Debit Depositing – How Does Your Money Get There?

Depositing a debit card transaction is a little different than depositing a credit card transaction and with it, are unique scenarios that could cause your transactions to reverse.

Unlike Visa and MasterCard, the Interac debit network is not a hub though which all transaction pass-through but rather an intricate network where all Issuers and all Acquirers connect directly to each for communication.  So what this means is that every time you process a debit card transaction, your Acquirer sends that authorization request directly to the Issuer for approval, as opposed having it pass through a central hub.  What this also means is that if an Issuer of a special card is down, this will affect all Acquirers attempting to pass transactions directly there for authorization.

When a debit card is swiped or dipped into a terminal, the transaction is sent to the Issuer and the Issuing bank will check immediately for available funds.  As such, all debit card transaction must be online transactions and are all processed in real time.  This is why, if your terminal is down, you are not able to process any debit card transactions.  If the funds are available, the funds are debited immediately from the cardholder’s bank account and sent to the batch at the Acquirer.  The funds are not deposited to the merchant until the merchant settles and closes their batch at the end of the day.

In a real time situation like this, you would assume that all transactions that were approved should deposit successfully.  However, this is not the case.  Every so often, you could experience what is known as a System Generated Reversal (SGR).  In a typical debit transaction, there are three legs of communication that have to occur.  First the terminal will send the transaction for authorization to the Issuer.  The Issuer checks the account and either approves or declines the transaction and sends the message back to the terminal.  The terminal acknowledges the receipt of the approval or decline message by sending by a received message to the Issuer.  An SGR will occur if there is a break in the final transaction.  If the Issuer does not receive the final message from the terminal, it will assume that the message it sent with the approval or decline was not received and automatically reverse the transaction.  This can happen with both approved and declined transactions.  This will result in your batch not balancing by being either over or under the amount of the SGR.  SGR’s are easy enough to resolve.  Once you’ve identified that your batch is not balancing, contact your Acquirer with the exact amount of the discrepancy.  Typically, if there was only one SGR in that batch, it will be the exact amount of one transaction and your Acquirer will be able to contact the Issuing bank to have that transaction reprocessed correctly.  Your Acquirer should also be able to access a report on their host that will pull all reversed transactions from that batch and you can identify any that were incorrectly processed as a reversal if there were more than one SGR in that batch.  This is why it’s imperative to balance and settle your batches everyday because there is a statue of limitation for these reversed transactions.  If the transaction is over 45 days old, there is no guarantee that the Issuer can reprocess that transaction.  The best they can do at that point is to send a best effort letter to the cardholder asking them to return to your location to reprocess that transaction.  And while you would hope all your customers are honest enough to do so, the reality is, they may not be.

Understanding how a transaction is processed and how errors can occur will help to ensure that you always get the funds that are rightfully yours.

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Matthew Hunt has been helping small businesses get set-up with Canadian Merchant Account Services since 2007 and helped 1000's do so. Join Matthew on Google+.

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