Payment Processing: Batch vs. Real Time

In today’s world of payment processing, some catalogers advocate processing credit card transactions using batch (where a large volume of transactions are forwarded for approval all at one time), while others use real-time processing (each transaction is authorized as it comes in).

As for yourself, you may want one or both of these processing services, depending on the nature of your business, the type of goods and services you offer, and the internal procedures you use to handle transaction cycles.

Using today’s sophisticated technologies, merchants can write complex, rules-based code that allows a customer transaction to flow from one part of the payment cycle through many paths until it’s completed. Hence, merchants now have more options in processing credit card transactions using batch, real time or a combination of both.

By answering the questions outlined below, you can determine which authorization solution creates efficient transactions and smooth operating procedures for your catalog operation; offers the best value in time and money; and helps strengthen customer relations.

Do you need more fraud-detection tools? More and more catalogers are switching from batch-based processing to real time because of increased fraud risks (which translate to losses) inherent to their businesses. These merchants want to know immediately if they have a valid transaction, so they can continue with the order process.

Catalogers recognize this as a relatively new need, since the advent of the Internet has made fraud more prevalent. Indeed, fraud is a continuing and growing problem for merchants, and you may determine that a real-time authorization system will mitigate your catalog’s fraud risk.

* Are exceptions eating away at your productivity? For some merchants, handling authorization “exceptions” has become more of the rule, partly because of increased fraud (see above). Instead of efficiently authorizing a transaction and processing the order, they invest too much time tracking down declined authorizations and jumping through hoops to discern if a transaction is valid after a customer already has hung up or left the Web site.

Evaluate if the time spent on the exception processing is too costly for your operations. Some merchants develop a policy that simply declines transactions without chasing down customers. In the physical goods world, merchants don’t always need an authorization in real time, since their goods will not ship until an authorization is in place. But they must consider the risk of losing the sale all together if the customer doesn’t return following a declined transaction.

Real-time authorizations may address the need for better exception handling by not letting the customer go until an authorization is complete. For example, if an online customer attempts to use a credit card for which the address doesn’t match, real-time authorizations allow you to ask for a different address or another form of payment before hanging up or losing contact with that customer. However, real-time transactions also set up a chain of operational considerations (see below).

* Are you prepared to handle real-time inventory, shipping and delivery dates for customers? You may be convinced that real time is the best option to combat fraud or address authorization exceptions. But before making that decision, consider some of the operational issues that may prevent implementing a cost-effective, real-time authorization environment.

Once real-time authorizations are in place, you must be able to give the customer the final transaction cost (e.g., shipping, delivery dates). However, many merchants employ legacy systems that don’t have the capability to accommodate real-time inventory, and changing over systems can be a costly and time-consuming venture.

As part of your ongoing strategic plans to update hardware and software, determine the ideal time to invest in new systems that allow real-time tracking and authorization. Be sure you understand what your real costs will be, not only for hardware and software but also to operationally change the way orders are processed and sales and customer service reps are trained.

* Can you use both? You may find that, in many cases, hybrid authorization systems that employ the best of batch and real time can create the optimal cost and operational environment. Using a system of rules that takes into account your unique business and approach to customer service can save you both time and money.

For example, some catalogers opt to use real time for first contact with new customers. But once a customer is established, the need and expense spent on real-time authorization diminishes.

* Will your volume of transactions create economies of scale? Some merchants produce enough transaction volume to justify conducting all of their business in real time. The more transactions processed, the more their costs decrease. For these large-sized companies, mega volume translates into lower per-transaction costs without the cost in upkeep or administration of two authorization systems.

* What should you ask your payment processor? Your payment processor should act as your consultant and guide in steering you through the myriad questions associated with choosing an authorization system. If you’re not getting answers to your questions, it may be a red flag that your processor isn’t equipped to provide the full spectrum of authorization solutions.

Theodore Osuniga is a senior manager in national sales at First National Merchant Solutions, an Omaha, Neb.-based credit card processing provider. Prior to his last two years in the credit card industry, he spent 15 years in national sales for IBM. He wrote this article at the request of the Catalog Success editors. He can be reached at (402) 636-6834 or via e-mail at tosuniga@fnni.com.