This guide explains the basics of card processing in Canada—from the moment a customer pays at checkout to when the funds arrive in your business bank account.

Why Understanding Card Processing Matters

The Canadian card processing system connects merchants, customers, and banks through trusted payment networks such as Interac, Visa, and Mastercard. By understanding how it works, businesses can:

• Improve customer experience with faster, safer transactions.

• Anticipate costs such as interchange and processing fees.

• Make smarter decisions about choosing payment partners.

Key Players in a Canadian Card Transaction

Several entities work together to complete each card transaction:

• Cardholder (Customer): The individual paying with their card.

• Merchant (Your Business): The business that accepts the payment.

• POS System or Payment Gateway: The device or online system that captures the card information.

• Payment Processor: An intermediary (e.g., Moneris, Elavon, Square) that routes transaction data between merchant and banks.

• Card Network (Visa, Mastercard, Interac): The global network that moves funds between banks.

• Issuing Bank: The customer’s bank, which provides the funds or credit.

• Acquiring Bank: The merchant’s bank, which deposits the funds into your business account.

The 5 Steps of a Card Transaction

1. Authorization

• Customer taps, inserts, or swipes their card (or enters details online).

• Data is encrypted and sent to the payment processor.

• The processor routes the request to the card network, which forwards it to the issuing bank.

• The issuing bank verifies funds, checks for fraud, and returns an approval or decline.

• All of this happens in seconds, appearing instant to the customer.

2. Batching

At the end of the day, the POS system groups (or “batches”) all approved transactions and submits them to the payment processor.

3. Clearing

The processor sends transaction details to the card network, which forwards them to issuing banks for confirmation of payment obligations.

4. Settlement

Funds move from the issuing bank to the acquiring bank (minus interchange fees). Settlement usually takes 1–3 business days in Canada.

5. Funding

The acquiring bank deposits the funds into the merchant’s account. The transaction is now complete.

The Costs of Card Processing

Merchants don’t receive the full transaction amount—fees are deducted along the way:

• Interchange Fees: Paid by the acquiring bank to the issuing bank. Set by card networks (Visa, Mastercard), based on card type, transaction method, and merchant category.

• Assessment Fees: Small charges from card networks for using their system.

• Processor Markup: The payment processor’s service fee, which may be negotiable.

Special Considerations in Canada

Canada’s Code of Conduct for the Credit and Debit Card Industry ensures fair treatment of merchants by requiring:

• Transparent contracts with no hidden fees.

• 90 days’ notice of fee increases.

• The right to cancel without penalty if fees rise.

The Rise of Fintech and Virtual Cards

The payments industry is evolving quickly:

• Virtual Card Issuing: Digital-only cards are now offered by fintechs and banks, ideal for online payments, employee expenses, or vendor payments.

• Modern Payment Platforms: Fintech processors offer APIs, tokenization, and advanced fraud detection—making them a popular choice for e-commerce and digital-first businesses.

FAQs About Card Processing in Canada

Q: Processor vs. Gateway—what’s the difference?
A: The processor moves the money; the gateway captures and sends the transaction data.

Q: How long until I get paid?
A: Typically 1–3 business days.

Q: What are interchange fees?
A: Non-negotiable fees set by card networks, paid to the customer’s bank.

Q: Can I get a better rate?
A: Yes—by negotiating the processor’s markup, especially with high sales volume.

Q: How secure is it?
A: Very secure. All businesses must comply with PCI DSS standards to protect cardholder data.

Q: What’s a virtual card?
A: A digital-only payment card that adds extra security for online transactions.

Final Thoughts

Understanding how card processing works in Canada empowers businesses to choose the right payment partners, reduce costs, and deliver smoother checkout experiences for customers.

? Tip: Always compare processors, review contracts carefully, and ask about fee structures before signing.

? Book a free 15-minute consultation with a Canadian payment expert today to get personalized advice for your business.