How the Credit Card Transaction Process Works for Merchants
For consumers, making a credit card purchase seems like a pretty simple exercise. Behind the scenes, though, the credit card transaction process is far more complex than it looks at first glance.
Money doesn’t simply appear in the merchant’s account when a consumer swipes, inserts, or taps a payment card to make a purchase. Each transaction steps through multiple phases before the merchant sees the funds. Even then, merchants must remain aware that they could still forfeit that revenue through a return or chargeback; in some cases, it could be up to six months or more past the date of the original transaction.
Four Credit Card Transaction Steps
The procedure can be convoluted in certain cases. That said, the typical credit card transaction process—from beginning to end—essentially breaks down into four key stages: authorizing, batching, clearing, and funding.
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Withholding Revenue ... or Taking It Back
Exactly how long it takes for the money from a card transaction to show up in the merchant’s account is dependent on several factors, including:
- What day/time the transaction was made
- The cardholder’s location
- Issuing and acquiring bank policies
- Merchant risk assessment
- Industry and product or service offerings
Once merchants have determined an average timeline for credit card sales, there shouldn’t be much deviation. However, even after the funds are deposited, merchants must proceed with caution: the money could be lost if the customer returns the goods…or worse, files a chargeback.
In both scenarios, the purchase price (and shipping costs, if applicable) will be taken out of the merchant account and returned to the customer. Unlike a return, however, receiving a chargeback means the customer is under no obligation to return the purchased item. In addition, the merchant will also lose any administrative fines/fees the bank chooses to impose.
Understanding the credit card transaction process helps ensure availability of funds when needed. This knowledge helps detect risk before it becomes an unmanageable liability. That said, ensuring adequate cash flow is just one of the many challenges a merchant will deal with. If you’d like more information about managing risk and ensuring sustainable cash flow, contact Chargebacks911® today.