Processing Credit Card Payments – Stage 2: Settlement
We recently presented step by step information to merchants regarding processing credit card payments. While most people thinks it is just as easy as swiping a credit card, there is a lot more going on behind the scenes that isn’t even realized. Having a basic understanding of these processes results in a more informed merchant, which is much more appealing to customers.
Credit card processing is completed in three stages. Now that you are familiar with stage one, which is the authorization phase, we can move on to stage two.
Stage Two: Settlement
Even after your customer who just purchased your good or services leaves the store, signs offline, or hangs up their phone, the sale is not quite complete yet for the merchant. In order to complete phase two, the purchase must be settled.
Settlement in credit card processing can be described as directing electronic payments made by customers, so they can be cleared and funded. In order for settlement to occur the merchant submits credit card transactions that have been approved to the merchant’s bank. The approved transactions are then submitted by the bank to the payment brands to be cleared.
Here is the typical process:
- Step 1: Transaction information is submitted to the bank by the merchant or vendor. This is usually done using a POS system to batch a settlement – a process that involves submitting multiple transactions at one time.
- Step 2: The request for settlement is then sent from the bank to the correct payment brands, like American Express or VISA, in order to receive confirmation from the bank that issued the customer a credit card.
- Step 3: The request for settlement is received by the payment brand. The payment brand either issues credit to the merchant’s bank and then the issuer pays the bank for the transaction, or the payment brand gives a debit to the issuer in order to collect payments for the transaction that has been settled.
- Step 4: The cardholder’s bank lists the transaction in the cardholder’s account. The cardholder will see the transaction on their monthly statement from the bank.
- Step 5: Once the cardholder is issued their monthly statement, the bill is paid to the issuer of the credit card.
That’s all for the settlement stage of processing a credit card transaction. Check back soon for the third installment regarding funding.