DEFINITION of processing date

A processing date is the date (month, day, and year) on which a merchant’s bank processes a credit or debit card authorized transaction between a merchant and a customer. Treatment is a general term that describes the multi-step process of transferring funds from a customer to a merchant whenever a debit or credit card is involved in a transaction. Interbank clearing and settlement occurs on the processing date.

DECOMPOSITION Treatment date

Credit card acceptance is the first step in a credit card transaction. The merchant accepts the physical card or card number that a customer provides online or over the phone. Authorization and authentication are the next steps. An electronic system sends transaction information to the cardholder’s bank, called the issuing bank, to ensure that the cardholder has enough money to make the purchase. The system also ensures that the card is valid and not lost, stolen, fake or expired. The transaction is then approved or declined.

Necessary steps leading up to the processing date

At some point during the day, perhaps after close of business, the merchant will electronically send all of their credit card transactions in one batch to their bank, called the investment bank or acquiring bank. The acquiring bank transmits the details of all these transactions to a settlement bank, also called a processing bank. The settlement “bank” is usually a payment technology company such as MasterCard or Visa Inc.

For each transaction, the processing bank ensures that the correct amount of money is exchanged between the issuing bank (the consumer’s bank) and the acquiring bank (the merchant’s bank). This process is called “interbank clearing and settlement”. Interbank means more than one bank is involved. The stage of collecting information is called “clearing” and the stage of exchanging money is called “settlement”. The whole process is automated and only takes a few seconds.

Then, for a purchase transaction, the settlement bank receives funds from the customer’s bank and then sends those funds to the buyer (the reverse happens if the merchant refunds the customer). The acquirer then transmits the funds to the merchant (or returns them to the customer) and the transaction is posted to the cardholder’s account.

The merchant pays various fees to accept credit cards from customers due to all the behind-the-scenes steps involved in payment processing. The issuing bank – the company that issued the customer’s credit card – bears the risk that the customer does not pay for the transaction.

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