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Payment Processing (The Basics)
The Basics of Payment Processing
As a merchant, when it comes to online payment processing, what matters to you is whether or not your customer is able to use his or her card. Because it is not your responsibility to explain to your customer why his or her card was declined, this information is not transmitted to you. If a customer wants to know the reason for the denial, he or she should use the customer service contact information on the back of the credit card to get more information.
Payment Processing, Part 1: Authorization
It's important to understand authorization, because without it, you won't be able to accept your customer's credit card for payment — and that could mean lost sales.
Authorization is the process of confirming whether your customer's credit card has sufficient credit to purchase goods or services from you, and also confirms whether the card is valid. You can obtain authorizations through a credit card machine, ecommerce web site or over the phone.
Authorization follows these steps. Generally, this entire process occurs within a matter of seconds:
- Your customer presents his or her credit card information to you in order to make a purchase. This can happen in person, over the phone or your customer may enter this information into your ecommerce site.
- Next, you transmit this information to Chase Merchant Services (for instance, in a card-present environment, you swipe the card and enter the dollar amount, then send this information to us).
- Chase forwards your request to the card payment brand such as Visa® or MasterCard®.
- From there, the payment brand sends your request to the card issuer (the card issuer is the bank that issued the card to the customer).
- The issuer will approve or decline the transaction, and this response is sent to the payment brand.
- The payment brand sends the response to Chase.
- Chase forwards the response to you (either via your point-of-sale device, ecommerce web site or we can provide it to you verbally over the phone), so you can complete the transaction.
- The card will either be approved and you will receive an authorization number, or it will be declined or referred. See below for an explanation of approvals, declines and referrals.
Some merchants, particularly those with very large daily sales volumes, can send multiple authorization requests grouped in a batch once to several times daily, or over the phone.
Approvals, Declines and Referrals
Approval: An approval means that the dollar amount you specified will be reserved from the cardholder's available credit limit for future settlement.
Decline: A decline means that the customer's card cannot be used to complete the purchase.
As a merchant, when it comes to payment processing, what matters to you is whether or not your customer is able to use his or her card. Because it is not your responsibility to explain to your customer why his or her card was declined, this information is not transmitted to you. If a customer wants to know the reason for the denial, he or she should use the customer service contact information on the back of the credit card to get more information.
Be aware that you may receive a declined response for a number of reasons — for instance, it may be because of a temporary situation such as a customer going over his or her credit limit, or another issue, such as when a card is lost or stolen.
Referral: A referral is a request for additional information (either from the merchant or the cardholder) before an authorization can be issued.
An issuer may send us a referral response as a security measure. If we receive one, we will contact the issuer directly and request an authorization on your behalf. At this point, the issuer may request to speak with you or your customer/cardholder over the phone to confirm the legitimacy of the transaction before issuing the authorization. A typical example of when this occurs is if the cardholder is trying to make a purchase in a foreign country, is using his or her card more than usual in a short amount of time, or has reached the credit limit.
Payment Processing, Part 2: Settlement
You've made the sale. Depending on your business, your customer has either left your store, logged off your web site or hung up the phone and considers the sale complete. For you, however, the transaction is still in process, since it must now be settled.
Settlement is the process of managing electronic payment transactions so they can clear and be funded. To make this happen, you, as the merchant, must present approved card transactions to Chase. We then submit those approved transactions to the payment brands for clearing through interchange. You may hear these transactions referred to as "deposit" transactions.
This is how settlement works:
- You submit your transaction information to us. For instance, you use your point-of-sale device to trigger, or "batch", a settlement.
- We forward your settlement request to Visa, MasterCard or the appropriate payment brand for confirmation with the cardholder's issuing bank.
- The payment brand receives the settlement request and does two things:
- Issues a credit to Chase so we can reimburse you for the amount of the settled transaction. The issuer then pays Chase for the transaction.
- Issues a debit to the issuer to charge them for the settled transaction.
- The issuer then posts the transaction to the customer's/cardholder's account. At the end of the billing period the issuer sends your customer/cardholder his or her monthly statement.
- The cardholder receives his or her credit card statement and pays the bill (to the card issuer).
Payment Processing, Part 3: Funding
The funding process — when Chase deposits money into your bank account to compensate you for transactions processed — is really an extension of settlement, and sometimes the terms "settlement" and "funding" are used interchangeably.
