What Is Batch Credit Card Processing?
In batch credit card processing, a merchant submits multiple authorized credit card transactions to its payment processor at one time—frequently the entire day's worth at the close of business for that day. The alternative to batch processing is real-time processing.
Key Takeaways
- Batch credit card processing occurs when a merchant submits a group of credit card transactions for processing at one time.
- Often that will be at the close of the business day and include all the transactions for the past 24 hours.
- While the authorization process for a user's credit card happens at the time of purchase, it is not until processing that the transactions get charged to the bank.
- The alternative to batch processing is real-time processing, in which authorization and processing occur at virtually the same time.
- Batch processing can be less expensive for the merchant than real-time processing because it means a smaller number of separate transaction fees.
How Batch Credit Card Processing Works
Credit card transactions are a multi-step process involving several different players.
The merchant's first step toward getting paid for a customer's credit card purchase is the authorization step. Authorization occurs at the time of purchase when the customer's credit card information and transaction amount is transmitted to the card issuer to verify that the card is legitimate, has not been reported as stolen, and has enough available credit to make the purchase.
After the close of business, a merchant using batch processing will transmit the authorization codes for every credit card transaction that day to its payment processor. The processor will categorize the transactions by the bank that issued each customer's credit card. Those banks will then remit the payments to the merchant in a step called settlement.
When credit cards are processed, the bank subtracts a fee for its role in the process, makes sure the merchant gets paid for the transactions in that batch, and lets each customer's credit card issuer know that the merchant has been paid so the issuer can post the transaction to the cardholder's account. The same process applies when a merchant issues a consumer a refund for a previous credit card transaction. It may take two to three days for the merchant to receive the funds for a batch, and it may take the same amount of time for the transactions to post to consumers' accounts.
A merchant can set up batch credit card processing to happen automatically at the same time each day or choose to do it manually. Credit card batching can also be done more often than once a day, but there is a fee for each batching request, so merchants tend to process batches once a day to minimize their fees. Due to the fees that credit card processors charge, sending the entirety of the day's transactions in one batch eliminates the individual charges that would be applied if each transaction was sent separately.
Note
The concept of batch processing is not unique to credit card transactions but has many different applications across numerous industries.
Benefits and Drawbacks of Batch Processing
There are tradeoffs in using batch credit card processing. On the plus side, it can be less expensive than real-time processing because it will incur fewer bank transaction fees. It may also be more secure. As NCR, the transaction technology company, explains, "Processing once a day versus multiple times a day minimizes the contact you have with your processer and keeps your customer’s payment data more secure."
Batch processing is also useful in businesses where the exact total of a transaction isn't known at the time of the authorization step. A common example would be restaurants that seek authorization for a customer's credit card after the meal but before the customer has added a tip.
On the down side, the merchant will receive its money somewhat later. In addition, there is an added risk that payments may be rejected or declined. With real-time payments, by contrast, the merchant could have known of potential problems beforehand. Because of this possible risk, merchants are commonly advised to submit card transactions within 24 hours of the time they occurred.
Whatever method the merchant chooses, it all takes place behind the scenes and should make no difference to the customer.
Can Merchants Charge Extra for Credit Card Transactions?
In most states, merchants are allowed to tack on surcharges or convenience fees when customers pay by credit card instead of cash. That can be one way of recouping their added transaction costs, such as swipe fees.
What Is a Swipe Fee?
Merchants typically pay a "swipe fee" every time a customer uses their credit or debit card to buy something, whether it's by swiping, tapping, or some other means. Also called interchange fees, swipe fees are imposed by card-issuing banks and card networks like Mastercard and Visa. These are sometimes referred to as hidden fees because the cardholder never sees them and may be unaware of them.
Federal law caps debit card swipe fees for major banks at 21 cents per transaction plus 0.05% of the transaction amount. But cards issued by smaller banks are exempt from that rule. For credit cards, swipe fees average "about 2% of the transaction but can be as much as 4% for some premium rewards cards," according to the National Retail Federation.
Another trade group, the Retail Industry Leaders Association maintains that debit card swipe fees alone represent "merchants' second highest operational cost only to labor."
Can Merchants Require a Minimum Purchase Amount for Credit Cards?
Yes, federal law allows merchants to set minimum purchase requirements for credit card transactions. However, the amount can't exceed $10 and must be applied equally regardless of which credit card issuer is involved.
The Bottom Line
Merchants have two main choices for how their credit card transactions will be processed: batch processing and real-time processing. Those that choose batch processing often do so because of its lower cost and other potential benefits.
