Credit Card Payment Processing--How It Works
This document provides an overview of how online credit card processing works. Credit card payment processing for your store takes place in two phases: authorization (getting approval for the transaction that is stored with the order) and settlement (processing the sale which transfers the funds from the issuing bank to the merchant's account). The flow charts below represent the key steps in the process starting from what a customer sees when placing an order through completing the sale and finishing with the merchant processing the sale to collect funds.
- When the buyer clicks the "Checkout" button, they are sent to secure servers to complete the checkout process. The Buyer (cardholder) places an order at the merchant's site by clicking the "Send Order" button on the Review Order page during checkout.
- Yahoo sends the authorization request to First Data Merchant Services (FDMS), the payment processor.
- FDMS sends the authorization request to the issuing bank (or credit card association). The authorization request includes:
- the credit card number
- expiration date
- the billing address (used for AVS validation)
- the CVV number (if entered)
- the amount of the order
- validates the card number and expiration
- checks the amount of the order against the available credit
- checks the billing address provided against the billing address on file
- validates the CVV number (if provided)
- The Issuing bank (or Credit Card Association) sends the authorization response to FDMS. The authorization response consists of either an approval along with Address Verification System (AVS) and Card Verification Value (CVV) response codes or a decline.
- FDMS adds response codes to the authorization response and passes the authorization back to Yahoo Store. If the merchant has enabled Risk Tools, the rules set by the merchant will be run when the response is received from FDMS. The authorization (if approved) is stored on secure servers at Yahoo for later processing by the merchant.
- Depending on the state of the authorization, the buyer (cardholder) receives instructions or confirmation of the order:
- If declined, the buyer (cardholder) is informed and asked to try a different payment method.
- If the authorization is approved by the Issuing Bank (Credit Card Associations) then the buyer (cardholder) is taken to the Order Confirmation page.
Settlement process for PayPal (separate authorization and capture)
- The merchant signs in to their account and goes to the Order Manager. The merchant reviews the order (including AVS and CVV response codes) for signs of fraud. When ready to complete the sale, the merchant clicks the "Capture Funds" button in the transaction panel of the order. Clicking "Capture Funds" initiates the settlement process.
- The amount captured is transferred immediately to your PayPal account.
Note: It is also possible to set your PayPal Payments Pro service to authorize and capture funds immediately without review. Yahoo does not recommend this process as it does not allow you time to review orders for any issues before settlement.
Settlement process for Bank of America Merchant Services and other FDMS compatible merchant accounts
- The merchant signs in to their account and goes to the Order Manager. The merchant reviews the order (including AVS and CVV response codes) for signs of fraud. When ready to complete the sale, the merchant clicks the "Sale" button in the transaction panel of the order. Clicking "Sale" initiates the settlement process. The sale is then stored in a batch for settlement request submitted each night. By default, batches are submitted nightly between 6-11 pm (PST). Merchants can also choose to submit batches manually.
- The settlement request batch with all completed sales is sent to First Data Merchant Services (FDMS), the payment processor for Yahoo Store.
- FDMS submits the settlement request for the buyer's order to the Issuing Bank/Credit Card Association of the buyer on behalf of the merchant.
- The Issuing Bank/Credit Card Association sends the response to the settlement request back to FDMS. If the request is accepted, the buyer (cardholder)'s account is debited for the amount of the order. It is possible that the settlement request will be declined, e.g., if the buyer has exceeded their credit limit between the time of the authorization and settlement.
- FDMS sends the approval and details of the payment to the merchant's bank (Merchant Account Provider). The settlement of funds between the issuing bank and the Merchant Account Provider occurs.
- Following the settlement, the Merchant Account Provider credits the merchant's account. For information about when funds will be deposited, contact your merchant account provider. Learn more