Complete guide to payment processing for Australian businesses

The customer taps a mobile onto an EFTPOS card reader. The machine goes “beep”, and a tick pops up to confirm the transaction is complete. Simple, right?

While the customer experience seems straightforward enough, a lot goes on behind the scenes. Payment processing involves a slew of interconnected systems, procedures, and security standards, as well as payment service providers with varying benefits and fee structures.

Understanding the basics can help Australian businesses find a suitable payment solution for their needs. Here’s everything you need to know.

What is payment processing?

Payment processing refers to the systems and procedures that allow businesses to accept electronic payments. It’s not just a single step. Payment processing encompasses the entire transactional journey, from initiation to authentication, verification, and settlement.

The term also spans various electronic payment methods, including EFTs, cards (debit or credit), digital wallets, bank transfers, and BPAY.

According to the Reserve Bank of Australia, only 15% of payments were made in cash in 2025.¹ Therefore, efficient, cost-effective payment processing is crucial for local businesses.

Key parties involved in payment processing

Multiple systems and entities comprise the payment processing workflow, each performing a distinct role.

Payment gateway

The payment gateway connects all parties involved in the transaction, allowing them to communicate seamlessly. In a typical payment process, the gateway transmits encrypted data, forwards card details to the payment processor, and informs both banks once the transaction is complete. Gateways work within POS terminals or pop-up payment windows for online payment processing.

Payment processor

Payment processing services handle logistics and funds transfers. First, it accepts requests transmitted from the gateway, then authenticates them with both banks to validate the transaction. Once approved, the payment processing provider transfers funds from the customer account to the merchant account.

Think of it like a trusted middle-person that securely swaps funds between two parties. Popular platforms include Stripe, PayPal, and Square.

The acquiring bank

The acquiring bank, or simply the “acquirer,” is the institution that receives the funds. Within the acquiring bank, a business will usually have a business account for day-to-day financials and a merchant account for accepting and temporarily holding card payments.

The issuing bank

The issuing bank is the financial institution of the party sending the funds. In a business-to-business (B2B) transaction, funds usually come from a business account, either via a business credit card or a bank transfer. Consumers more commonly pay with a card or a digital wallet linked to a savings or credit account held with the issuing bank.

The card scheme

The card scheme establishes the standards, rules, and infrastructure for processing its own branded card payments. Common international examples include Visa, Mastercard, and American Express, while eftpos is an Australian domestic-only card scheme alternative.

Electronic payment types in Australia

Aussie businesses have many payment options at their disposal.

How does payment processing work?

Now that we’re up to speed on the terminology, let’s examine the payment processing workflow. The precise process may vary, but generally looks something like the following:

1. The customer starts the transaction through an online payment gateway or a POS terminal for in-person sales.
2. The payment gateway encrypts the card data and sends it to the payment processor.
3. The payment processor receives the transaction data and validates it before sending the details to the acquiring bank.
4. The acquiring bank shares the card data with the card scheme for validation and authorisation.
5. The card scheme forwards the data to the issuing bank, which reviews the customer’s account to confirm funds and assess fraud risks before approving or declining the transaction.
6. The issuing bank communicates the authorisation to the acquiring bank via the card scheme, which then forwards it to the payment processor.
7. The payment processor sends this information to the payment gateway, which passes it onto the POS terminal or online payment portal – this is when you see the little green tick.
8. If approved, the vendor provides the goods or services to the customer; otherwise, the transaction will fail, and the vendor may request an alternative payment method.
9. At the end of the day, the payment gateway sends a batch of payments to the payment processor for settlement.
10. The acquiring bank requests the funds from the issuing bank through the card scheme.
11. The issuing bank transfers the funds to the merchant account (for card payments) of the acquiring bank.
12. The merchant account temporarily holds the funds (usually for a few business days) before transferring them to the business account.
13. The business reconciles the transaction against its sales record, minus any bank, payment processor, or card scheme fees.
14. The business and customer keep records, such as receipts and invoices, for future reference.

Sound complicated? That’s because it is. Payment processing involves rapid, seamless communication across multiple systems within an intricate financial network. This complexity is why businesses have relatively high payment processing software costs.

Factors to consider when choosing a payment processor

The ideal payment processor depends on your sales volume, industry, product, and customer habits. Consider the following when shopping around.

• Fee structure: Smaller businesses may benefit from lower upfront costs but higher per-transaction charges, while the reverse may be true for larger businesses.

• Fees: High POS rental or per-transaction charges may make some solutions financially unviable.

• Offline/online: In-person businesses have entirely different payment processing system requirements from online stores.

• Security: Does your payment processor use encrypted gateways and comply with PCI DSS (Payment Card Industry Data Security Standard)?

• Customer support: Some businesses may benefit from in-person training or Australia-based support.

Different types of payment processing fees

Fees vary by provider, plan, and service. Businesses must combine one-off and ongoing fees to determine total payment processing costs.

Subscriptions and account-keeping fees

Many payment processors charge monthly or annual subscription fees following a software-as-a-service (SaaS) pricing model. Banks may charge monthly account-keeping fees for business and/or merchant accounts.

One-off sign-up fees

Payment processors, alternative services, and banks may charge a one-off fee to establish an account. This fee may be in addition to subscription and per-transaction fees.

Interchange fees

Card schemes, such as Visa, Mastercard, and eftpos, set interchange fees, usually a percentage and a fixed amount, that the acquiring bank pays to the issuing bank. These fees cover fraud and card rewards costs and are passed on to the merchant.

Flat-rate fees

Payment processors may charge fees comprising a fixed percentage and a fixed amount, such as 2% plus $0.30 per transaction.

Tiered fees

Sometimes known as bundled pricing, this fee structure has three tiers that vary by risk: qualified, mid-qualified, and non-qualified. Online payments are riskier than in-person payments, which is why they attract higher fees.

Terminal and hardware fees

In-person businesses trading may wish to purchase or hire a POS system. More complex, feature-rich models cost significantly more than entry-level systems.

Chargeback fees

Merchants often pay chargeback fees whenever a customer successfully disputes an authorised transaction.

Batch fees

Banks and payment processors may charge a batch fee for settling transactions at the end of a business day.

International transaction fees

International transaction fees generally apply to cross-currency payments. For example, your business might pay 1.6% for domestic card payments and 2.9% for international cards.

Foreign exchange fees

Many payment processors use their own currency conversion rates that include a hidden markup over the “real” mid-market exchange rates. Some institutions slap on up to 3%, and the business often won’t see the final rate until after the transaction has settled.

Wise Business: Simplifying global collection for local businesses

Understanding the various layers of payment processing fees is crucial for any Australian business, particularly when dealing with overseas customers or suppliers.

Expanding a business globally opens up exciting opportunities, but also new challenges like receiving payments across borders. Hidden foreign transaction fees and hefty currency conversions involved with international payments can eat into your profits and time.

Wise Business serves as a cost-effective solution where you can receive money from around the world at the speed and price of local payments.

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• One-time fee of 65 AUD for local account details in 8+ currencies, including AUD, NZD, USD, and more—no recurring fees
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• Create and send professional invoices directly to your customers through Wise Business
• Create payment links to request money in specific currencies
• Seamlessly receive payments from customers, online sales, or PSPs like Stripe and Amazon.
• Wise is safe and secure - Trusted by 13 million people and counting

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This general advice does not take into account your objectives, financial circumstances or needs and you should consider if it is appropriate for you.

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Source:

1. Reserve Bank of Australia: Cash use survey.