Transaction Flow Explained

Nov 12, 2018

In the simplest of terms, a transaction flow is the journey a payment takes from start to approval to settlement. Any time a person buys something using a credit card, it follows a stream or transaction flow, passing through many players before the payment is settled. Knowing how a transaction electronically passes from a customer to a merchant’s bank account, which is known as a transaction flow, is something every business should understand. Knowing this information also helps you get a clearer perspective and the importance of batch deposits, the risks of chargebacks, and the length of time it takes for funds from transactions to become available into your account.

The average transaction takes just seconds to be approved, but, this will seem surprising considering all of the players involved in the transaction flow. The main parties involved from the time a card is swipe until it is approved are: the customer, the merchant, an acquiring bank, payment processing networks operated by credit card companies, and the card issuers, such as Visa or MasterCard. The transaction flow includes 8 steps.

Step 1: A customer/cardholder choses an item and then, presents a credit card to the merchant to purchase it.

Step 2: After the card is swiped, the merchant’s acquiring bank requests an electronic authorization from the cardholder’s bank account, so it can be verified that the funds are available.

Step 3: The electronic authorization, then, passes through the payment processing networks.

Step 4: Based on fund availability, the credit card-issuing bank will either approve or decline the transaction. The information, including the approval code for the transaction, are based back to the networks, the acquiring bank, and then, finally delivers it to the merchant’s point-of-sale machine or card reader.

Step 5: The credit card-issuing bank transfers the money to the acquiring bank as a reimbursement for the item the customer just bought.

Step 6: The acquiring bank deposits the funds into the merchant’s bank account.

Step 7: The credit card-issuing bank bills the customer for the purchase made.

Step 8: The customer pays his/her credit card bill for the purchase that was made.

The funds flow like this for every credit card transaction around the world.

Here is a real example that can help more clearly explain the transaction flow cycle. Customer, Jane, walks into a retail store and buys $75 worth of clothing. She brings her goods to the counter and then, the merchant’s clerk instructs her to swipe or insert her payment card, using the terminal. Once her credit card is entered, her card information is captured and a request for authorization is transmitted to Jane’s bank, to verify that she has enough funds to cover the $75 cost of the clothing. If the funds are available, the merchant’s terminal gets a response, noting the purchase is approved or declined. If the transaction is declined, a response code, which indicates the reason for the denial, is sent. If it is approved, $75 is authorized to be deducted from Jane’s account. Then, the acquirer deposits the funds minus its agreed-upon fee percentage to the merchant’s account.

In a way, batch and real-time processing also are part of the transaction cycle. The biggest difference between batch and real-time is how long it takes for transactions to be made available to the receiver/merchant. Batch processing is a cost-effective method of high-volume transaction processing, however, there is always a time lag between the point it occurs and when it actually shows up in the merchant’s account. Therefore, though a transaction has already been approved, it may take a day or two to show up in a merchant’s account.

Real-time systems process transactions individually at the moment or almost close to the moment an event occurs. Since there is no wait to batch transactions, there is no delay between the transaction occurrence and the recording of it into the merchant’s account. The funds show up in a merchant’s account within seconds.

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Having a merchant account allows an account holder to take advantage of merchant cash advances. When a merchant is approved for an advance, the business agrees to receive a lump sum of cash in exchange for an agreed-upon percentage of future credit card sales.

Pricing varies depending on the merchant’s industry, past credit card processing history, the type of business seeking the account, average ticket sales, and average transaction volumes.

Yes, EMB works with merchants who are building their credit, as well as those who have poor credit. EMB also approves merchants that have no credit card processing history and businesses that have lost their merchant accounts due to high chargebacks.

Several factors influence a merchant’s risk level. Though only one factor likely will not get a merchant classified as high risk, a combination of these may: business size, location, and industry, credit score, credit card processing history, a industry’s reputation for excessive chargebacks, a prior history of high chargeback ratios, and whether a merchant exclusively sells online.

Virtual terminals are stationed on a merchant’s website, making it easy for customers to make a payment or purchase online. Merchants or a payment processor can easily set up virtual terminals, so online businesses can accept credit and debit card and e-check transactions.

A merchant account is a business account with an acquiring bank. Without this business account, which actually works more like a line of credit, a merchant cannot accept and process credit and debit card transactions. Businesses need a merchant account to accept major credit cards via a static point-of-sale terminal, mobile card reader, or through a virtual payment gateway.

After filling out EMB’s simple online application and submitting any necessary, requested documents, many merchants get approved within 24 and 48 hours.

EMB specializes in working with high-risk merchants. EMB works with many merchants, including but not limited to businesses in these industries: gambling and gaming, adult entertainment, nutraceuticals, vaping and e-cigarettes, electronics, tech support, travel, high-end furniture, weight loss programs, calling cards, e-books and software, and telecommunications.

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