What is batch credit card processing?

Definition and Example

How Batch Credit Card Processing Works

Batch Processing vs. Real-Time Processing

Advantages and Disadvantages of Batch Processing

Definition and Example

Batch credit card processing is the practice of processing a group of authorized transactions at the same time. In this practice, the merchant allows for the accumulation of transactions throughout the day and processes them all at once.

Businesses also have the option to process credit card transactions in real time. Understanding how batch processing works and its advantages and disadvantages will help you make an informed decision for your business.

How Batch Credit Card Processing Works

When it comes to processing credit card transactions, there are three steps that businesses perform: authorization, processing, and settlement. When a customer uses a credit card to pay, the point of sale will send a message to the credit card issuer to authorize the transaction.

The goal of authorization is to ensure that the card is valid and that funds are available to cover the transaction. Once the transaction is authorized, a hold will be placed on the card for the amount of the transaction.

Note: The main reason many companies choose batch credit card processing is that it comes with lower processing fees. Instead of paying a fee for each credit card transaction, the company pays a single fee for each batch.

During the processing phase, the authorization hold is processed and the funds are transferred from the customer’s account to the merchant’s account. Once the funds reach the merchant’s account, the transaction is settled.

During batch credit card processing, the authorization occurs when the customer pays. However, the transaction is processed and settled at the end of the day. Instead of processing each transaction individually as it occurs, the merchant sends a batch of transactions to be processed together.

Batch Credit Card Processing vs. Real-Time Processing

Batch Credit Card Processing

Related transactions are collected and then processed in a single batch

Credit card transactions accumulate and are processed at the end of the business day. Each transaction is completed when the customer pays.

Businesses have two options for processing credit card transactions: batch processing and real-time processing. With batch processing, credit card transactions accumulate and are processed at the end of the business day. They are usually grouped into related transaction batches and processed together under a single application.

In comparison, real-time processing involves processing and settling each transaction as it occurs. The transaction is processed each time the customer makes a payment.

With this method, payment information is always up-to-date, so it is easier for the company to respond immediately to issues. However, real-time processing can be more costly and complex because you pay a fee every time a transaction is processed.

Note: You should speak with your payment service provider to determine whether real-time processing or batch processing is the best option for your business.

Advantages and Disadvantages of Batch Processing

Advantages:

• More efficient way to process credit card transactions
• Lower cost than real-time credit card processing
• More flexible for businesses that process a large number of transactions

Disadvantages:

• Businesses may have higher rates of customer card declines with batch processing

Advantages Explained:

More Efficient: Batch processing can save time for businesses when they don’t have to process each transaction individually. Instead, they can upload a batch of credit card transactions all at once.

Lower Cost: Batch processing is less expensive because you don’t have to pay a fee each time you process a transaction. Companies will pay a single network connection fee, saving them money, especially if they process a large number of transactions.

More Flexible: Batch processing gives businesses the option to schedule when they process credit card transactions.

Disadvantages Explained:

More Declines: Businesses may have higher rates of customer card declines with batch processing. For this reason, it is essential to batch transactions at least once every 24 hours.

Take

The Lesson:

Processing credit cards in batch involves entering a group of transactions together, typically at the end of the day. In contrast, real-time credit card processing settles each transaction as it occurs. Batch processing is less expensive and time-consuming for businesses that handle a large number of credit card transactions. However, batch processing often comes with higher rates of customer card declines, so it is essential to settle batch transactions at least once every 24 hours.

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Sources:

Tipalti. “A Guide to Payment Batches: How to Process Batch Payments.”

NCR. “What is Batch Credit Card Processing?”

DataFlare. “Batch Processing vs. Real-Time Processing – A Comparison.”

Source: https://www.thebalancemoney.com/what-is-batch-credit-card-processing-5235445

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