what's the point of a batch in a credit card transaction

Question

So at retail stores where credit cards are swiped the machines are usually batched at the end of the day. It's when that batching takes place that the card is actually charged. Why is that? Why isn't the CC just charged immediately? One reason I could see is maybe, back in the days of dial up, you'd let all the CC transactions pile up until the end of the day and then you'd charge all the CC info you had collected through out the day in one go.

But this isn't the days of dial up anymore so what's the whole point of batching stuff?

Also, in looking at the specs for a particular payment gateway I see, among other things, transaction types for "Sale" and "CaptureAll" (which I guess does the same thing as batching a machine out does). If a "Sale" packet has to be sent for every CC swiped why not just charge it then as well? Or why not do a "Capture" after every "Sale"?

Answer 1

AUTH and CAPTURE are two important functions of payment card processing.

As a merchant you can process transactions as:

• AUTH Only
• AUTH then CAPTURE
• AUTH and CAPTURE.

AUTH Only is simply authorizing for checking the validity of the card or fuel authorization.These transaction will never be settled.

AUTH then CAPTURE means an AUTH transaction (real time) followed by a delayed CAPTURE transaction for settlement. These capture transaction are batched.

AUTH and CAPTURE is both authorization and settlement in one transaction and in real-time.

In eCommerce world merchant normally opt for AUTH then CAPTURE because of following reasons:

1. Fraud check after a successful AUTH but before shipping the products
2. Delay in shipping of merchandise due to unavailability
3. Partial delivery for multi product shipment

In brick and mortar world merchants uses a hybrid approach. Acquirer usually charge a high transaction fee for AUTH and CAPTURE in comparison to AUTH then CAPTURE.

Answer 2

One thing nobody so far has mentioned is VOID which is an 'operational lifesaver' for many merchants who operate with less tech than many of us here can program or deploy.

VOIDs would not be possible if credit card transactions were not settled in batches at the 'end of the day' (on many systems, such as Authorize.net, you can specify the time of day at which your batches finally settle).

A VOID allows a merchant to flag a transaction NOT to settle at the end of the day at batch time - many merchants do this if they are out of stock or even (yes, I have come across this in the real world) if their online processing is so poorly designed that they process 2 transactions if the shopper double-clicks the final card submit. A void makes a transactions 'as if it never happened', but it has to be done before batch settlement - after the batch settles, one would have to render a credit to the card.

If you think of all the myriad requirements of how we are accustomed to handle credit card transactions, it would be a veritable nightmare for many merchants if we suddenly did away with settling batches of transactions once per day.

Answer 3

In the US at least, it's partly because the money is transferred through ACH, and it's more efficient to calculate which banks owe which banks how much in big, nightly batches than it is for individual transactions. While authorizations are often in real time, they don't have to be, and it is still an "offline", batch system at its heart. It was designed at a time when "online" wasn't a possibility and that is just the way it works.

Technically you could close the batch after each transaction, but you'd pay a batch fee every time to do that, because settlement takes actual work, and it's not how the network was designed to be used. And you still wouldn't receive the money until the next business day at the earliest because of the way ACH works.

This is in contrast to EFTPOS (an "online" debit card transaction in which you type your PIN at a terminal), which involves different technology, different networks, and immediate transfer of funds.

In the US, it is common for debit cards to also be branded with a credit card network like Visa or MasterCard. When you swipe these cards and type in a PIN, it goes through the EFTPOS network (Interlink, Star, Pulse -- you've seen these names on your cards before but probably haven't given them much thought). This is typically advantageous to merchants because fees are lower and the issuing bank is usually liable for fraudulent use (it's all happening online in real time and the user authenticated with a PIN). When you swipe these cards and don't enter your PIN (sometimes signing a receipt), then it goes through the credit card network -- again, a completely different network -- and is part of a nightly batch. The merchant typically pays a higher fee, and if used fraudulently, the merchant usually ends up footing the bill. (The acquirer almost always passes it along to the merchant.) If you've ever wondered why Walmart or your grocery store defaults to the PIN pad and makes you jump through hoops to find the Credit function, that's why -- debit is cheaper for them. And if you've ever wondered why an e-commerce store freaks out when your billing address is wrong, that's why -- if you dispute a transaction as fraudulent, it's them who's paying the bill, no sweat off the bank's back.