What goes into the approval process?

When you or your customer swipes or dips a credit card there is an incredibly complex process that is performed behind the scenes. For the technically challenged it may seem like magic and at the very least is seems like it is so simple but it is an incredibly complex process that involves several different parties.

The first step is authorization. Your customer swipes or dips their card signalling that they would like to make a payment to you, the merchant. The merchant submits the request to their acquirer (a processor like JLE and their bank) who sends a message to the issuer of the card for authorization. If the transaction is authorized a code is sent to the acquirer that there is sufficient credit available and the acquirer authorizes the transaction. The approval is communicated to the merchant and the customer now has the goods or services they came to you to get. It should be noted that the acquirer and issuer can be, but is not always, the same company. If the card is declined another code is sent and the transaction ends right there. Thanks to modern technology this can be completed in seconds.

For the customer, outside of paying their credit card bill, their part in this process is now over. But for the merchant they are not done. All of the days sales are stored in batches and at the end of the day those batches are sent to the acquirer to get payment. Those batches are then sent on to the issuers who distribute payment to the acquirers. The issuer removes the interchange fee and routs the money to the acquirer. The acquirer subtracts their fee and routs the money to the merchant. The issuer of the card then places the charge of the customer’s statement and bills them on the next cycle.

It all seems so simple and yet the technology and automation that is involved is incredibly complex. Every cog in the wheel has to work together and in unison in order for the wheels of commerce to keep spinning. With the volume of transactions that are processed it is a wonder that more problems do not pop up more often.