How Long Does It Take to Process a Credit Card Payment Online?

If you’re an online merchant, you need to understand credit card processing times. More than a billion credit card transactions take place globally every day, and most are cleared with no problems. But when you understand the expected processing times in this modern age of online banking, you can more easily identify potential problems and take action before your business is negatively affected.

How Long Does It Take for a Credit Card Payment to Clear?

A credit card transaction typically takes about 48 hours to settle. In general, your customers’ online payments should clear within 1 to 3 days. The exact processing times can vary depending on the card issuer.

For new and inexperienced merchants, this delay can be a point of concern. After all, how can you accept electronic payments from customers if you’re not even sure that the money is good? That’s where merchant account providers come into play.

When a customer makes a purchase at your physical or online store, the authorisation is issued immediately. Even though it takes up to 3 days to move the funds, the merchant service provider approves the funds right away and assumes the initial risk.

In most cases, the merchant provider is able to approve the funds in real time because they have communicated with the card issuer or issuing bank—thereby determining that the transaction is valid. It’s not simply a matter of approving the funds and hoping for the best; the financial institutions are constantly in communication with one another.

It generally works like this:

• First, the transaction is initiated by the customer and transmitted by the customer’s issuing bank or card issuer (like Visa, MasterCard, American Express, etc…).
• The transaction information is encrypted and passed through a secure payment gateway.
• The transaction information reaches the acquiring bank (usually via your merchant account provider).
• The credit card issuer submits the funds to the acquiring bank, and the transaction is closed.

The question remains: Why can’t valid transactions be approved in real time? The main reason is that issuing banks work by processing transactions in batches overnight. There are also additional security safeguards in place to ensure that the funds are valid.

The important thing to understand is that, while the actual settlement process can take a couple of days, your funds should always be authorised immediately. If your funds don’t immediately appear in your merchant account, this may be a red flag.

Factors That Can Slow Down the Payment Approval Process

If a pending transaction has been sitting in your merchant account for several days, or if a transaction doesn’t ultimately clear, this may indicate a few possible issues:

• A suspicious transaction. In some cases, the acquiring bank will place a hold on a transaction and investigate if it appears suspicious for any reason. This ultimately protects you from liability if the transaction proves to be invalid.
• A chargeback. If the customer makes a purchase and then initiates a chargeback (this happens when customers request credit card refunds from the bank), a hold may be placed on the transaction. This hold may last for one or more credit card billing cycles while the issuing bank investigates the validity of the chargeback and, in many cases, requests that the transaction be rescinded.
• A freeze or inquiry on your account. If you’ve noticed multiple credit card purchases failing to clear, the merchant provider may have placed a hold on your account. This can happen if you have a high chargeback ratio or other suspicious transactions—or if you fail to pay your merchant fees. This is usually temporary, and you should be notified.
• A rolling reserve. If your account is new or subject to risk-mitigation restrictions, your incoming funds may be placed in a rolling reserve for a short time. In most cases, funds are kept in reserve for 1 to 2 weeks before becoming accessible. If your account requires a rolling reserve, your payment processor will notify you.
• Foreign transactions. In some cases, there may be an additional processing delay on certain foreign transactions, particularly in transactions originating in countries with high rates of credit card fraud. You may also have to pay an additional flat rate for certain foreign transactions.
• Alternative payment methods. Modern consumers use modern payment methods. So if a customer processes a Visa or Mastercard transaction through a non-traditional payment method (such as a digital wallet), the processing time may be delayed as the digital wallet provider has to interface with the credit card company. Other cash and credit alternatives — like gift cards and bank transfers — may also take longer to process in some cases. It depends largely on the policies of the credit card company and the processes used by the alternative payment provider.
• An unreliable merchant provider. If you consistently notice credit and debit card transactions taking a long time to clear, it may be that your merchant provider isn’t providing instant authorisation. If that’s the case, it may be time to consider moving over to a more reliable payment processor.

Are You Responsible if a Credit Card Payment Doesn’t Settle?

If the initial credit card authorisation is rescinded and the transaction is declined, you may be responsible for fees and penalties. When a payment transaction is first processed, it’s subject to authorisation—meaning that the acquiring bank has already confirmed that the transaction is valid. The payment posts upon final confirmation. So if the funds then become invalid, this most commonly means that a chargeback has been initiated by the customer.

Payment service providers expect a certain number of chargebacks—it’s inevitable in the payment industry. However, in general, you want to keep your chargeback ratio below 0.65% to remain in good standing with most payment processors. If your ratio creeps close to 1%, you could face penalties. If the ratio remains high, your merchant account may be terminated. You don’t want to spend too much time facing billing disputes and fraud disputes.

How Long for Funds to Transfer From Your Merchant Account to Your Business Bank Account?

Funds collected from credit card transactions are initially stored in your merchant account. When the funds clear, they should automatically be transferred from the merchant account to your business bank account within one business day (sometimes two). You can’t access the funds from within the merchant account itself, but you shouldn’t have to wait long for the funds to reach your primary bank account.

Altogether, you can expect an average of four to five business days from the time of the initial transaction authorisation until the funds become accessible in your business bank account—unless your merchant account is set up to transfer funds at specific intervals (such as bi-monthly) or on demand.

How to Streamline Your Credit Card Transactions

If credit card transaction delays are a problem for your business, you can mitigate the issue by taking the following measures:

• Remain in good standing with your merchant provider and with the major credit card companies. Always pay your fees on time, take steps to minimise chargebacks, and make fraud mitigation a priority.
• Don’t use a payment aggregator like PayPal or Stripe as your primary merchant provider. These companies absorb much higher levels of risk due to their almost-universal approval process, and so they reserve the right to freeze or suspend accounts indefinitely at the first sign of suspicious activity. Also, these third-party payment options may turn off certain customers who want a more direct credit card payment option when checking out.
• Follow up with your merchant provider whenever you notice a delay with a credit card transaction. Take any appropriate actions as advised by the merchant provider.

As a business owner, it’s important to work with a reliable payment provider like Unicorn Group that authorises transactions in real time, maintains excellent relationships with credit card issuers, and offers PCI compliance as well as premium fraud mitigation tools to keep you in excellent standing.

As long as you do your due diligence, you should never have to worry about extended credit card payment delays.