The amount which a merchant ultimately pays to facilitate a transaction is called the merchant discount rate. Generally speaking, those credit card transaction fees are structured in one of three ways: Of course, it costs money to process payments, regardless if a merchant is strictly a brick-and-mortar retailer or operates an eCommerce site. Processing Fees & Costs for Credit Card Transactions The acquirer, the issuer, and the card network all assess fees, which are typically subtracted from the final amount the merchant receives. It would be naïve to think it all gets done, free of charge.Īs we’ll explore in the next section, every party in the chain charges a small fee for their services. Merchants: Do you have a "Plan B" in place for when credit transactions go wrong?Īs you can see, there are many credit card transaction steps and touchstones. This is where the acquirer deposits the funds into the merchant’s account, finally making the money available for the merchant’s use. However, the actual money is still in transit as part of the credit card transaction life cycle.įunding is the last phase of the credit card transaction process. Up to this point, the merchant has completed the purchase and may have already provided the goods and services requested to the customer. Stage 5 | FundingĮven after all this, the merchant still has not been reimbursed for the card payment. Finally, the networks transfer all requested funds to the acquiring bank. The issuers charge the cardholders’ accounts for the amount of each transaction before routing the payments back through the card networks. ![]() The acquirer distributes the transactions to the appropriate card networks (Visa, Mastercard, UnionPay, etc.), who in turn distribute the transactions they receive to the appropriate issuing banks. After the acquirer (the merchant’s bank) receives the transactions from the processor, things get even more complex. The clearing process is the next point in the credit card transaction lifecycle. The processor then forwards them to the acquiring bank. Once the batch is complete, the merchant sends off all the authorized transactions to the processor for sorting. The merchant can put an authorization hold in place until submitting the batched transactions. Instead, most eCommerce merchants store their authorized transactions in a batch to be transmitted later (typically the end of the business day). The merchant now must send the bank a formal request for funds to cover the transaction. A request for authorization is still not a request for payment, though. Once the issuer has granted authorization, the merchant can complete the purchase. The customer will receive the goods, and their direct interaction with the merchant will end here. If the merchant can authenticate the transaction, it will be approved. They may also validate the CVV number on the card, deploy geolocation, or any variety of different fraud detection tools. They may use Address Verification Service (AVS) to compare the address provided against that on file with the bank. ![]() The merchant can deploy several technologies to verify the buyer. That said, it is still an important stage in the credit card transaction process. ![]() ![]() Like authorization, this process typically only takes a few seconds. The cardholder’s bank confirms that the account is active and has funds available, but authentication is the merchant’s responsibility. Stage 2 | AuthenticationĪlongside the authorization process, the merchant must verify that the buyer on the other end of the transaction is, in fact, the authorized cardholder. Having a transaction authorized by the bank doesn’t inherently mean the purchase is authorized by the cardholder “authorized” transactions can still be cases of fraud. This stage merely confirms the card is active, has not been reported stolen, and that there are resources to cover the purchase. It’s important to note that the authorization phase doesn’t actually finalize the credit card transaction process. Once the issuer grants authorization, the response travels back through the card network and the acquirer before the merchant has clearance to accept the transaction. The authorization request must travel from the merchant to the processor via a payment gateway, then on to the card network, which forwards the request to the issuer. Here, the merchant is asking the bank if the card number is valid and whether funds/credit associated with the card are available for the transaction.Įven this simple task is more involved than it seems. When the cardholder initiates the purchase, the merchant requests electronic authorization from the issuing bank. The first stage of the credit card transaction lifecycle is authorization, and it normally lasts just a few seconds. Embed This Graphic Stage 1 | Authorization
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