To help individuals new to the payments industry, David Fish, Senior Analyst, Credit Advisory Service, Mercator Advisory Group, presented Merchant Acquiring 101, a teleconference held Aug. 26, 2008, to explain the two-phase authorization and clearing and settlement flow for credit and signature debit card processing.
"Card authorization is the card issuer's approval of card payment for a merchant's goods or services," Fish said. After the card is swiped, a request for authorization is sent through the acquirer's processing platform to one of the card networks - Visa Inc., MasterCard Worldwide, American Express Co., Discover Financial Services or , JCB International.
That card network identifies the issuer of the card and forwards the authorization request to the bank issuer that issued the credit or debit card.
The card issuer then approves or declines the transaction based on such things as available credit, whether or not the card has been reported lost or stolen, along with the risk profile of the transaction itself.
If the transaction is approved, then the transaction information is either stored in the merchant's terminal or on the acquirer's host system.
At the end of the business day, the group of transactions authorized at the merchant's POS - known collectively as the "batch" - is cleared for settlement and payment.
"The POS application sends that batch to the acquirer, who gathers the data and puts it in an overall settlement file with all of its merchants," Fish said. "That 'big batch' of an acquirer's merchant batches is sent to the card networks who sort the data by issuer and acquirer."
The networks initiate settlement when those files are distributed to the original issuers. For more information about the teleconference, contact David Fish at dfish@mercatoradvisorygroup.com.
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