Vending operators are quickly finding out that there are many steps that need to be taken in order to successfully integrate cashless solutions into their businesses. Some of them are obvious, such as using the right hardware. In fact, most operators already have some familiarity with the physical equipment needed, like the bezels that accept card-based payments.
While hardware components and other types of machinery are easily understood by operators, it's fair to say that many are still unfamiliar with the mechanics that occur behind the scenes to actually process each card-based transaction. To the uninstructed, processing payments remains mysterious and vague.
Operators intuitively accept the fact that somewhere between the card swipe and purchase approval, a number of communications must occur in order for the purchase to be completed. In fact, the entire process of cashless purchasing -- including card acceptance, verification, purchase approval, and even settlement and reporting -- is a highly technical process that involves many partners and must adhere to stringent rules and regulations.
And while they may be less visible than hardware, payment processes are the lifeblood of the cashless vendor, and something clearly worth understanding.
THE APPROVAL PROCESS
When the cardholder swipes a card (credit, debit or, in many instances, stored value) at the reader, a number of interactions among several parties are instantly set in motion. The first step occurs when the telemeter on the bezel sends an "authorization request" to the acquiring bank, which is the financial institution that provides card-processing services to the vending operator. The acquiring bank then forwards the authorization request to the specific card brand network -- including Visa, MasterCard, Discover and American Express -- for processing.
The card brand network acts as an intermediary among financial institutions by forwarding the authorization request to the cardholder's issuing bank, which is the financial institution that issued the cardholders card. The issuing bank either approves or declines the authorization request. There are a number of parameters that factor into the issuing bank's decision, including the status of the account, available credit and potential risk.
Once the decision is rendered, the issuing bank sends an immediate response back to the card brand network. The card brand network then forwards an "approval" or "decline" notice to the acquiring bank.
The last leg of the journey occurs when the acquiring bank sends the approval or decline notification to the telemeter in the vending machine, ultimately completing the sale.
Although every transaction involves a number of interactions among vending machine payment system, acquiring bank, card brand network and issuing bank, operators may be surprised to know the approval or decline typically is received within four seconds or less.
CLEARING AND SETTLEMENT
Most financial services providers and card brands perform settlement activities after hours, when daily batch processes are executed. During these batch activities, funds are transferred and operators receive payments into their merchant bank accounts.
The first step in the settlement process takes place when the operator deposits sales receipts with the acquiring bank, usually through an "auto settle" or "auto-batch" feature in the telemeter. The acquiring bank submits the transactions electronically to the appropriate card brand network for settlement.
The card brand network once again facilitates each transaction by debiting the appropriate issuing bank and paying the appropriate acquiring bank. The card-issuing bank posts the transaction to the cardholder's statement within one to two business days.
Most acquiring banks are able to deposit funds directly into the operator's account within 24 to 48 hours. Again, the settlement process and reporting process may seem circuitous, but in essence, it is a highly automated and regulated process designed to protect the interests of operators, financial institutions and consumers. Keep in mind that this is the exact same process that traditional card-accepting retailers have been using for a very long time.
While it may be unfamiliar terrain for most vending operators, the card payment process is highly regulated, efficient and reliable. The parties involved -- acquiring banks, card brands and issuing banks -- are experts in facilitating card payments, ensuring that operators can quickly, securely and easily access the monies generated from advanced cashless solutions.
STACEY FINLEY TAPPIN is vice-president of sales for Apriva's POS division, where she oversees expansion of wireless payment technology products and development of new business revenue channels. Tappin has more than 20 years experience in sales and program management, strategic planning and global training. Prior to joining Apriva, she held a sales post at TSYS Acquiring Solutions and served 12 years at MasterCard International. She serves on the Electronic Transactions Association's membership committee.