Credit card transaction processing is the process of verifying, approving and authorizing credit card transactions. The process typically involves four main players: the cardholder, the merchant, the acquiring bank and the issuing bank.
The first step in credit card transaction processing is called authorization. This is when the cardholder presents their credit card to the merchant and the merchant contacts the card issuer, or acquiring bank, to verify that the card is valid and that the cardholder has the available credit line to cover the purchase.
Once authorization is complete, the next step is called clearing and settlement. This is when the acquiring bank charges the issuing bank for the transaction and the issuing bank pays the acquirer. Depending on the card network, clearing and settlement can happen either in real-time or batch.
The final step in credit card transaction processing is called funding. This is when the issuing bank transfers the money to the merchant’s account, minus any fees that may be owed. Funding typically happens within one to two business days.
Now that you know the basics of credit card transaction processing, let’s take a more in-depth look at each of the steps involved.
Authorization
The first step in credit card transaction processing is authorization. This is when the cardholder presents their credit card to the merchant and the merchant contacts the card issuer, or acquiring bank, to verify that the card is valid and that the cardholder has the available credit line to cover the purchase.
There are two types of authorization: an online authorization and a voice authorization. Online authorizations are typically faster and more efficient, as they can be done electronically. Voice authorizations require the merchant to contact the card issuer by phone to verify the uno reverse card information.
Once the issuer verifies that the credit card is valid and that the cardholder has the available credit line, they will approve the transaction and provide an authorization code. The authorization code is a unique number that confirms that the transaction has been approved.
The merchant will then need to capture the authorized amount and send it to the acquiring bank for settlement.
Clearing and Settlement
The next step in credit card transaction processing is called clearing and settlement. This is when the acquiring bank charges the issuing bank for the transaction and the issuing bank pays the acquirer. Depending on the card network, clearing and settlement can happen either in real-time or batch.
In real-time clearing, also known as live or online clearing, the transaction is processed and settled immediately. This is the most efficient way to process transactions, as it minimizes the risk of fraud and allows for faster funding.
Batch clearing is when the acquiring bank processes all of the day’s transactions at once, typically at the end of the day. Batch clearing is less efficient than real-time clearing, as it can take longer for the funds to be transferred and there is a greater risk of fraud.
Funding
The final step in credit card processing is called funding. This is when the issuing bank transfers the money to the merchant’s account, minus any fees that may be owed. Funding typically happens within one to two business days.
Once the funds have been transferred, the transaction is complete. The merchant will then have the available funds to use as they see fit.
Conclusion
Credit card transaction processing is a complex process, but it’s important to understand how it works if you accept credit cards as payment. By understanding the steps involved, you can help ensure that your transactions are processed smoothly and efficiently.
