Authorization and Settlement
Transaction processing is comprised of two steps and can be implemented as a one-step process or two-step process. The steps are authorization and settlement. It's possible to do authorization and settlement in one shot (which often used in bill payment and recurring billing) or in two different steps.
Transaction Processing Steps​
1st Step - Authorization​
During authorization step, a card is verified for its validity and specified amount of money is blocked on the card for future settlement. Therefore, successful authorization implies that:
- Card is valid
- The needed amount of money is present on that card at that time
2nd Step - Settlement​
During settlement step, previously allocated amount of money on the card is sent to the account, the actual transfer of money takes place. There are two scenarios to settle transaction:
- Host capture
- Terminal capture
Settlement Scenarios​
Terminal Capture​
In terminal capture scenario merchant is required to supply all the settlement information about each transaction to be settled at the time of settlement. And settlement doesn't occur until the merchant submits this information.
Host Capture​
In host capture scenario the settlement is handled by authorization system without any explicit information from the merchant. There are two conceptual ways of looking at host capture:
1. Merchant-initiated​
During merchant-initiated process, settlement is taken care of by the host. The process doesn't start until merchant explicitly sends in a settlement message or settlement request.
2. Time-initiated​
During time-initiated process settlement happens automatically at a certain time and there're two common approaches:
- Once a day at a specified time
- Multiple times per day every 'X' number of hours