Understanding Credit Cards: From Authorization to Funding
Introduction
A credit card batching schedule involves the systematic grouping of multiple transactions into a single batch for processing. It breaks down into six simple steps:
- Transaction Initiation: Purchases or payments are made.
- Batching: Transactions are grouped together into a batch.
- Cutoff Time: A set time after which transactions are moved to the next batch.
- Batch Submission: The batch is sent to the payment processor.
- Settlement: Funds are transferred after verification by the ACH.
- Transaction Confirmation: Payments appear on statements after settlement.
Breaking Down the Steps
Step 1: Transaction Initiation💳
The process starts when a customer makes a purchase or payment using a credit card. This can happen in-store at a point of sale (POS) terminal or through an online platform. At this stage, the transaction is authorized, meaning the merchant verifies that the customer has sufficient credit or funds available for the purchase. However, this authorization does not immediately result in the transfer of funds; it simply reserves the amount on the customer’s card for later settlement.
Step 2: Batching 💵
Once the transaction is authorized, it doesn’t immediately get processed or settled. Instead, businesses group transactions that occurred during a set period (usually one day) into a single batch. This step is crucial for businesses because it allows them to process multiple payments at once, which reduces administrative work and processing costs.
Step 3: Cutoff Time 🕚
Every business using a batching system will have a specific cutoff time—the latest time at which transactions can be included in that day’s batch. For example, if the cutoff time is 11:59 PM, any transaction made after this time will be included in the next day’s batch. The cutoff time ensures that all transactions within a defined period are grouped and processed together.
Step 4: Batch Submission ✉️
After the cutoff time, the merchant submits the batch to the payment processor or acquiring bank. This submission triggers the next phase: payment processing. The payment processor sends the batch of transactions to the card networks (like Visa, MasterCard, etc.), which forward the information to the respective issuing banks (the banks that provided the credit cards).
Step 5: Settlement ✅
Once the batch is submitted, the settlement process begins. This step is handled by the payment processor and the Automated Clearing House (ACH), which ensures that funds are available for the transaction. The funds are transferred from the cardholder’s bank account to the merchant's account. This verification process may take 1-3 business days, depending on the type of transaction, the processor, and the card network.
Step 6: Transaction Confirmation 🧾
After the funds are transferred, the merchant receives payment, and the cardholder sees the charge reflected in their credit card statement. The transaction is now confirmed and finalized. For cardholders, this means that their account balance will be updated with the processed payment, often within a few days after the batch settlement.
Timeline Summary
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NOTE: Funding will be delayed by one business day during bank holidays. Sales that occur over the weekend will batch the next business day.
