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Settlement Process
The following information explains
the settlement process for a merchant using Electronic Draft Capture
(EDC).
The first part of the process
involves paying the merchant for the transactions:
· STEP 1 - The Merchant
To begin the settlement process,
the merchant must send the details about each transaction to the
Issuing Banks of the credit cards he or she has accepted. This is
called processing.
At the end of the day, the merchant
sends the transactions in the terminal in a batch to the
NOVA Host. This is called closing or settling the
batch.
In Electronic Draft Capture
(EDC), this information is sent electronically through the credit
card terminal. To process transactions electronically, the
merchant must have a terminal, PC, or mainframe computer, a phone
line, and an imprinter to imprint cards that cannot be swiped. If
the merchant accepts debit cards, he or she must also have a pin
pad and a printer.
· STEP 2 - The NOVA Host
The NOVA Host sends the information
to the Merchant Accounting System with which the merchant
has an account.
· STEP 3 - The Merchant
Accounting System
The Merchant Accounting System
sends the American Express transactions to American Express,
Discover to Discover, etc. The majority of merchants are NOT paid
by NOVA for American Express, Discover, and other T & E
transactions, but there are some exceptions where NOVA pays a
merchant and the T & E company pays NOVA back.
The Merchant Accounting System
filters the transactions through the same edits used by VISA and
MasterCard Interchange and determines what the qualification
levels should be when the transactions are actually filtered by
Interchange. It then sends a message to the Automated Clearing
House to pay the merchant for the transactions.
· STEP
4 - The Automated Clearing House (ACH)
The Automated Clearing House, a division of the Federal Reserve,
sends the funds for the transactions electronically to the merchant’s
bank.
· STEP
5 - The Merchant’s Demand Deposit Account (DDA)
The funds are
deposited into the merchant’s checking account, or Demand Deposit
Account (DDA). The merchant now has the money for the transactions.
The second part of the process
involves the Merchant Accounting System being paid back by the
Issuing Bank for funding the transactions to the merchant:
· STEP
1 - The Merchant Accounting System
The Merchant Accounting System
sends the transaction data to Interchange.
· STEP 2 - Interchange
Interchange
uses the first six digits of the card number to identify the bank
to which the transaction data should be transmitted.
The transaction is put through the
“filter” that determines which interchange rate will be
assigned. The interchange determines how much the transaction will
cost NOVA. (You will learn more about Interchange and
Qualification levels later.)
The transaction data is sent on to
the Issuing Bank to be posted to the cardholder account. The funds
for the transaction come back through Interchange to the Merchant
Accounting System from the Issuing Bank.
· STEP 3 - The Issuing
Bank
The Issuing Bank posts the
transaction to the Cardholder’s account.
The Issuing Bank charges the
Acquirer an Interchange fee for each transaction to cover
the cost of the Issuing Bank’s services. The Issuing Bank sends
back to Interchange the difference between the funds owed for the
transaction and the Interchange fee it will charge the Acquirer
for the transaction.
· STEP 4 - The Cardholder
The cardholder is billed by the
Issuing Bank and pays interest on any unpaid balance.
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