Payment Gateways II: Batch Transaction Processing

on Jul31

The purpose of this post is to familiarize merchants and resellers with the concept of batch transaction processing as an advanced feature to be considered during online payment gateway/credit card processor selection.

If this is the first time you are reading “Payment Gateways II” series, please start with the Introduction, as it will improve your understanding of the current post.

Real-time and batch transaction processing

The two ways in which a credit card transaction can be processed provide the basis for two processing approaches. Processing either happens in real time (transactions are authorized one-at-a-time), or it happens in batch (batch file with many transactions is sent and then processed as a whole). While real-time processing is more common in retail, batch processing is more suitable for recurring billing and bill payment (utility bills etc).

The advantage of batch processing is that it allows merchants to track multiple transactions together. This feature is especially important in recurring billing, where a large number of transactions is involved, as batch transaction processing makes it easier to manage the overall process.

Companies that need to process numerous transactions on recurring basis have two options. One option is processing transactions one-at-a-time (effectively emulating batch transaction processing). The other option is actually generating a file and sending it to the payment gateway to process.

If transactions are processed one-at-a-time, authorization and settlement represent two different steps of the process, and if something goes wrong at settlement stage, it is problematic to manage the entire batch. On high volumes of transactions the process can take very long.

The second approach is “cleaner”, primarily because transaction authorization and settlement happen at the same time: the whole procedure is done “in one shot”, there is no need to do reconciliation of the settlement at the end. File-based batch transaction processing is also suitable for merchants that process e-checks (ACH transactions), because it makes the delivery of ACH transactions somewhat easier (one file, containing all transactions, is generated).

Let us consider a health club example to illustrate how batch transaction processing works.

Example

A health club runs recurring billing daily to collect membership dues. In addition to that it also runs a decline recycling process (reprocesses all the declines on the subsequent day). As part of the decline recycling process another attempt is made on all of the declines. Real-time processing is possible, it makes it very difficult to keep track of the transactions, processed for a given billing date, and can, potentially, be time-consuming on those billing days when large numbers of accounts need to be processed. File-based batch transaction processing, on the contrary, provides an opportunity to view every billing date within the context of a batch and transactions that go through recycling process simply constitute a portion of that main batch (sub-batch), which makes things considerably more manageable for a large-size fitness club chain.

Conclusion

Based on merchant’s current or future/potential needs, the merchant that needs to process considerable number of recurring billing and bill payment transactions should consider looking for a processor capable of processing large files.

The next article will cover credit card decline recycling.

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