Before a business or merchant can be set up to receive payments through debit or credit cards, it must first set up what is called a merchant account. A merchant account is a special kind of bank account, which monitors and tracks financial transactions associated with it, and allows an establishment to accept transfers of money for goods or services rendered to a customer. This account must be installed by agreement with an acquirer. An acquirer is a bank that processes and settles credit card transactions with assistance from a card issuer. Some commonly known acquiring banks would be Citibank, Capital One, or Bank of America.
The main four steps in the credit card processing cycle are authorization, batch processing, clearing, and funding (in their respective order as listed). Batch processing, also referred to as batching, is literally the second step in this cycle. Batch processing will normally not be able to take place until the end of a sales day, after the business or store closes.
A simple way to demonstrate just how this credit card processing step works would be as follows:
The customer goes into a local retailer to buy items, which could include general dry goods, groceries, electronics, tires, jewelry, clothing, or various other types of items that can be purchased. When the consumer gets to the register to pay for the items, he or she decides to use a credit card instead of cash. The retailer can accept the credit card payment, whether from Visa, Mastercard, Discover, or other issuer, because it already has a merchant account established with an acquiring bank. The cashier would swipe or scan the credit or debit card and wait for an authorization code to verify that the card is valid and there is credit available. The store cashier may also ask the customer for some form of identification or the person might have to put in a pin number to verify that they are the owner of the card. It is always very important to remember to get verification from the cardholder to help avoid delays in receiving payment at the end of the credit card processing cycle. It is also the responsibility of the merchant to get a signature from the customer authorizing the transaction. Once a transaction authorization is received from the acquiring bank through the electronic system, the cardholder would receive the product or purchased goods. After the store closes, the cash-register or computer would be prompted to run a batch report of all authorized sales that have taken place during that business day. The merchant would then send the batch to the acquirer to receive payment.