Batch Credit Card Processing

Key Takeaways

• Batch processing allows merchants to submit a day's credit card transactions at once to save on fees.
• It provides cost benefits over real-time processing by minimizing transaction fees.
• Transactions get charged to the bank during processing, after purchase authorization.
• Batch processing can lead to delayed payments but reduces security risks and fees.
• Real-time processing offers immediate payment but can increase transaction costs.

What Is Batch Credit Card Processing?

Batch credit card processing groups authorized credit card transactions for processing at the end of the business day. Merchants often use batch processing to reduce the transaction fees associated with real-time processing. Real-time credit card processing authorizes and processes transactions as they happen. This can reveal potential issues sooner but merchants may incur a fee each time a transaction is processed. Higher costs can encourage them to process batches just once daily.

Batch processing may delay funds to merchants and runs a risk of rejected payments.

Understanding the Process of Batch Credit Card Transactions

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 are 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 be performed more frequently than once a day, but each request incurs a fee, so merchants typically process batches once a day to minimize fees. Because credit card processors charge fees, sending all day's transactions in a single batch eliminates the individual fees that would be incurred if each transaction were sent separately.

Fast Fact

The concept of batch processing is not unique to credit card transactions but has many different applications across numerous industries.

Pros and Cons of Batch Credit Card 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 processor and keeps your customers’ payment data more secure."1

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 downside, the merchant will receive its money somewhat later. In addition, there is an added risk that payments may be rejected or declined.2 With real-time payments, by contrast, the merchant could have known about potential issues in advance. Because of this possible risk, merchants are commonly advised to submit card transactions within 24 hours of the time they occurred.3

Whatever method the merchant chooses, it all takes place behind the scenes and should make no difference to the customer.1

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.4

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.5

Another trade group, the Retail Industry Leaders Association, maintains that debit card swipe fees alone represent "merchants' second highest operational cost, only to labor."6

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.7