When it comes to credit card processing, there are a few different ways merchants can run their transactions. The two main types are real-time processing and batch payment processing. Real-time processing includes processing and settling each transaction the moment it takes place.
On the other hand, batch payment processing is the processing of transactions in a group or batch, where related transactions are grouped together and transmitted en masse for processing, usually by the same computer and under the same application. These batches are an accumulation of captured credit card transactions throughout the day waiting to be settled. Multiple batches can be settled throughout a day; the time period around capturing batches is flexible, depending on the payment solution in use.
Investopedia defines batch credit card processing as the practice of a merchant processing all of its authorized credit card transactions for the day after the close of the business day, or at a time determined by the credit card processor.
Credit card batch processing is a two-step process for merchants to get paid. The first step takes place at the time of the transaction and includes authorization of the legitimacy and availability of funds on the payment method provided by the customer. During the second step, the merchant sends multiple date elements for every credit card transaction to its payment processor, and the processor categorizes the transactions by the bank that issued each customer’s credit card. The banks then provide the payments to the merchant in a step called settlement.
Batch credit card processing is the practice of a merchant processing all of its authorized credit card transactions for the day after the close of the business day, or at a time determined by the credit card processor.
Say you’re managing a restaurant. Your dining rooms have reopened at full capacity, so business has once again picked up; you have hundreds of guests per day. Whenever one of them is ready for the check, they provide their credit or debit card for payment. The server takes the card, swipes it and returns it in the folio with their receipt and a pen to sign.
Meanwhile, the amount of the check and the customer’s payment card information is sent to the card issuer and, if verified as legitimate and deemed to have sufficient credit available for the purchase, is noted as authorized. Authorization codes and any other necessary data elements for each transaction are stored in one of three ways:
- Using batch credit card processing software
- A payment gateway suitable for batch payments
- The card terminal, until it’s time to process the batch of transactions
While the authorization will happen on the customer’s credit card at the time of purchase, it’s not until the batch processing or settlement that the transaction gets charged to the bank. Later, usually at the end of the day, you then process your batch of transactions. Since banks typically charge a fee for each batch of credit cards processed, many merchants choose to only do batch credit card processing once a day to reduce costs.