As a merchantA business that accepts credit cards for goods or services., you might think that credit card transactions are as simple as swiping the customer’s card, waiting for the transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... to either be approved or denied and then handing the card back to them. However, there’s far more than just one transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... type. In truth, there are six different types of card transactions — and, as a merchantA business that accepts credit cards for goods or services., it’s in your best interest to know the differences between them all. These differences all depend on what exactly the card is being used for and what exactly is being purchased. Let’s examine all six different credit card transactions and explain what makes each one of them distinct.
Purchase
The most common and the least complicated transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... type is the purchase — also known as a sale. (When credit cards account for more than 20% of payments, you can know for certain that millions upon millions are making credit card purchases annually.) A purchase or sale is initiated when a merchantA business that accepts credit cards for goods or services. receives a payment from a customer. From there, the customer’s credit card information and the total amount from the sale are sent to the credit card processorA large data center that processes credit card transactions and settles funds to merchants. A processor connects to the merchant on behalf of an acquirer via a gateway or POS system to process payments electronically. Processors edit and format messages and switch to bankcard networks. They provide files for clearing and settlement and other value-added services..... The processorA large data center that processes credit card transactions and settles funds to merchants. A processor connects to the merchant on behalf of an acquirer via a gateway or POS system to process payments electronically. Processors edit and format messages and switch to bankcard networks. They provide files for clearing and settlement and other value-added services.... then sends the information to the card network and requests approval for the transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... from the customer’s bank for the merchant’s requested amount.
When (or if) the transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... is approved, the processorA large data center that processes credit card transactions and settles funds to merchants. A processor connects to the merchant on behalf of an acquirer via a gateway or POS system to process payments electronically. Processors edit and format messages and switch to bankcard networks. They provide files for clearing and settlement and other value-added services.... then delivers a code to the merchantA business that accepts credit cards for goods or services.. It’s important to note that this is all happening over a few seconds so that the transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... can be processed and approved (or denied) by the card network promptly.
Pre-AuthThe process of authorizing a card and reserving funds against the open to buy before a service is rendered by the merchant.
A pre-authThe process of authorizing a card and reserving funds against the open to buy before a service is rendered by the merchant., also known simply as an authorizationThe request to charge a cardholder for goods or services. Authorization must be settled in order to post the authorization to the cardholder’s account. If not processed within a certain time frame authorizations will be cancelled. The time period is usually from 3-7 days...., is incredibly similar to the purchase — however, there are a few key differences between the two that are worth outlining. The largest of these is that pre-auths do not actually complete a sale, nor do they immediately extract funds. Like a purchase, the transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... is still processed immediately and an approval codeA code issued by the card-issuing bank allowing a sale to be charged against the cardholder’s account. Approvals are requested via an authorization. is still sent to the merchantA business that accepts credit cards for goods or services. right away. However, the big difference is that the total amount from the sale is not taken from the customer’s account for 7–10 days.
Instead, the funds are set aside and frozen until the merchantA business that accepts credit cards for goods or services. submits a capture request. This transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... type is common with hotels, car rentals, and gas stations. This allows the merchantA business that accepts credit cards for goods or services. to ensure that the customer has money available on the card without charging them until the service is complete. If there is no capture request submitted after seven days, the customer’s funds are returned and the pre-authorization disappears.
Capture
A capture — which is sometimes referred to as a force — comes after a credit card pre-authThe process of authorizing a card and reserving funds against the open to buy before a service is rendered by the merchant.. These captures can be authorized up to a full 30 days after the pre-authorization, but the funds from the pre-authThe process of authorizing a card and reserving funds against the open to buy before a service is rendered by the merchant. can only be frozen for seven days. During those remaining 23 days, the funds are released and could hypothetically be spent.
What’s unique about captures is that they can only be authorized for the pre-authThe process of authorizing a card and reserving funds against the open to buy before a service is rendered by the merchant. amount or less — captures can never exceed that pre-authThe process of authorizing a card and reserving funds against the open to buy before a service is rendered by the merchant. price. Typically, captures are for less money than the pre-authThe process of authorizing a card and reserving funds against the open to buy before a service is rendered by the merchant. freezes. This is done for security deposit purposes, such as with a hotel or rental car.
