Capture and Settlement
In settling a batch, the card processor must first receive it. The software in Abe''s terminal initiates a file transfer that sends it via the private line to David''s Card Processing Service. At David''s, the batch is sorted down by the Bank Identification Number (BIN - a piece of information contained in the account numbers) in preparation for capture processing. Each set of transactions with the same BIN is sent to the bank identified by the code where the bank will turn those earlier temporary debits into permanent debits. Each bank sums up the total charges on their accounts and performs a wire transfer to the account indicated for Abe''s Corner Market at Carl''s Bank. This work is performed using Automated Clearing Houses (ACHs) that enable wire-transfer operations. At this point, your account at Bob''s Bank reflects your charge and awaits the cycle cut that prepares your billing statement.
Once the entire batch is settled, Abe''s account at Carl''s Bank reflects the total batch''s credits (less returns and voided transactions, and less processing and discount rate fees). With the next batch, the process begins anew.
A Note About Networks
The networks involved in the scenario above consist of dial-up and leased-lines between all the parties needing to share information. These private networks are secured through whatever means is deemed required by the payment processor and the banks. Note that nowhere was the Internet mentioned, not as a transaction medium nor as a communication medium. The Internet poses special problems for charge processing since it''s an insecure and publicly-accessible channel. SET''s cryptography is used to mitigate these problems, but adds several layers of processing and even new layers of pre-processing. The presence of a Payment Gateway is a requirement to handle the cryptograhic pre-processing prior to submitting those transactions for post-processing on host-based legacy systems. These transactions must be made to look like any other common POS-initiated transaction for the legacy systems at the banks, the payment processors, and the clearing houses.
Those industry standards that cover the processing of financial transactions is defined by ISO Standard 8583 -- to enable any card processor to work with everyone''s card transactions.
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