To ensure smooth processing of credit card transactions, there are three steps. Authorization, capture, and settlement are the three steps required to process a credit card transaction.

Authorization Phase

If the merchant accepts credit card payments, the first step will enable them to verify that there is sufficient money in the customer’s account or available credit to fund the purchase. The bank will then reserve the funds for the purchase only and they cannot be used again. This prevents customers from losing revenue if they cancel an order after being charged. Authorization is a way to verify that there are sufficient funds/credit at the time of processing. However, it can be cancelled before the order has been processed and captured later in the process flow.

Capture phase

The second step is to capture or settle the authorized amount. It is then sent from the customer’s account to merchant’s account. This is a once-off transfer and cannot be repeated unless the customer calls their bank to cancel it. Once the funds have been transferred to the merchant’s bank account, it will be successfully captured. This transaction is sent to the bank for reconciliation in order to remove funds from their credit/money balance.

Settlement phase

Merchants would process authorized transactions at the third stage. This could be any time of the day, or over multiple days. It varies from one business to another. Before the settlement stage can be completed, it is necessary to determine how much each sale is worth based on existing agreements between issuing and acquiring banks. Banks will need to match all transactions within a specified timeframe and ensure that each customer has sufficient credit/money at purchase time in order to process a settlement. This is done automatically when merchants process multiple transactions at once (such as at night), but manually when there are many days involved in a settlement.

The credit card processing companies act as an intermediary between payment gateways and merchant accounts. They also provide payment brands such as MasterCard(r), Visa (r), American Express(r), Discover(r), and Discover(r). They offer tools that speed up transactions and reduce costs for clients, which gives them incentives to do business with them.

There are four types of credit card processing companies: Independent Sales Organization (ISO), Independent Sales Representatives (ISR), Merchant-level salespersons (MLS), and Payment Gateway Service Providers (PPSP).

Independent Sales Organization (ISO)

A company that operates independently from the financial institutions that issue credit card, unlike an ISO affiliate/bank partner/acquiring bank. These organizations offer business owners the chance to accept credit cards. They work as agents for banks and are incentivized in order to serve their clients’ best interests. These organizations are trusted enough that banks will work with them every day, rather than hiring them for one-off transactions.

Independent Sales Representative (ISR)

A credit card processing company that serves the same purpose of an ISO, but acts on behalf of a financial institution and is not affiliated with them. They don’t own any of the transaction processes. Outsourcing credit card processing is more cost-effective than outsourcing because ISRs get paid through the performance of their clients, which in turn results in lower prices for companies that want to accept credit cards. These individuals are paid more money if they perform well, which encourages them and their businesses to grow.

Merchant level salesperson (MLS)

A merchant level salesperson acts in an intermediary role between businesses that want to accept credit cards or payment gateways. They can help their clients find the best solution. This company is independent of all financial institutions and does not own any transaction. However, they can help businesses grow by giving them knowledge about credit card processing as well as helping them to conduct transactions efficiently. They might or may not be eligible for incentives based upon job performance, unlike ISO affiliates who are paid a fixed amount regardless of what happens after a transaction.

Payment Gateway Service Providers (PGSP)

A PGSP acts as an aggregator, which means that they bring together all the players involved in a transaction and place them in one location where they are easier to find online. These companies help customers find the right credit card processing company and provide information about how to protect their customers. These companies offer dedicated customer service, which is not usually available when using ISOs and ISRs.

There are many options available to businesses when it comes to processing credit card transactions. Although they may choose to work with an ISO affiliate or ISR, it is more cost-effective than working with an MSP that can offer similar services. However, each company will need to be covered. Businesses should consider the reasons they require an ISO or ISR before making a decision. Although they work in similar ways, their fees are different depending on how much infrastructure is available. This is why it can be advantageous for some businesses to choose one over the other.

Balanced Processing Partners can help you determine the best solution for your business. We have many partners who can assist you with your payment processing needs. Contact us at 800 354-6256