The steps that a card transaction goes through are generally a well-documented process in the industry. However, there is a key aspect of a transaction’s journey that may seem like a small detail in the grand scheme of processing, but that carries significant implications… That is the authorisation-to-clearing timeframe, namely the period between when a transaction is approved (authorised) and when it is formally processed and settled (cleared).
Indeed, while an authorisation secures the transaction by reserving the funds, the actual deposit of those funds does not occur until clearing and subsequent settlement take place. The structure for the auth and clearing timeframes is complex due to various factors, such as the transaction environment and regulatory requirements. Additionally, as I highlighted in an earlier post, some merchants require extended authorisation validity periods to meet their specific business needs.
The Authorisation-to-Clearing timeframe is influenced by the messaging system used: in single-message systems, the auth and clearing happen simultaneously, while in dual-message systems, the process is separate.
◾The auth validity (or approval response validity) timeframe specifies the maximum period a merchant has to complete a transaction after receiving an approved authorisation request. The length of this timeframe can range from 3 days to 30 days, depending on the context, transaction environment (#cardpresent or #cardnotpresent), and the specific merchant segment.
◾The clearing timeframe refers to the maximum period within which an authorised transaction must be submitted for clearing, starting from the transaction date. Typically, this timeframe ranges from 1 to 3 business days, however, similar to the auth timeframes, this can vary based on many factors and industry-specific requirements.
Naturally, shorter authorisation-to-clearing timeframes mean quicker access to funds and less exposure for merchants. Delays in clearing may result in:
◾Increased risk of fraud
◾Higher rate of declines
◾Cardholder confusion (i.e. unexpected holds or charges)
◾Reconciliation issues
◾Schemes non-compliance fees
Recently, the card schemes have started to implement changes to simplify these processes and provide flexibility for merchants who need extended auth validity.
👉🏽#Paymentexperts, any perspectives to share on the #authorisation to #clearing framework🎙️?
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