While there are more ways to pay than ever before, most consumers still pay for goods and services with payment cards, AKA credit cards or debit cards, although contactless payments such as Apple Pay and Samsung Pay, are on the rise. Consumers like payment cards because they’re quick, convenient and easy to replace if they’re lost or stolen. If you are a merchant who accepts payment cards, you are involved with payment card processing every day. On the surface, it looks quite simple – a customer pays with a credit card, the payment information gets processes by a bank and you get paid. But the transaction process is quite a bit more complicated than that, and it involves several steps, all of which happen in the span of a few seconds. Below is a brief summary of how payment processing works, including a few reasons – besides the consumer’s lack of funds – that may cause a transaction to be denied:
Step 1: The transaction begins when the customer is ready to pay for a purchase and presents his or her card to the merchant for payment. The payment card is swiped or dipped into the POS terminal, and the process starts.
Step 2: The consumer data reaches the payment gateway, such as NAB Velocity, and is routed to the interchange, which is where the processing takes place.
Step 3: After the processing moves through the interchange, it goes to the issuing bank - the bank that issued the consumer’s payment card. The issuing bank will approve or deny the transaction based upon the amount of credit (credit card) or cash (debit card) the customer has available on the payment card he or she has chosen to use.
Step 4: If approved, the merchant bank’s processor and the merchant both receive an authorization, and the transaction continues to the processor’s acquiring bank, which issued the merchant’s account and where the merchant can withdraw money.
Step 5: At the end of the day, the merchant submits a batch closure, which completes the payment process by closing out the transactions that have been processed that day. The funds are deposited in the merchant’s account by the processor’s acquiring bank and the merchant essentially gets paid, usually within 48 hours.
Sometimes, however, transactions are denied. Obviously, the processing network will deny a transaction if a consumer does not have enough credit or funds to cover the purchase, but there are times when it will be denied, even if the consumer has funds available. Barring lack of funds, common triggers for payment denial include unusual spending habits, purchases of products in the “high fraud” category, and purchases made outside the country:
- If the payment card that is rarely used suddenly has multiple transactions made on it, it could be an indication that someone other than the cardholder is using the card, and may trigger a denial. The denial buys some time for the issuing bank to contact the cardholder to alert them to the unusual activity.
- The “high fraud” category includes items such as prepaid cards, alcohol, tobacco and fuel. If the purchase being made is for one of those items or others like it, then the network is more likely to put a freeze on the card to prevent fraudulent activity and increase the possibility of transaction denial.
- Additionally, purchases made outside the consumer’s country of residence may trigger denials. Oftentimes, foreign purchases are a good sign the card has been lost or stolen. Most issuing banks recommend that you let them know if you will be using your payment cards in a foreign country, to avoid triggering a denial.
There’s a lot that happens in the few seconds between a consumer presenting a payment card to a merchant and the merchant handing it back at the end of the transaction. The process may seem complicated, but all this split-second behind-the-scenes work makes accepting payment cards easy and beneficial for most merchants, and subsequently consumers. Not to mention that it is all done across a very secure network, so all the consumers’ data is kept safe. The next time you accept a payment card from a customer, take a moment to think about everything that happens after you swipe or dip the card that enables you to get paid, and your customer to leave happy with her new purchases.