Credit card processing requires extensive electronic transfer of data between a merchant, a processor, card networks and several banks. This process would be made all the more difficult if each transaction in a day had to be completely handled at the moment a sale takes place. Instead, the funding aspect occurs after the merchant submits all of the transactions at least once a day in a group known as a “batch.”
A merchant confirms electronically at the point of sale via a credit card processing terminal or PC software that a customer is a legitimate cardholder and that there are enough funds to pay for the transaction. If the transaction is approved by the card-issuing bank, an authorization code is generated and stored in the terminal or software until the batch of transactions is submitted at the end of business or some other time as one deposit amount. If a batch is not processed or “batched out,” the bank authorizations can expire resulting in problems for the merchant, cardholder and issuing bank, such as non-payment and available balance confusion. Once a batch is submitted, the stored data is sent to the credit card processing company. The processor makes certain that funding for the batched amount will take place.
The entire batching process is handled manually or via an automatic setup: With a manual batch, the merchant selects menu options on the machine or in the software to initiate the batching process. With an automatic batch, the merchant presets the credit card terminal or software to automatically batch at a specific time. The merchant receives a report linked to his merchant account, usually in the form of a long receipt, that lists the transactions and the total amount of money processed in that batch.
Batch Fees and Funding
Processors usually charge a merchant a transaction fee for each processed transaction and a batch fee for handling the batch request. The batch fee is also known as a “batch settlement fee,” “batch capture fee” or “daily closeout fee.” If a merchant deals with tips, the merchant or an employee must make adjustments for tips before the batch is closed out. Any refund requests that have been previously authorized that day are sent along with the data from the sales during the batching process. It can take several days for the money to deposit into a merchant’s bank account.