At Vision Payment Solutions, we like to keep our clientele – merchants just like you – educated and informed about all steps of card processing. Today, we’re featuring a general overview of a typical transaction; from start to finish, you can now better understand – and, we hope, manage – your card transactions wisely and efficiently!
So, what does a typical transaction look like? If you’re new to the world of merchant accounts or credit card processing, you may not be familiar with all the steps involved any more than the average consumer whipping out his or her plastic and plunking it on to the counter, but here they are in clear detail.
Authorization: The cardholder presents the card as payment to the merchant and the merchant submits the transaction to the acquirer (acquiring bank). The acquirer verifies the credit card number, the transaction type and the amount with the issuer (card-issuing bank) and reserves that amount of the cardholder’s credit limit for the merchant. An authorization will create an approval code, which is assigned to the merchant ‘s store with the transaction.
Batching: Authorized transactions are stored in “batches,” which are sent to the acquirer. Batches are usually submitted daily, at the end of the business day. If a transaction is not submitted in the batch, the authorization will stay valid for a period determined by the card issuer, after which the held amount will be returned to the cardholder’s available credit. Some transactions may be submitted in the batch without prior authorizations; these are either transactions falling under the merchant’s floor limit or transactions in which the authorization was unsuccessful, but the merchant still attempts to force the transaction through. This might be the case when the cardholder is not present but owes the merchant additional money, such as extending a hotel stay.
Clearing & Settlement: The acquirer sends the batch transactions through the credit card association, which debits the issuers for payment and credits the acquirer. Essentially, the issuer pays the acquirer for the transaction.
Funding: Once the acquirer has been paid, the acquirer pays the merchant. The merchant receives the amount totaling the funds in the batch minus either the discount rate, mid-qualified rate, or non-qualified rate, which are tiers of fees the merchant pays the acquirer for processing the transactions.
Chargebacks: A chargeback is when money in a merchant account is held due to a dispute relating to the transaction. Chargebacks are typically initiated by the cardholder. In the event of a chargeback, the issuer returns the transaction to the acquirer for resolution. The acquirer then forwards the chargeback to the merchant, who must either accept the chargeback or contest it.
We hope this brief overview has helped you to better understand the process. Vision Payment Solutions offers comprehensive, full-service card processing technologies and customer support – just in case you have trouble along the way. If you are interested in setting up a merchant account with us, simply click “Apply Now” toward the top right of the page, and you will be directed to our application form.