Two Stages of Transaction Processing

 

Stage #1) Authorization

• Card details and purchase amount must first be verified and approved by the issuing bank. Authorization is the process by which the issuing bank approves or declines a card transaction. This takes place within a matter of seconds at the time of purchase.
• The issuing bank checks the validity of the credit or debit card used by the customer. This is done by utilizing various fraud prevention tools, including Address Verification Service (AVS) and Card Security Codes (CVV2, CVC 2 and CID).
• The response is received by the merchant.

Stage #2) Clearing and Settlement

• Clearing is a process through which an issuing bank exchanges transaction information with a payment processor.
• Settlement is a process through which an issuing bank exchanges funds with a payment processor to complete a cleared transaction.
• Clearing and settlement occur simultaneously.

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Payment Processing Technology

Every business is unique, especially when it comes to accepting payments. The technology that you use to run your business is vital to your success, so it pays to really understand your needs and get the best payment technology solution possible.

Online Invoicing

Invoices are an essential part of billing for a majority of businesses. Many businesses still rely on very manual processes such as Excel templates, in order to create invoices. While this might seem like a cost-effective solution, the time wasted in creating your invoices and the lack of connectivity between your data can be highly detrimental.

EMV Smart Terminal

Physical credit card processing terminals are great for businesses with brick-and-mortar locations to take in-person payments in-store. If your customers are physically coming to you and swiping (or dipping) their cards, this is the solution for you. An important thing to remember is to make sure whatever machine you decide to purchase comes with full EMV and NFC technology enabled. This means you’ll be able to accept chip cards as well as contactless payment methods like contactless cards and digital wallets like Google Pay or Apple Pay.

Mobile Payment Solutions

Perfect for the on-the-go business owner, mobile payment technology can be a game-changer for your business. Some businesses can get by with just a mobile solution, but a large majority use their mobile credit card readers and apps for trade shows and field reps to be able to take payments on the spot.

Online Shopping Cart

Online shopping carts are powered by payment gateways and are essential for any eCommerce business. Even if you mainly operate a brick-and-mortar location, having an online store is a great way to increase your product’s visibility. Processing payments through an online shopping cart couldn’t be easier, and typically involves a quick phone call with your provider to activate the payment gateway.

Virtual Terminals

While countertop POS systems or card readers may be the obvious choice for card processing equipment for some businesses, they may not be suitable for all. Especially if your business takes orders over the phone, mail, fax, or in-person, you are going to need the help of a virtual terminal. Virtual terminals are simply web-based applications that can run on your laptop, desktop, tablet, or smartphone, transforming them into a POS system so you can process transactions anywhere as long as you have an internet connection. All you need to do is enter the payment info into your virtual terminal and it will then be encrypted, authorized, and submitted for online payment.

Point-of-Sale

Point-of-sale systems are huge for restaurant and retail locations. These are large, integrated machines with a computer monitor, cash register, and an online credit card processing solution. POS systems come in a wide variety of shapes and sizes, so make sure you do your research and choose one with all of the right features for your unique business.

API

If you’re needing a very specific payment solution for your website or app, a payment processing API is probably the way to go. Some merchant services providers offer their API technology to developers to integrate into their proprietary applications, making it the perfect online credit card processing solution for companies needing something more customizable.

Tip: When selecting a payment processor, it’s essential to consider how you will do integrations with your existing business software, such as accounting software, and e-commerce platforms. While some payment processors may have pre-built integrations, you will likely want to look for a solution with an open API that enables you to build custom integrations. Source

What are Chargebacks and How to Reduce Them?

Purchase disputes, which occur when a customer objects to paying for some or all of a purchase charged to their account, can be expensive. The process of investigating them can be time intensive and costly for merchants. Plus, if the dispute is successful, the payment network (e.g., Visa® or Mastercard®) charges a fee for the administrative expenses incurred when investigating and processing the customer’s refund, a process known as a chargeback. If you have a significant number of chargebacks in a short time, your payment processor may charge you additional fees and penalties.

