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Advanced Transaction Topics

This section provides in-depth coverage of advanced transaction scenarios, exception handling, and real-world examples. Each topic is covered in detail on its own dedicated page.

Topics Overview​

1. Pre-Authorizations and Incremental Auth​

Learn about authorization types used when the final transaction amount is unknown or may change.

Covers:

  • Pre-authorization vs final authorization
  • Partial authorizations (gas stations, gift cards)
  • Incremental authorizations (hotels extending stays)
  • Common use cases: hotels, car rentals, restaurants, gas stations
  • Technical implementation details
  • Platform requirements

Read more: Pre-Authorizations →

Key use cases:

  • Hotels: Pre-auth at check-in, capture at checkout
  • Gas stations: Pre-auth $125, capture actual amount
  • Restaurants: Authorize meal, capture with tip
  • Car rentals: Extended pre-auth for deposits

2. Authorization Reversals​

Understand how to cancel authorizations and immediately release holds on customer cards.

Covers:

  • What authorization reversals are
  • When and why to use them
  • Benefits for customer experience
  • Network timing requirements
  • Implementation details
  • Common issues and solutions

Read more: Authorization Reversals →

Key benefits:

  • Immediate hold release (vs 7-day expiration)
  • Better customer satisfaction
  • No interchange charged
  • Prevents customer service calls

3. Complete Transaction Example​

Follow a $100 credit card transaction step-by-step from authorization to funding, with complete fee breakdown.

Covers:

  • Real-time authorization flow (Phase 1)
  • Batch processing and clearing (Phase 2)
  • Settlement and funding (Phase 3)
  • Detailed fee breakdown by party
  • Alternative scenarios (debit, Amex, CNP)
  • PayFac money flow

Read more: Complete Example →

What you'll learn:

  • Exactly where the $2.50 in fees goes
  • How long each phase takes
  • What appears on customer statements
  • Platform/PayFac economics

4. Failure Scenarios​

Master handling authorization declines, voids, refunds, and expired authorizations.

Covers:

  • Authorization decline types (hard, soft, fraud)
  • Decline response codes
  • Void vs refund vs chargeback comparison
  • Expired authorization handling
  • E-commerce best practices
  • Recovery strategies

Read more: Failure Scenarios →

Critical topics:

  • When to retry vs request new payment method
  • Cost of refunds vs voids
  • Handling expired auths in delayed fulfillment
  • Decision trees for transaction reversal

5. Chargeback Lifecycle​

Navigate the complete chargeback process from initiation through arbitration.

Covers:

  • Four phases: Initial chargeback, representment, pre-arbitration, arbitration
  • Retrieval requests and prevention
  • Evidence requirements by reason code
  • Chargeback reason codes (Visa/Mastercard)
  • Monitoring programs (VDMP, ECP)
  • Platform chargeback management

Read more: Chargebacks →

Critical information:

  • Chargeback costs: transaction amount + $15-$100 fee
  • Win rates by evidence quality
  • Network monitoring thresholds
  • How to prevent chargebacks

6. Settlement Files​

Understand the data exchanged during clearing and settlement for reconciliation and reporting.

Covers:

  • Settlement file contents and structure
  • Transaction record fields
  • Interchange qualification details
  • Batch summary records
  • File formats (ISO 8583, CSV, XML)
  • Reconciliation processes
  • PayFac settlement allocation

Read more: Settlement Files →

Practical applications:

  • Daily reconciliation
  • Fee verification
  • Discrepancy investigation
  • Platform reporting
  • Data retention requirements

7. Self-Assessment​

Test your understanding of transaction lifecycle concepts with questions and detailed answers.

Includes:

  • Core concept questions
  • Scenario-based problems
  • Real-world application exercises
  • Timeline calculations
  • Decision tree practice

Take the assessment →

Sample questions:

  • Q9: What's the difference between authorization and capture?
  • Q10: When will a Friday 8 PM transaction fund?
  • Q11: Void vs refund - when to use each?
  • Q12: What happens when authorizations expire?

