Thursday, August 28, 2008
So, you're a brand new merchant level salesperson (MLS) and you've found early on that there is much to learn regarding the technical side of payments. The industry has its own vernacular, and you may be finding it difficult to assimilate and organize the complex array of terminology and processes.
Charm and innovative sales techniques will only get you so far. MLSs need to know how the payments business works from the ground up.
To help with that education process, David Fish, Senior Analyst, Credit Advisory Service, Mercator Advisory Group, presented Merchant Acquiring 101, a teleconference held Aug. 26, 2008. Fish donned his instructor's cap 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, 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.
"The approval or decline message is then passed back to the card network," Fish said. "The network routes that response to the acquirer's system. The acquirer then pushes that out to the merchant's terminal so that the merchant knows whether or not to render the goods and/or services to the consumer."
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.
According to Fish, there are two forms of settlement:
1. Network settlement is where the issuer submits a payment back to the acquirer that processed the card. 2. Merchant settlement is typically paid to the merchant's bank account through the automated clearing house after the acquirer clears that day's batch accounts.
For more information about the teleconference, contact David Fish at dfish@mercatoradvisorygroup.com.
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