Why chargebacks happen

Purchase disputes can result from a number of situations, including simple mistakes, misunderstandings or outright fraud. If there is difficulty reaching a resolution, the dispute may also be reviewed by the payment networks to determine whether the merchant or the customer ultimately receives the funds.

Here is a closer look at some common scenarios that result in chargebacks:

Fraudulent or unauthorized charges

This is among the most common reasons for a chargeback. “Now that chip cards have started to replace the old less-secure magnetic-stripe cards, fraud-related chargebacks are usually from online or other card-not-present (CNP) transactions,” says Joe Lamar, Merchant Services product executive at Bank of America.

However, in addition to regular fraud, there is also “friendly fraud,” in which a consumer disputes the purchase despite authorizing and perhaps even receiving it. For example, Jay lent his brother his credit card to purchase a $20 pair of socks. His brother bought the socks along with a $50 hooded sweatshirt. When Jay looked at his credit card statement, he didn’t recognize the charge for the sweatshirt, so he called his bank and disputed the purchase.

Unrecognized charges

This typically happens when a store has a different name from the company brand name. A store called ABC Pastry Shop that sells pastries, for example, uses the name Bakery Express on its receipts. When Daniel sees a charge from Bakery Express, a company he has never heard of, he suspects fraud and files a dispute.

Duplicate or incorrect charges

This could occur when a cashier rings up a purchase twice, for example. Kiran went to his local department store and purchased a pair of work boots using his debit card. A few days later, when Kiran was reviewing his bank account, he noticed there were two charges for the exact amount he paid for the work boots. That error resulted in a chargeback.

Issues with the purchased goods

In this scenario, the purchased goods or services were damaged, defective, not as originally described or not delivered at all. For example, Anna ordered a brand-name video game controller from an online retailer, described as red, transparent and wireless. When she received the controller, it was a standard gray wired controller. Anna tried to contact the seller but was unable to reach them, so she filed a dispute.

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How Fast Bank Payments Are Helping To Modernize Public Sector Disbursements

State, local and regional government entities play a critical role in the U.S. economic engine. In 2023 alone, these entities spent $4 trillion on a wide range of public goods and services, spanning programs as diverse as public assistance, education, healthcare, community development, criminal justice and public safety, as well as disaster relief and infrastructure initiatives.

Disbursements represent a significant portion of government spend, with an average $7,708 annual spend per person, and account for 22% of all disbursements to consumers—second only to income and earnings payments. Even today many disbursements remain largely manual and paper-based. As the volume and diversity of government payments continues to grow, so do the costs, complexity and security risks associated with legacy payment methods.

While significant prioritization and progress of e-government initiatives and services has been seen recently, payments modernization in the public sector has not necessarily evolved at the same pace. This translates to an often slower, less transparent and more cumbersome payments experience in an era in which consumers have become accustomed to expanded digital payment options and the convenience, speed, transparency and security that they bring to our everyday lives.

Changing expectations

The status quo is ready to change for the better. Digital-first experiences in other aspects of constituents' lives can lead to possible heightened expectations for government payments and the want for accessible and intuitive payment choices that deliver greater security, speed, transparency and convenience.

“Individuals want to receive payments efficiently, smoothly and simply,” said Brian Page, Head of Government Banking, Middle Market Banking & Specialized Industries, J.P. Morgan. “Government entities may want to consider all the ways people want to get paid, and think about if they are set up to be able to deliver.” 

“Payment modernization is happening in all verticals and industry sectors in the private sector,” said Curtis Webb, Senior Director, Head of Go-to-Market Strategy, Visa Direct North America. “With the gig economy, earned wage access, marketplaces and digital banking, millions of consumers already receive payments within minutes securely to their bank accounts via their debit cards.” Constituents may be asking their government officials to provide the same payment experiences that they have come to expect in their everyday lives.

Instead, constituents face persistent pain points and limited options. With paper checks, for example, constituents must wait for the check to arrive in the mail, and then take additional time and effort to deposit it. Frequent address changes can result in checks never arriving, requiring re-issuance. There’s no way to track the status of check payments efficiently, which can lead to an increased risk of check fraud.

