved | 2-3 seconds |
| Capture | "Charge it now" - Transaction finalized | Same day or delayed |
| Clearing | Networks calculate who owes what | End of day |
| Settlement | Money moves between banks | T+1 to T+3 |
| Funding | Cash hits your account | T+1 to T+3 |
Deep dives: Authorization & Capture | Settlement | Money Flow
Optimization (when you're past $100K/month and want to improve margins)
If you're new to payments, read these in order:
Test capture timing: For one product line, compare capture-at-shipment vs. capture-at-order. Measure "goods not received" disputes vs. operational complexity over 30 days.
Payment Methods (cards, bank transfers, wallets, and alternatives)
Run a 2-week checkout survey: "What payment method do you wish we had?" If fewer than 10% of customers mention it, it's probably not worth the integration effort.
Next Steps
- Authorization & Capture - How transactions work
- Settlement & Reconciliation - Where your money goes
- Payment Methods Overview - Your options
- Selling Internationally - If you get foreign orders
- Buying Payments - Choose the right processor
- Checkout Conversion - Stop losing sales
- Auth Optimization - Improve approval rates
- Interchange - Optimize your fees
- Digital Wallets - Add Apple Pay, Google Pay
- Going Global - International expansion
Start with The Guide, Pathway 1: Getting Started with Payments, a beginner-friendly 20-minute walkthrough covering how money moves, choosing a processor, and understanding fees. This page is the full deep dive.
See the Glossary for quick definitions of payments and fraud terms.
See Also
- Processor Management - Multi-processor strategy
- AVS & CVV - Verification signals
- 3D Secure - Authentication and liability shift
- Risk Scoring - Transaction scoring
- Holds and Reserves - Cash flow impacts
- Payments Metrics - Performance tracking
- Refund Strategy - When to refund