Processing Date

DEFINITION of Processing Date

A processing date is the date (month, day and year) when a merchant's bank processes a credit or debit card transaction that has been authorized between a merchant and a customer. Processing is a broad term that portrays the multi-step cycle of transferring funds from a customer to a merchant at whatever point a debit or credit card is engaged with a transaction. Interbank clearing and settlement happen on the processing date.

BREAKING DOWN Processing Date

Credit card acceptance is the most important phase in a credit card transaction. The merchant acknowledges the physical card or the card number a customer gives online or by telephone. Authorization and authentication are the next steps. An electronic system sends data about the transaction to the cardholder's bank, called the responsible bank, to make sure the cardholder has sufficient money accessible to complete the purchase. The system likewise ensures the card is legitimate and not lost, taken, fake or expired. The transaction is then approved or declined.

Fundamental Steps Leading to the Processing Date

All sooner or later during the day, maybe after the close of business, the merchant will electronically send its credit card transactions together in a batch to its bank, called the merchant bank or securing bank. The procuring bank sends the subtleties of this large number of transactions to a settlement bank, likewise called a processing bank. The settlement "bank" is normally a payment innovation company like MasterCard or Visa Inc.

For every transaction, the processing bank brings in certain the right amount of money gets traded between the responsible bank (the customer's bank) and the obtaining bank (the merchant's bank). This interaction is called "interbank clearing and settlement." Interbank implies that more than one bank is involved. The data gathering step is called "clearing," and the money-trade step is called "settlement." The whole interaction is automated and requires just seconds.

Next, for a purchase transaction, the settlement bank gets funds from the customer's bank, then, at that point, sends those funds to the acquirer (the inverse happens assuming the merchant is giving the customer a refund). The acquirer then, at that point, transmits the funds to the merchant (or returns them to the customer), and the transaction is posted to the cardholder's account.

The merchant pays different fees to acknowledge credit cards from customers in light of the multitude of in the background steps engaged with processing the payments. The responsible bank - the customer's credit card company - accepts the risk that the customer won't pay for the transaction.