What happens in the two seconds after the card touches the reader.
Authorization, settlement and funding are three separate events, and almost every processing problem is really a problem with one of them. Knowing which is which explains most of what shows up on your statement.
What this page settles.
Three questions, in the order most people ask them.
Authorization
A customer taps, dips or keys a card. In roughly two seconds, five things happen.
The terminal builds a request. Card number or token, amount, your merchant identifier, and a set of data fields describing how the card was read — chip, contactless, swipe, keyed. That last part matters more than it sounds, because how the card was read is a large part of what the transaction will cost. A chip-read card-present transaction qualifies for a better interchange tier than the same card keyed by hand.
The processor routes it. To Visa, Mastercard, Amex or Discover, or for a PIN debit card, possibly to a debit network instead. PIN debit routing.
The network passes it to the issuer — your customer’s bank.
The issuer decides. Open account, available funds or credit, and its own fraud scoring. It returns an approval code or a decline code. The decline codes are more informative than most merchants realise, and the difference between a hard and a soft decline determines whether retrying is sensible. Why transactions get declined.
The funds are reserved, not taken. An approval puts a hold on the cardholder’s available balance. Nobody has paid you anything. This is the single most misunderstood step in the whole chain.
An authorization alone is a promise with a shelf life. Left unsettled it expires and you have nothing.
Settlement
At some point — usually the end of your trading day — you batch: you submit the day’s approved authorizations to the processor as a request for payment.
Most terminals do this automatically at a set time. Some require someone to close the till. Either way, this is the event that converts approvals into money owed to you.
Two things about settlement that cost real money:
Timing against the authorization window. Interchange rules expect settlement within a short window of authorization. Settle inside it and the transaction holds the tier it authorized at. Settle late — the batch that closes the following morning, the terminal nobody closed over a long weekend — and transactions can fall to a worse tier. That is a downgrade, and the surcharge is typically a half to a full percent of the transaction. Batch cutoff times, in detail.
Amount matching. If you authorized $200 and settle $260 because the job grew, the settled amount does not match the authorization. Depending on your category and how the transaction was flagged, that mismatch can downgrade too. The fix is to re-authorize rather than let settlement drift.
There is also often a batch fee — a small per-batch charge, commonly a quarter. Trivial once a day, less trivial if your terminal is batching several times daily for no reason. Monthly minimum and small fees.
Clearing and where the fees come out
Once settled, the networks clear the transaction: they move funds from the issuing banks to your acquirer, and in doing so they take their cut.
Two deductions happen here, before anybody’s markup:
Interchange, which goes to the issuing bank. This is the largest single component of your cost — usually around 70% to 80% of what you pay — and it is set by the networks, not by your processor. It varies by card type, how the card was read, your business category, and whether the data was complete. What interchange is.
Assessments, which go to the network itself. Small, flat, and identical for everyone. Assessment fees.
Then your processor’s and ISO’s markup applies, in whatever shape your pricing says: a margin over interchange, a flat rate, or a tier. Interchange-plus is the arrangement where you can see interchange separately from the markup; flat rate bundles them so you cannot.
This is also where the twice-yearly interchange updates land. The networks publish changes in April and October, and every processor passes them through. A bill that rises in those months without anything changing at your end usually has this behind it. Why your bill went up.
Funding
Your acquirer deposits to your bank account. Typically one to two business days after settlement for card-present volume, sometimes next day, occasionally same day for a fee.
Two arrangements for how fees come out, and it affects what you see:
Daily discount. Fees are netted out of each deposit. Your deposits are slightly less than your sales every day.
Monthly discount. You are funded gross and the month’s fees are debited in one go, usually in the first few days of the following month. Cleaner to reconcile, and the only arrangement where your deposits match your sales. Daily versus monthly discount.
Either way, the sum of your deposits over a month will not equal your card sales, and the difference is your real cost. That difference divided by volume is your effective rate — the only number worth comparing between quotes.
Things that delay funding: weekends and bank holidays, a batch that closed after the processor’s cutoff, your first weeks on a new account, and risk review. Funding times and why a deposit can be smaller than expected.
Refunds and voids are not the same thing
Worth separating because the cost differs.
A void cancels a transaction before settlement. The authorization is released, nothing clears, and you generally pay nothing for it. If a mistake is caught the same day, void rather than refund.
A refund reverses a transaction that has already settled. A new transaction goes back the other way. Under most pricing you do not get your percentage back — the interchange on the original sale was paid and is not returned, and many processors keep their markup too. Refund-heavy businesses should check their agreement on this specifically, because a 3% cost on money you returned is a real line.
A chargeback is neither. It is the cardholder’s bank reversing the transaction on the customer’s instruction, through the networks, with a fee attached and a ratio that gets monitored. Chargeback fees and how they work.
The five places this goes wrong
Almost every processing complaint maps to one of these.
Reading the card the expensive way. Keyed instead of chipped, or a contactless reader nobody turned on. Same sale, worse tier.
Settling late. The highest-yield thing most merchants can fix in an afternoon.
Incomplete data on commercial cards. Business cards cost much more without the extra fields, and much less with them. Level 2 and Level 3 data.
Pricing that hides interchange. Not a technical fault, but it means you cannot tell which of the above is happening to you.
Not reconciling deposits to sales. If nobody checks, a fee can sit on the account for years. How to read a merchant statement.
What we charge
Interchange + 0.50% + 10¢ in person, interchange + 0.75% + 25¢ keyed, with no contract, no monthly fee and no monthly minimum.
Interchange passed straight through is what makes the chain above visible on your own statement. If yours does not show it, send us a page and we will reconstruct what you are actually paying at each step.
While we are on the subject
Why is my deposit less than my sales?
Because fees come out before funding in most arrangements, or because the day’s cutoff fell differently than you expected. We have a page on exactly this.
How long is an authorization good for?
It varies by card type and merchant category, commonly a few days, but the window that matters for pricing is much shorter — settle the same day and you stay in the best tier.
Can I take a payment without a batch?
No. An authorization alone never pays you. Until the transaction is settled in a batch, you have a reservation of funds and nothing more.
Why did a voided transaction still show a hold on my customer's card?
A void removes the transaction before settlement, but the issuer may take days to drop the authorization hold on the cardholder’s side. Nothing you can speed up.