- Credit Cards
Batch Credit Card Processing Explained in Less Than 4 Minutes
ByJamie Johnson
Updated on June 20, 2022
Reviewed by
Ebony J. Howard
:max_bytes(150000):strip_icc()/Office2-EbonyHoward-bfcf94f429a1438081fbe922661b538c.jpg "Batch Credit Card Processing (1)")
Reviewed byEbony J. Howard
Ebony Howard is a certified public accountant and a QuickBooks ProAdvisor tax expert. She has been in the accounting, audit, and tax profession for more than 13 years, working with individuals and a variety of companies in the health care, banking, and accounting industries.
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Fact checked by
Jane Meacham
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Fact checked byJane Meacham
Jane is a freelance editor for The Balance with more than 30 years of experience editing and writing about personal finance and other financial and economic subjects.
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In This Article
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In This Article
- Definition and Example
- How Batch Credit Card Processing Works
- Batch vs. Real-Time Processing
- Pros and Cons of Batch Processing
:max_bytes(150000):strip_icc()/GettyImages-831657214-a6e806b873be41d896c45842106cb7ad.jpg "Batch Credit Card Processing (3)")
Definition
Batch credit card processing is the practice of processing a group of authorized transactions at the same time.
Batch credit card processing is the practice of processing a group of authorized transactions at the same time. In this practice, the merchant will let the transactions accumulate during the day and process them all at once.
Businesses also have the option to process credit card transactions in real time. Understanding how batch processing works and the pros and cons will help you make an informed decision for your business.
Definition and Example of Batch Credit Card Processing
Batch credit card processing involves processing a group of transactions at once, usually at the end of the day. Instead of processing each transaction as it occurs, the company will let these transactions add up, then settle them at the close of the business day.
During batch processing, the merchant will send the authorization codes for each credit card transaction to the issuing bank for approval. Once the approval process is finished, the funds are sent to the merchant’s bank for a process called settlement.
How Batch Credit Card Processing Works
When it comes to processing credit card transactions, there are three steps a business will take: authorization, processing, and settling. When the customer uses a credit card to pay, the point of sale (POS) will send a message to the credit card issuer to authorize the transaction.
The point of authorization is to ensure the card is legitimate and that the funds are available to cover the transaction. Once the transaction is authorized, the card will have a hold placed on it for the transaction amount.
Note
The major reason many companies choose batch credit card processing is because it comes with fewer processing fees. Instead of paying a fee for each credit card transaction, your business pays a single fee per batch.
During the processing stage, the authorization hold is processed, and the money is transferred from the customer’s account into the merchant’s account. Once the funds hit the merchant’s account, the transaction is settled.
During batch credit card processing, the authorization process happens when the customer pays. But the transaction is processed and settled at the end of the day. Instead of processing each transaction as it takes place, the merchant sends a group of transactions to be processed together.
Batch Credit Card Processing vs. Real-Time Processing
| Batch Credit Card Processing | Real-Time Processing |
|---|---|
| Related transactions are grouped, then processed in a batch | Each transaction is processed and settled as it takes place. |
| Credit card transactions accumulate and are processed at the end of the business day. | Every transaction is finalized as the customer pays. |
Businesses have two options for processing credit card transactions: batch processing and real-time processing. With batch processing, the credit card transactions accumulate and are processed at the end of the business day. They are typically grouped into related transactions and processed in a batch, under one application.
By comparison, real-time processing involves processing and settling each transaction as it takes place. The transaction is processed every time a customer pays.
Using this method, payment information is always up-to-date, so it’s easier for the business to respond immediately to issues. However, real-time processing can be more expensive and complex because you pay a fee every time a transaction is processed.
Note
You should talk to your payment service provider to determine whether real-time processing or batch processing is the best choice for your business.
Pros and Cons of Batch Processing
Pros
A more efficient way to process credit card transactions
Less expensive than real-time credit card processing
More flexible for businesses that process a high level of transactions
Cons
Businesses may have a higher rate of declines
Pros Explained
- More efficient: Batch processing can save businesses time when they don’t have to process each transaction individually. Instead, they can upload a group of credit card transactions at once.
- Less expensive: Batch processing is less expensive because you don’t have to pay a fee every time you process a transaction. Companies will pay a single network connection fee, saving them money, especially if they process a large number of transactions.
- Greater flexibility: Batch processing gives businesses the option to decide when they process credit card transactions.
Cons Explained
- More declines: Businesses may have higher rates of customer card declines with batch processing. That’s why it’s essential to batch your transactions at least once every 24 hours.
Key Takeaways
- Batch credit card processing involves putting through a group of transactions together, usually at the end of the day.
- In comparison, real-time credit card processing settles each transaction as it takes place.
- Batch processing is less expensive and less time-consuming for businesses that process a large number of credit card transactions.
- Batch processing usually comes with a higher rate of declines, so it’s crucial to batch-process credit card payments at least once every 24 hours.
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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
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