Today we’re going to cover another payment processing decision that can substantially affect your day-to-day processes and fees over time.
The choice between batch processing and real-time processing ultimately comes down to the differences in fees and whether or not you need to adjust transaction values after a sale, and the decision isn’t that difficult once you know what to look for.
You may be wondering what batching is, but I’d bet it’s not the first time you’ve come into contact with batch processing.
If you’ve owned, worked, or been around the restaurant industry, you’ve probably heard of batch processing credit card transactions at the end of each shift. It’s when you tally up the tips, add them to the authorizations, and submit the transactions to be processed.
But what does that really mean? What are the best practices for batching — should your business batch or just real-time process?
Well… let’s find out.
What does batching transactions mean?
Batching transactions (also known as batch clearing, batch processing, and dual message processing), is when a merchant takes a “batch” of authorization requests and sends them to the processor to be settled.
It’s the act of taking a bunch of authorization holds and actually retrieving the merchant’s money from customer accounts.
After the merchant sends in the authorization code file, the processor organizes the transactions by bank and gets the banks to send the payments to the correct merchant account. This is known as “settlement”.
Once the transactions are cleared (or settled), the funds are usually delivered to the specified merchant account within 48-72 hours.
How batch processing works
It’s easy to think of batch processing as the splitting of two processes that make up a more normal (real-time) credit card transaction.
We’ll call these processes authorization and processing.
Step 1: Authorization request
The first thing that happens when a customer transacts with you is what’s known as an authorization request. This is just a secure message sent from your POS to the credit card issuer (think Chase, MasterCard, etc.). This message, or authorization request, asks a few things:
- Is this card stolen or being used in a suspicious manner? This is when the bank checks for anything weird. If the card is being used in a different country or conducting multiple high-ticket purchases in a row, the authorization request may be denied.
- Does this card have enough credit or cash to make this purchase work? This is what denies a transaction if someone has maxed their card out for some reason.
At this point, your POS will either accept or deny the request. If it’s accepted, then the customer’s account will have a “hold” placed on their account for the transaction amount.
The money isn’t actually gone or moved yet, but it is spoken for. So if your transaction maxed out their card, then the next transaction would be denied even if it’s for the same amount.
Step 2: Processing
Processing is about getting your money. This is when you tell the payment processor to actually go and get your money. This moves that “hold” into a finalized transaction. Again, this is also known as a settlement.
So what does that look like in practice?
Basically, all of your authorization requests are moved into one file, and depending on your settings, you can have automatic “batching” that takes all of those requests and “processes” them or you can do it manually. People usually opt for 1-2 automatic batches per day or manual uploads at the end of the day.
We cover the advantages and disadvantages of batching down below, but for now let’s look at the differences between the two main types of processing: real-time processing, and batch payment processing.
How is real-time processing different than batch payment processing?
Whereas batch processing is the separation of authorization requests and settlements as noted above, real-time processing (or single message processing) combines those steps into one fluid process.
While this does complete the transaction in its entirety on the spot, you have to pay a separate fee for each settlement, and this prevents you from adjusting the transaction amount later on for added amounts such as tips.
Do you have to re-batch transactions that were processed in real-time?
No — the whole point of credit card payment batch processing is to do a whole bunch of individual transactions at once to lower costs in fees and adjust final transaction amounts.
There’s no repeating work here. Again, real-time transactions take both the authorization and processing and combine them into a single event.
Advantages and disadvantages of batch processing
Batch processing is ideal for businesses where the final transaction amount isn’t known at the time of the authorization. Think tips added to a restaurant bill or gas stations authorizing a payment before the gas is pumped.
Here are a few other points to note about batching:
1. Batch processing can be automatic or manual.
Depending on your business, you may find it advantageous to do end-of-day batch processing manually. This is especially important for restaurants, but the point is you have freedom here.
Usually, these batches are handled by the in-store manager and bundled in with the other financial duties involved in “closing” a store or restaurant such as balancing the drawer.
2. Batch processing is cheaper for large volumes.
Real-time processing incurs fees for each individual transaction. Batch processing fees are on a per-batch basis, so if you’re dealing with high volumes of low processing amounts, then batching is almost assuredly the best way to go.
Check with your merchant services provider to compare batching vs. real-time costs.
3. Processing helps from an organizational standpoint.
Having all of your authorization requests in one place makes it easy to check on individual transactions and make adjustments as needed.
4. You receive money slower during batch processing.
Batch processing can be a bit slower than real-time processing, but not by much. And if you need cash in less than 48 hours, you probably have bigger problems to worry about!
Batch payment processing with Tidal
As your business grows, so do the number of transactions you have to process every day across different mediums and software, and with each transaction comes more potential for a slow or painful customer transaction process.
Instead of processing hundreds or thousands of transactions individually, batch upload your transactions directly from your POS, mobile app, or web dashboard with Tidal’s merchant services software.
This gets rid of the annoyances and inefficiencies involved with sending individual transactions, and you’ll receive an automatic report detailing the success or failure of each transaction after uploading them.
We approach payment processing like a partnership — see if you qualify.