The lifecycle of a card transaction begins when the cardholder clicks Pay on the merchant website, or when a subscription payment becomes due and is triggered by the merchant application.
Step 1: Authorisation
The purpose of the authorisation is to verify that the card details entered are valid and that the cardholder's bank permits the transaction. At this point, a request is sent from the merchant application to APEXX, from APEXX to the acquirer and from there to the issuing bank. The authorisation will put a hold on the requested amount on the customer's card, but no funds are being deducted from their account at this point.
Prior to the actual authorisation, the customer may also be prompted to undergo 3D Secure authentication.
From an order management perspective, the authorisation usually signals the acceptance of an order.
If the authorisation is successful, the cardholder's bank will return a "success" response and an authorisation code. If the authorisation fails at any stage or is declined, an error code and an extended reason message will be returned to the merchant.
Step 2: Capture
The capture signals the completion of a transaction. Capture requests are sent by the merchant to APEXX in real time. From here, they are collected and forwarded in bulk to the acquiring bank at specific intervals, usually once a day. The acquirer then sends the capture request on to the cardholder's bank. At this point, the funds are deducted from the shopper's account and passed by the issuing bank to the acquiring bank in a process called clearing. The funds will be held in the merchant's account at the acquiring bank until the merchant requests settlement.
The capture normally coincides with the shipping of an order. If an order can only be partially fulfilled then the capture amount will be less than the authorisation amount. The capture will release the hold on the entire amount put on the account by the authorisation.
If the order cannot be fulfilled for some reason and the authorisation is no longer required, the authorised amount can be released by means of a cancellation request. This allows the cardholder to access their funds again without the need for capture (and therefore movement of funds from their account).
Step 3: Settlement Request
At this stage, the amount charged is held by the acquiring bank in the merchant's account. The funds will only become available to the merchant once they have been transferred into the merchant's bank account. To initiate this transfer, the merchant submits a settlement request. This is usually a daily procedure, unless specific minimum amounts have been agreed between the merchant and the acquiring bank.
Step 4: Settlement
Settlement takes place when the acquiring bank transfers the funds from the merchant's account to their business bank account.
The time it takes from the transaction date (completion) to settlement is expressed as T+n, where n is the amount of days it takes for the funds to arrive in the merchant's bank account.
For example, if the agreement between the merchant and the acquiring bank is T+1 then a transaction completed on Monday, 1st February will be settled on Tuesday, 2nd February.
To mitigate the risk of high chargeback rates which may threaten their liquidity, acquirers may not settle the entire amount after n days but hold a percentage of the funds in a rolling reserve. Alternatively, merchants may be asked to fund their account with a minimum amount.
APEXX has no role in the settlement process itself. However, many acquirers provide reconciliation files which contains settlement data and which can be imported into APEXX. This data can then be used in the reconciliation process carried out by the merchant's finance team.