Further, various digital payment methods, such as direct deposit via ACH, require constituents to provide sensitive account and routing numbers to government entities. Even if willing, constituents may not know or have on hand their account number and routing information, leading to additional effort and inconvenience. The negative impact of disbursement complexity and fraud risk can be compounded in times of crisis and urgent financial need, such as when constituents are waiting for disaster relief, unemployment or child welfare payments.

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What the Change of Apple Card Processor means for users

According to an article from Apple Insider; The transition of the Apple Card from being financed by Goldman Sachs to JPMorgan Chase will probably cut out a smaller company, CoreCard, that currently handles the credit card. Goldman has been using fintech payment processing company CoreCard to manage the Apple Card business, reports the Wall Street Journal

When JPMorgan takes over, however, it will likely drop CoreCard as the Apple Card's processor in favor of its own in-house payment processing. Before it got the Apple account and its estimated 12 million users, CoreCard was considered a niche processor. CoreCard currently manages the day-to-day functioning of the Apple Card, ensuring that transactions are completed and handling the billing of users. It is also CoreCard that has been responsible for developing some of the distinctive features of the card alongside Apple, like its first-of-the-month billing cycle.

CoreCard also developed the "payment wheel" graphic on its bills that show cardholders their projected interest costs, widely seen as consumer-friendly and educational. JPMorgan Chase will be responsible for the Apple Card once Goldman Sachs exits the consumer market. For users of the Apple Card, the changes are likely to be perceived as minor. Goldman Sachs, which currently manages the card, announced in 2023 that it would be withdrawing from the consumer credit market. It originally took on the Apple Card in 2019. Because JPMorgan Chase has its own processing capabilities, CoreCard owner Richard Strange believes it likely that the Apple Card processing job will go in-house, dropping CoreCard.

The transition will mean the loss of its biggest client. When Goldman first announced in early 2023 that it would be withdrawing from consumer lending, CoreCard's stock fell some 70 percent. The stock has recovered some ground since then. The change, however, forced CoreCard to sell itself to Euronet, which provides debit-card processing for banks and other financial firms mostly in Europe and Asia. JPMorgan will be unlikely to make noticeable changes to how Apple Card holders are handled as the transition completes. The card's features, including CoreCard's billing cycle and graphic presentation of payment options, have proven popular with users. Thus, any new features or changes will presumably be rolled out over time.

JPMorgan has not spoken about its future plans for the Apple Card. Euronet bought CoreCard for $248 million in an all-stock deal. Source

Who is Involved in Credit Card Processing?

The key participants involved in credit card processing include:

• Cardholder: The individual who receives a card from an issuing bank and uses the card to make payments. This individual can be either the card owner or an authorized user of the card.
• Issuing bank: The entity, also known as a card issuer, that underwrites and issues cards to individual and business cardholders who meet certain credit standards. The issuing bank maintains card accounts, bills and collects payments from cardholders and monitors the performance of credit card receivable portfolios.
• Merchant: A business that accepts cards as a method of payment. These payments can be made in person, online, or by mail order or telephone.
• Merchant bank: The entity, also known as an acquiring bank, that maintains the merchant’s account where deposits from credit card payments are accepted. Some merchant banks also provide merchants with credit card terminals, which may be purchased or leased.
• Payment processor: The entity that helps many merchants and merchant banks manage the daily settlement and information flows related to credit card activities.
• Issuer processor: The entity that provides a system for issuing banks to board accounts, provides authorizations and offers risk management tools to issuers to manage their card portfolios effectively.
• Card network: The organization, also known as a card association, that maintains infrastructure to support card transaction activities such as authorization, clearing and settlement. Examples of card networks include Visa, Mastercard, Discover and American Express.
• Payment gateway: The technology that provides the link between the point at which the credit card data is received by the merchant and the merchant bank. The payment gateway encrypts the data before sending it to the merchant bank and transmits both the authorization request to the issuing bank and the issuing bank’s response back to the merchant.

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