FAQ: Payment Processing Information
Chase Merchant Services is a payment processor. We enable your business to authorize and transmit transactions by virtually all types of credit and debit card, as well as gift card. We also settle the funds through the payment brands (e.g., MasterCard® and Visa®) and deposit funds to your checking account. In addition, we handle adjustments, chargeback processing, merchant billing and account activity reporting.
Our Web-based reporting tools, like Paymentech Online and Resource Online, can provide you with up-to-date daily transaction information.
Check verification is a risk management service that verifies the authenticity of each check and/or its presenter. eCheck transactions are verified through a third-party database that gathers information from major retailers and banks about bad checks and bank accounts that are in a negative status due to returns for insufficient funds or that have been closed. While check verification service is not required, this service does help keep your business losses to a minimum.
Interchange fees are transaction-related costs that Chase Merchant Services pays to the issuer of the card. These fees are established by MasterCard and Visa and are based upon how a transaction takes place and in what type of industry.
Chase Merchant Services allows you to accept MasterCard, Visa, American Express®, Discover®, Diners Club®/Carte Blanche® and JCB cards. Although we can support all credit card types, we only have the ability to directly fund merchants for MasterCard, Visa, Diners Club/Carte Blanche and JCB. When processing occurs, each transaction must be authorized, the data must be captured and settlement/funding made back to the merchant.
Debit cards are another payment method. When goods or services are purchased with a debit card, the funds are removed from the customer's checking account. In addition to standard ATM cards, many banks also issue Visa® Check Cards and/or MasterCard® Check Cards - both of which can be used at the point of sale or online.
Debit card transactions can be processed through PIN debit (requires the consumer to enter a PIN), signature debit (no PIN required), online bill payment and online debit. Debit card transactions are the fastest growing point-of-sale payment method today. The acceptance of this payment method continues to remain popular because customers and merchants both appreciate the convenience and ease of using debit cards to purchase merchandise and services.
The difference between these two debit choices is whether a PIN (personal identification number) is used at the point of sale. When a PIN is used, the payment is immediately withdrawn from the cardholder's available funds. When a signature debit transaction occurs, funds are not withdrawn until the transaction processes - usually 2-4 days after the sale.
Commercial cards - corporate, business, purchasing - are issued to businesses as an alternative way of financing expenses such as supplies, business travel and entertainment, and other purchases that may have required a purchase order otherwise. These cards, often referred to as purchase cards, also provide businesses with specific reporting advantages. By using a commercial card, cardholders get itemized records of all their purchases, which simplifies reimbursement procedures and helps track expenses. This specialized reporting is possible because specific data is captured at the point of sale. MasterCard and Visa each provide issuers with the ability to issue commercial card products.
A private label card is a credit card issued under the name of a particular merchant organization. Merchants offer it as an incentive for cardholders to spend money at their businesses. Cardholders receive benefits (special discounts, deferred payment schedules, frequency points, etc.) for using the private label card instead of the more common methods of Chase Merchant Services such as Visa, MasterCard or American Express. Typically, private label cards carry the brand of the merchant issuing the card.
A stored value program allows you to offer your customers and employees a proprietary pre-loaded card for future purchases. Although there are many different applications for stored value cards (Gift Card, Merchandise Return, Prepaid), they all share some common components:
- Magnetic Stripe Cards - The merchant gives a consumer an electronic stored value card in exchange for a pre-payment. Typically, the card includes a magnetic stripe, the merchant's name or logo and an account number.
- Transaction Processing - The merchant can process stored value transactions from the point of sale. These transactions are delivered to Chase Merchant Services’ authorization system for processing in real time. Account balances are maintained for all cards within our system.
- Merchant Reporting – The merchant receives reporting that provides information about the transactions processed during a period of time and the outstanding balances of their cards.
EBT is the automation of cash or cash-like benefits through electronic authorization, data capture and settlement processes. The end result is the elimination of coupon benefits distribution, which increases by reducing fraud and benefit misuse.
ECP is a transaction via ACH (Automated Clearing House) or duplicate draft sent by a merchant to directly debit or credit a customer's checking or savings account. ECP processing is often used for recurring payments, such as monthly membership fees, and is available in the United States and Canada.