VoidThe reversal of an approved transaction, which has been authorized but not settled. Settled transactions require processing of a credit in order to be reversed. A void does not remove any hold on the customer’s open-to-buy.
A voidThe reversal of an approved transaction, which has been authorized but not settled. Settled transactions require processing of a credit in order to be reversed. A void does not remove any hold on the customer’s open-to-buy. cancels a transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... that was previously authorized. This can be done to fix instances when a merchantA business that accepts credit cards for goods or services. charges the wrong amount to a customer’s credit card, for example. When this happens, a transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... can be voided and then immediately tried again for the right amount.
Like a purchase, voided transactions happen in a matter of seconds. The voided transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... sends to the card network, the customer’s bank is told to cancel the transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... and the approval codeA code issued by the card-issuing bank allowing a sale to be charged against the cardholder’s account. Approvals are requested via an authorization., and then the original transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... is done away with. If it’s too late for the transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... to be voided, a simple refund (which will be explained next) can be done instead.
Refund
If a voidThe reversal of an approved transaction, which has been authorized but not settled. Settled transactions require processing of a credit in order to be reversed. A void does not remove any hold on the customer’s open-to-buy. is the opposite of a purchase, then a refund is a reverse purchase. In other words, while voiding simply cancels the transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... before it goes through, a refund returns the money from a purchase after it has been captured or approved. The difference between the two can be seen more clearly on the credit card statement: A voided transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... disappears, while a refunded transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... will show both the purchase (represented by a negative number) and a credit for the same amount as the purchase (represented by a positive number). These refunds happen instantly on the merchant’s end but can take anywhere from 7–10 days to actually appear in the customer’s account.
VerificationThe point in which the lease company verbally verifies (confirms) with the merchant that the equipment has been delivered and that they understand the lease terms in full.
Going off of the definitions for voidThe reversal of an approved transaction, which has been authorized but not settled. Settled transactions require processing of a credit in order to be reversed. A void does not remove any hold on the customer’s open-to-buy. and refund, a verificationThe point in which the lease company verbally verifies (confirms) with the merchant that the equipment has been delivered and that they understand the lease terms in full. is a transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... for no money. Verifications occur when a merchantA business that accepts credit cards for goods or services. wants to check to see that the credit card exists but doesn’t want to make a transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... yet. Transactions make sure the customer’s credit card number is legitimate, that the card isn’t expired, and that the security code is correct. Because no money is involved, verifications do not check the customer’s credit card balance.
The Bottom Line: Defining TransactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... Type
Knowing the difference between one transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... type and another is unbelievably important for any merchantA business that accepts credit cards for goods or services. out there accepting credit card payments. With more than 191 million Americans owning at least one credit card and the average credit card user owning at least two, these different transactionAn act between a seller and a cardholder that results in either a paper or an electronic representation of the cardholder’s promise to pay for goods or services received from the act. The action between a cardholder and a merchant that results in financial activity between the merchant and cardholder’s account.... types are bound to come in handy sooner rather than later. Not to mention, there are over a billion cards currently in use in the United States alone — if a merchantA business that accepts credit cards for goods or services. doesn’t know the difference between these six card transactions, then they’re falling short of being the best merchantA business that accepts credit cards for goods or services. they can be for these millions and millions of card users.
Interested in learning more about accepting credit card payments? Visit NMA’s website to get started.
About NMA
NMA is a merchantA business that accepts credit cards for goods or services. advocacy group dedicated to reducing or eliminating the unnecessary fees associated with accepting credit card payments. Since 2004, NMA’s payment processing solutions have been delivering tailored solutions, best-in-class customer service, and high-quality service offerings for businesses across multiple industries. Whether it’s high-risk or low-risk, brick-and-mortar or e-commerce, NMA will create the best processing experience for your company. For more information, visit us at our website or call us at (866) 509-7199.