Before it hits your merchant bank account a credit card transaction goes through several stages. The lifecycle of a transaction is complex, so we want to shed some light on what happens once your customer taps into the terminal or enters their card, and explains how approvals are funded into your bank account. It’s interesting to see how much is going on behind the scenes in those split seconds during the transaction process.

Stage of approval

Your customer (cardholder) presented their credit card to them and asked for purchase from your business. Once they enter the card into the terminal and enter its PIN number, your POS sends an authorization request to the terminal recipient.

Let’s pause here for a second to understand what it is.

The acquirer is a financial institution or merchant bank that processes credit or debit card payments on behalf of a merchant. The Merchant Bank is contacted to approve the credit card purchase amount which will be approved or rejected at this time.

• Once the acquirer receives a request for approval, they submit the request for approval of the transaction to the issuer (the bank that issued the card).
• If funds are available on the credit card, the card issuer issues an authorization code and sends the code to the merchant who sends it to the merchant.
• If funds are available, the merchant sees an “Approved” message on the screen and the customer leaves with a purchase.

Batching and clearing stage

When your day goes by and clients pay at your store with your credit cards, your terminal stores authorized authorization codes. At the end of the day, you close the batch, in other words – cash out. Here is what happens after the settlement report is printed

• Your POS terminal sends all the accumulated sales in one batch to authorized sales acquirers.
• The acquirer then submits a request to receive money from multiple card issuers (banks that have issued cards to your clients) for each approval in one batch.
• Card issuers deduct the interchange fee and send the remaining amount to the recipient.

Financing stage

This final stage of the cycle is the shortest and easiest. Once the recipient receives payment (Visa, MasterCard) from the issuer through the card network, they (usually) pay the merchant the full amount and the deposit is completed. We usually say, because in most cases the acquirer pays the merchant the bill for the transaction on a monthly basis. Traders who prefer daily billing will receive the full sale amount, the lower the fee charged from the earner.