Picture this scenario: A customer at the checkout lane presents her card to the cashier, who then runs the card through a card processing terminal. The customer’s bank authorizes the transaction and the cashier completes the sale. The customer then walks away with the purchase.
Everyone’s happy, right? Well, not yet. With credit card purchases, authorization is just the first step. For payment to appear in the merchant’s account, there are three other steps in the card processing transaction lifecycle that need to happen — batching, clearing, and, finally, funding.
Processing Card Payments: The Players
Before we proceed with discussing the steps, let’s first talk about the players involved in a card transaction:
- Cardholder – The cardholder is the customer who pays for an item or service using a debit or credit card.
- Merchant – The merchant is the organization selling the goods or services.
- Acquirer – The acquirer is a merchant bank or financial institution that processes debit and credit card transactions on the merchant’s behalf.
- Card Networks – Also known as card associations or card schemes, card networks are organizations such as Visa and Mastercard that pass transaction details from the acquirer to the issuer, as well as payments from the issuer to the acquirer.
- Issuer – The issuer is a bank or credit union that works with credit networks to issue credit or debit cards.
Debit and Credit Card Processing: The Steps
Authorization
The authorization stage happens at the time of purchase, where the merchant requests that the card issuer verify the validity of the card and that it has enough funds or credit to cover the purchase.
The step only lasts a few seconds and starts as soon as the card is read by the card processing device. The details of the transaction travel through to the acquirer, the card network and the issuer. Once authorization is granted, the merchant can proceed with completing the transaction.
Batching
Authorized transactions aren’t automatically sent to the acquirer for payment. Instead, they are sorted in batches, usually at the end of each day or a time designated by the merchant, and then forwarded to the acquiring bank.
Clearing
At this stage, the acquirer forwards the transactions to the card networks, who then send them to the issuing banks. The card issuers deduct the purchase amounts from the cardholders’ accounts and then route the payment back to the card networks.
Funding
This is the stage where funds become available for the merchant to use, as the acquirer deposits the payment received to the merchant’s account.
Card Transactions: Managing the Risks
Accepting card payments can result in a revenue boost, but keep in mind that it’s also risky business. In a perfect world, everyone is honest and upstanding, and scammers are unheard of. But we all know that’s not the case. Even bank-authorized card transactions may actually not be authorized by the cardholder, such as in the case of stolen cards or credentials. When this happens, there’s a good chance you’re not getting paid at all.
This is why it’s essential that you have a solid risk management solution in place to help you navigate the world of card payments. PaymentVision has an extensive library of risk rules to help you stay ahead of the curve, and even helps you customize your debit and credit card processing rules for a more efficient workflow that’s also in line with compliance regulations.
See the original version of this article on PaymentVision.
