Lifecycle for Online Payments in Lighthouse Business Manager

Description: Learn about the lifecycle of a payment transaction.

For an in-depth guide on Online Payments Reporting, view the Online Payments Reporting Guide. 

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Payment Lifecycle

The lifecycle of a payment transaction can change depending on a number of scenarios, but in its simplest form, there are four stages. 

1. Authorization 
2. Batching
3. Clearing
4. Settlement

Authorization

The first stage of the lifecycle is when a customer presents their payment credentials to you, either in person or via a secure online method. In either scenario, card authorization is required.

Your POS (Point of Sale) software will then send a request to the payment processor or acquirer requesting them to authorize the transaction, and in turn, it will be sent to the card issuer. 

The payment card issuer will then state whether the cardholder has sufficient funds or available credit to cover the cost of the transaction they are trying to perform and confirm the card is valid.

The issuer will reply with one of two responses:

1. Approved - Providing an authorization code.
2. Decline - Providing a reason code as to why the transaction can not proceed. 

The authorization process normally only takes a few seconds, and an authorization action can stay on a payment account for anywhere from 1-30 days, depending on the transaction. 

During an authorization phase, it is possible for a transaction to be canceled. 

Batching

Once authorization approval has been received, the next step is to add that authorization to a batch. A batch is a grouping of individual transactions that will be sent to different recipients at once requesting payment.
At this stage, you can review the transactions if desired. Batches can be submitted manually or automatically, depending on your preference.  

Batching normally takes 24 hours to complete, as historically, merchants tend to batch transactions on a daily basis.

Clearing

After you have submitted a batch, the next step is for all accounts to be reconciled. This means each account in the payment flow line, from the acquirer through to the payment processor to the issuing bank, adjusts their balances accordingly. 

The issuing bank will now deduct the transaction amount from the customer's account.
Any interchange fees are deducted by the issuing bank. 

Settlement

The last stage is Settlement. This is where you receive payment for the transaction.
The issuing bank will transfer funds to your bank, which in turn is transferred to your account.
This stage can also be known as funding.