Quick Reference: Decision Trees​

When to Use Each Authorization Type​

Transaction scenario?
        │
        ├── Amount known, ship/serve immediately
        │   → Standard auth + capture
        │
        ├── Amount unknown (estimate)
        │   → Pre-authorization
        │   Examples: Hotels, car rentals
        │
        ├── Amount may increase
        │   → Incremental authorization
        │   Examples: Hotel stay extension
        │
        └── Amount may be less than requested
            → Partial authorization
            Examples: Gift cards, prepaid cards

When Transaction Needs Reversal​

Need to reverse transaction?
        │
        ├── Same day, before batch close
        │   → VOID (free)
        │
        ├── After settlement
        │   → REFUND (costs fees)
        │
        ├── Customer disputed with bank
        │   → CHARGEBACK (forced, expensive)
        │
        └── Auth not captured yet
            → AUTHORIZATION REVERSAL (free, releases hold)

Handling Authorization Declines​

Transaction declined
        │
        ├── Hard decline (14, 54, 41, 43)
        │   → Request different payment method
        │
        ├── Soft decline (51, 61, 91, 96)
        │   → May retry or request different method
        │
        └── Fraud decline (05, 59, 63)
            → DO NOT retry, customer must call issuer

Why This Matters for PayFac Platforms​

Understanding advanced transaction topics is essential for Payment Facilitators:

┌─────────────────────────────────────────────────────────────────┐
│ PAYFAC PLATFORM REQUIREMENTS                                    │
├─────────────────────────────────────────────────────────────────┤
│                                                                 │
│ 1. CASH FLOW MANAGEMENT                                         │
│    • Handle pre-auth holds across thousands of sub-merchants    │
│    • Manage settlement timing and funding                       │
│    • Maintain reserves for chargebacks and refunds              │
│                                                                 │
│ 2. RISK TIMING                                                  │
│    • Monitor authorization-to-capture patterns                  │
│    • Flag merchants with high void/refund rates                 │
│    • Track chargeback ratios in real-time                       │
│                                                                 │
│ 3. DISPUTE MANAGEMENT                                           │
│    • PayFac liable for sub-merchant chargebacks                 │
│    • Provide representment tools and guidance                   │
│    • Automated retrieval request responses                      │
│                                                                 │
│ 4. FEE OPTIMIZATION                                             │
│    • Ensure transactions qualify at best interchange rates      │
│    • Educate merchants on void vs refund economics              │
│    • Monitor interchange qualification                          │
│                                                                 │
│ 5. REPORTING & RECONCILIATION                                   │
│    • Parse settlement files and allocate to sub-merchants       │
│    • Track authorizations, captures, voids, refunds             │
│    • Provide sub-merchant dashboards                            │
│                                                                 │
└─────────────────────────────────────────────────────────────────┘

Common Integration Patterns​

E-commerce Platform​

TYPICAL FLOW:
1. Checkout: Authorize card (validate payment method)
2. Fulfillment: Check inventory, prepare shipping
3. Shipment: Capture authorization, send tracking
4. Exception: If can't ship, void/reverse authorization

CHALLENGES:
• Authorization expiration (if >7 days to ship)
• Customer cancellations (void vs refund)
• Partial shipments (partial captures)
• Returns (refund processing)

Marketplace Platform​

TYPICAL FLOW:
1. Purchase: Authorize total amount
2. Split: Allocate to multiple sellers
3. Capture: Separate captures per seller
4. Payout: Fund sellers after settlement

CHALLENGES:
• Managing multiple captures from one auth
• Handling refunds across multiple sellers
• Chargeback liability allocation
• Settlement reconciliation

Subscription Platform​

TYPICAL FLOW:
1. Sign-up: Verify card with $0 or $1 auth
2. Billing: Authorize monthly charge
3. Capture: Immediate capture after auth
4. Renewal: Recurring authorizations

CHALLENGES:
• Expired cards (update on file)
• Declined recurring charges
• Cancellation timing (avoid disputes)
• Chargeback prevention (clear descriptors)

Next Steps​

  1. Read Core Topics: Start with Pre-Authorizations if you work with hospitality/car rental merchants
  2. Understand Failures: Review Failure Scenarios for robust error handling
  3. Master Disputes: Study Chargebacks to minimize losses
  4. Practice: Work through Self-Assessment questions
  5. Apply: Use Complete Example to explain flows to stakeholders

References​

Official Network Documentation​

Authorization & Response Codes​

Settlement & Clearing​

Chargebacks & Disputes​

Industry Resources​

Books​

  • "Payments Systems in the U.S." by Carol Coye Benson & Scott Loftesness - Comprehensive textbook covering all payment systems
  • "Electronic Value Exchange" by David Stearns - History of card payments and interchange development

Online Resources​