24 April 2020
As a retailer, taking card payments can be a great way to keep on top of your cash flow, and provide customers an easy way to pay for your goods or services. However, most payments taken aren’t processed right away and sometimes can take a while to reach your business bank account. Even though it seems like the transaction completes instantly, there are several steps that occur behind the scenes with each card payment, each with different parties involved.
Whether you take payments online or in a physical shop location, there are three main steps in processing card payments.
At the point of sale, the customer will present their card, insert it into the card payment machine and insert their PIN. The customer’s details are then sent to the merchant’s payment processor.
The customer’s card payment network now acts as a gatekeeper, checking that the customer has enough funds and that the card doesn’t have any security alerts or blocks present. Once approved, the card payment network requests additional information from the customer’s bank provider, which usually includes the card’s security code and the customer’s registered address. This additional information is used in another authentication step where information is checked against anti-fraud programmes like the Address Verification Service (AVS).
After these final checks have been undertaken, the customer’s bank provider will approve the transaction and set aside the transaction amount on hold in the customer’s bank account. This is when the customer usually receives a receipt or order confirmation.
The merchant’s payment processor will then collect all of the transaction information daily (or weekly depending on your provider), in batches to each card payment network, whether that is Visa or Mastercard or another network. These networks will then forward each approved payment request to each customer's bank provider.
How long does it take to transfer money between banks? The next stage of processing a payment usually takes 24 to 48 hours (but can take up to 3 days), where the customer’s bank provider will send the requested payment amount (including an interchange fee charge) back to the card payment network. The card payment network will then pass along this amount, billing the merchant payment processor for the initial interchange fee, plus a payment network fee. Finally, the payment is passed from the merchant payment processor to the merchant’s bank account, taking a processing fee from the final total.
Planning for delays in payment isn’t always possible as a merchant, instances can occur when a payment is delayed due to an accidentally blocked card or a security alert. Merchants who are worried about cash flow can request a cash advance that is repaid as an agreed percentage of your future card transactions. This can help immensely in bridging the gap if the unexpected happens, a payment you were counting on doesn't arrive when you need it to.
Merchants could also consider adding Same Day Settlement (also known as Faster Payments) to their account in order to bring processing times down. Instead of waiting the typical 3 days, funds can arrive in the nominated bank account the same day (before 7pm); providing the end of day banking report (batch) is performed on the card machine before 3pm.