What do real-time payments mean for merchants?
Batch payment processing: what it is & why there is a better way
Batch payment processing, where transactions are grouped together and paid out to multiple recipients at once, is widely used by businesses, but does that mean it’s the best method?
It can be an efficient option and, for global businesses, can make cross-border payments easier. However, for many merchants, there is a better way: real-time payment processing.
In this article, we’ll explain how both batch and real-time payment processing work, compare their pros and cons, and explore use cases for each method.
What is batch payment processing?
Batch payment processing, sometimes called bulk payment processing, is a method of paying out multiple transactions as a group and at a specific time rather than processing them individually in real-time.
In this approach, all authorized payment requests made over a particular period, usually a day, are collected and consolidated, and then sent out together as a single unit from the same business bank account.
Batch payment processing is commonly used by merchants for payouts like payroll, settling supplier bills, and making international payments.
How does batch processing payments work?
During batch payment processing, attempted card transactions go through the usual process of authorization, processing and settlement, but, regardless of when the initial payment was made, they will only move from the authorization stage to the processing and settlement at the end of a given period.
Let’s look at a batch payment example in more detail.
- Authorization - during the business day, you sned 20 authorization requests for outbound payouts. These requests are encrypted and sent via your payment gateway to the issuing bank to ensure the legitimacy of the transactions and that you have sufficient funds in your account to make the payments. Once authorized, a hold for the transaction amounts will be placed on your bank account and you will save the details of each payment for later processing
- Processing - at the end of the business day, the saved requests are sent as a single batch file to your payment processor, which categorizes each transaction by issuing bank and sends them on for settlement
- Settlement - the issuing banks move the funds that have been on hold from your merchant account to the designated accounts for settlement, which can take between one and three days
The process of saving and sending batch files to your processor can be automated and conducted on any schedule that makes sense for your business. If your business regularly processes a high volume of payments, you might opt for twice-daily (or even more frequent) batch processing.
What are real-time payments?
As the name suggests, with real-time payment processing, transactions are authorized and then processed individually and immediately. This means you receive the funds from each payment as and when they happen, rather than having to wait until the end of the day for an entire batch of transactions to be processed.
Real-time payments can typically be initiated, cleared, and settled within seconds and at any time of day.
Difference between real-time vs batch payment processing
For merchants, the main difference between real-time and batch payment processing is that, with the former, you are receiving a steady stream of individual payments into your business bank account, and with the latter, you periodically receive a single bulk settlement of funds.
But what do these two different methods mean for your business in practice? Let’s look at some pros and cons.
Pros and cons of Batch payment processing
- Flexibility - batch payment processing can be automatic or manual, giving you the flexibility to conduct them on a schedule that works for your business or automate them to happen at the same time every day
- Saves time - by automating the processing of large volumes of transactions simultaneously, settling payments in bulk can be far more efficient than real-time payments
- Lower transaction costs - as you pay fees per batch rather than per transaction, you benefit from economies of scale that can make it much more cost-effective to process a large volume of payments
- Optimize processing performance - batch processing allows you to schedule transactions at specific times, which can help optimize system performance and avoid peak times that can slow down settlement speed
- Easier to review - since transactions are processed at the end of the day, it's easier to identify and deal with any issues such as insufficient funds or incorrect card details
- Great for international businesses - batch payments allow you to pay out to multiple countries in different currencies simultaneously, which streamlines processing for global businesses
- Slow settlement times - as you have to wait until the end of a given period before you can process your payments, there is a significant delay between the payment being initiated and you receiving the funds in your account. This can have implications for cash flow
- Higher risk - as all your payments are being processed at once, every transaction included in a bulk payment is equally exposed to cybercriminals, meaning you stand to lose all of them in the event of a breach. In contrast, with real-time processing, only one transactions is exposed at a time, making it easier to manage security
Benefits of real-time payment processing
The benefits of real-time payments are:
- Speed and convenience - real-time payments offer immediate processing of funds, making them convenient for time-sensitive transactions and providing a seamless customer experience
- Improved cash flow - real-time payments can help you better manage your cash flow and have more ready access to working capital. This allows you to be more responsive to challenges and opportunities, and can even aid faster growth
- Enhanced security - as well as only one transaction being at risk at a time, real-time payments networks tend to utilize robust security measures to prevent fraudsters
- Better relationships - quickly processing payments from customers and with suppliers reduces the period of uncertainty that both parties have to go through while waiting for batch payments to settle. This reduces frustration, builds trust, and makes it easier to manage money, leading to better relationships
- Improved reconciliation - real-time payments are processed in tandem with a large amount of data, which makes it easy to automatically reconcile payments, improving efficiency and reducing errors
- Irrecoverable - from the recipient side, as real-time payments can’t be recovered, it’s harder for suppliers to renege on contracts
Discover real-time payments with Checkout.com
Improve your cash flow and operational efficiency by implementing real-time payments with Checkout.com.
Combining a gateway, payment processing, and domestic and international acquiring, our payments platform gives you all the tools you need to create your ideal global payments setup through a single integration.
You also get access to robust fraud detection and all the data you could ever need to optimize your payments. Find out more about payment processing with Checkout.com.
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