How easy and simple credit card transaction seems? You just swipe your card and in the wink of an eye the transaction is complete. But there is actually a more complex procedure than what meets the eye. Let’s try to understand it more clearly by taking example of our human body. When we touch, see, feel or hear any object our body response so quickly and in different manner without even thinking for a second, there are so many organs involved which work in a systematic order to make the reflexes so smooth. Similarly there are organs involved which are working behind the scene in multiple stages to make your transaction successful. Credit card transactions are of different types for different situations. Each of the types differs in the way they process transaction through your account.
Here is a quick overview of different types of credit card transactions and how everything looks like.
Your extraordinary product or service made a customer to purchase it. And that is the most common and straightforward transaction type. It begins with our happy customer. Now to receive the payment from your customer you need to process a credit card sale and have to send that charge request to the payment gateway (like iPayTotal) then the charge request, credit card information along with the amount of sale is passed on to the Acquiring bank. Acquiring bank forwards the information to issuing bank and they make sure that the consumer has those funds. If everything is fine an approval code is returned to you (the merchant or seller). Now you can proceed further and send the product or service to the customer. This procedure takes place within a few seconds meaning that the transaction was processed and approved by the issuing bank or card network.
A similar concept to a purchase is pre-authorization or pre-auth or just authorization. The only main difference in pre-authorization and purchase is that pre-authorization does not complete the sale and funds are not yet captured. Again it is initiated by the customer. The process goes on like in purchase, request is sent to the payment gateway and then to acquiring bank which informs the issuing bank about the authorization but then unlike purchase here the funds are not debited from the cardholder but instead the funds are blocked/ frozen/ reserved on the customer’s account for between 7 to 10 days. In this span of time, merchant can verify whether they want to the transaction or not. Pre-authorization method is mainly used for hotels, gas stations and card rentals. Merchant can submit capture request to complete the sale whenever he is ready to “capture” the pre-approved funds. Within seven days, if a pre-authorization is not captured then the funds remain frozen and released back to the cardholder.
After pre-authorization, capture is the second step which is also known as force. In simple words the process of acquiring the account information required for processing a payment is called capture. Original approval code generated by the pre-authorization should be compulsorily included for making a capture successful. The duration of 30 days are given to complete the capture after the original pre-authorization. But here is a loop hole in it which is important to understand, a capture transaction could take place on the 24th day (just for saying) yet there is no guarantee of funds still available on the cardholder’s credit card because funds are only frozen for 7 days. The point to be noted is that captures can be equal or lesser amount to the pre-authorization amount but not more than the original pre-authorization.
For instance, when actual cost is more than the original pre-authorization:
Some XYZ company obtains a pre-authorization for a ride expected to cost $200. However, the trip goes longer and the actual charge is $380. In this case, the capture might be declined as only the pre-authorization amount of $200 was guaranteed. Under this situation you might try for the original amount of $200 and the charge the remaining amount in the second transaction to collect the due.
When actual cost is less than the original pre-authorization, the uncaptured amount will be released back to the card.
To cancel the previously authorization transaction, payments, releases or refunds void is used. This removes the transaction from the batch of transactions to be settled within 24 to 48 hours. It should be kept in mind that a void can only be performed before the settlement of the batch. If the batch has already been settled then a void can no longer be performed and then only refund is the last option available which is discussed below. In a voided transaction, no money is ever transferred from the customer’s credit card to the merchant. The customer will not be charged anything if it is voided.
There are many reasons as to why void transactions may take place. Some of the common mistakes are:
- The incorrect amount was entered for a credit card purchase. Then it can be voided and then processed again with correct information.
- During the processing of the payment, the merchant accidentally charges a particular item twice. Before the payment is cleared, transaction can be voided.
In voiding the transaction, customer’s issuing bank is told to cancel the transaction and approval code. It is suggested to void over refund because voiding the transaction prevents interchange fees from being charged whereas in refund you will not get interchange fees back for that transaction.
When a customer decides to return the product purchased, refund is given back to his credit card. Refund is considered as “negative purchase”, since you are effectively reversing the original amount you made. If the merchant decides that they want to refund any of the transaction, they can do so fully or partially. Refund can be performed after a batch has been settled unlike a void. The refund request is sent to the payment gateway like iPayTotal, which send the information to the acquiring bank, which then sends money to issuing bank, giving the customer their funds back. As previously mentioned, it is suggested to void the transaction if possible instead of refund because firstly voided transaction will not charge anything from customer, secondly, when refund is done then the customer can see both the original and refunded amount. The timing of a credit card refund depends on the retailer, the credit card issuer and the method of return. Sometimes amount is refunded right away and customer will see the refunded credit in his account as soon as he checks. In other cases, it may take up to 10 to 30 days to show the refund in the customer’s account.
You must have heard of this proverb, “precaution is better than cure”, this is what you do in verification. As fraud continues to be an expensive problem affecting many merchants it has become important to verify or check that the person shopping is using a valid and authorize credit card.
When you verify a card following things are checked:
- Validity of the card number.
- Expiry date of credit card.
- Card security.
However, you can not verify the available balance of cardholder.
It is being rightly said that the nature of business is dynamic because businesses are always prone to uncertainties. You never know when some fraudulent customer wants to issue a chargeback. He went to his bank and bank too decided to go with chargeback. Bank informed the acquiring bank, later the merchant got informed by the payment gateway or processor, regarding the chargeback and all the fees merchant has to refund,
To prevent this merchant should always smartly choose the payment processor or merchant account provider like iPayTotal which protect their merchants fr
om such fraud chargebacks fees by providing the wide variety of anti-fraud technologies.
Online credit card payments are fast and easy if you have complete knowledge about it and have a good supporting companion like iPayTotal to help you make your business more efficient. IPayTotal’s customer service is 24/7 available to guide you.
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