To start, it’s important to understand the roles of the different parties involved in a credit card transaction. There are typically three main parties involved: the cardholder, the merchant, and the payment processor. In an OnUs transaction, the card issuer and the payment processor are the same entity, meaning that the bank is both issuing the credit card and processing the transaction.
In an OffUs transaction, on the other hand, the card issuer and the payment processor are different entities, with the payment processor acting as an intermediary between the cardholder and the merchant.
The process of a credit card transaction can be broken down into several steps. Let’s take a closer look at how these steps differ between OnUs and OffUs transactions:
Step 1: Authorization
The first step in any credit card transaction is authorization. When a cardholder wants to make a purchase, they provide their credit card information to the merchant, who then sends a request for authorization to the payment processor. The payment processor then contacts the card issuer to verify that the card is valid and has enough available credit to cover the purchase.
In an OnUs transaction, the payment processor and the card issuer are the same entity, so there is no need for the payment processor to contact a separate entity for authorization. Instead, the bank can simply authorize the transaction internally, using its own systems and databases.
In an OffUs transaction, on the other hand, the payment processor must contact the card issuer to verify the transaction. This can add an extra layer of complexity to the process, since the payment processor must communicate with a separate entity to obtain authorization.
Step 2: Settlement
The next step in a credit card transaction is settlement, which refers to the transfer of funds from the cardholder’s account to the merchant’s account. Once the transaction has been authorized, the payment processor deducts the amount of the purchase from the cardholder’s available credit and holds it in a temporary account. Then, at the end of the day or the end of a specified settlement period, the payment processor transfers the funds to the merchant’s account.
In an OnUs transaction, settlement is typically faster and more straightforward than in an OffUs transaction. This is because the bank can simply transfer the funds internally, without the need for an intermediary payment processor. As a result, OnUs transactions can often be settled in real-time or near-real-time.
In an OffUs transaction, settlement can be more complicated and may take longer. This is because the payment processor must first deduct the funds from the cardholder’s account, then transfer them to the merchant’s account. Depending on the specific payment processing system being used, this may involve multiple intermediaries, each of which may take a cut of the transaction as a fee.
Step 3: Reconciliation
The final step in a credit card transaction is reconciliation, which refers to the process of matching up the transaction records between the card issuer, the payment processor, and the merchant. This is an important step to ensure that all parties have accurate records of the transaction and that there are no discrepancies or errors.
In an OnUs transaction, reconciliation is typically easier and more streamlined than in an OffUs transaction. This is because the card issuer and the payment processor are the same entity, so there is no need for an intermediary to match up the transaction records.
In an OffUs transaction, however, reconciliation can be more complex. Since the payment processor is acting as an intermediary between the card issuer and the merchant, there may be more opportunities for errors or discrepancies to arise.
For example, if the payment processor deducts the wrong amount from the cardholder’s account, this could result in a discrepancy between the card issuer’s records and the merchant’s records, which would need to be reconciled and resolved. This can add an extra layer of complexity to the process, and may require additional communication and coordination between the different parties involved.
Step 4: Considerations
Overall, while there are some potential benefits to OnUs transactions in terms of speed and efficiency, there are also some potential drawbacks to consider. One key consideration is the level of control that the bank has over the transaction process. Since the bank is both issuing the credit card and processing the transaction in an OnUs scenario, it may have more control over the fees, policies, and other aspects of the transaction. This could potentially lead to higher fees or more restrictive policies for cardholders or merchants.
Another consideration is the potential for technical issues or downtime. Since the bank is both issuing the credit card and processing the transaction, any technical issues or downtime with the bank’s systems could potentially impact the processing of OnUs transactions more significantly than OffUs transactions. This could lead to delays or other issues for cardholders and merchants.
OnUs transactions offer some potential benefits in terms of speed and efficiency, there are also some potential drawbacks to consider. Ultimately, the choice between OnUs and OffUs transactions will depend on a variety of factors, including the specific needs and preferences of the card issuer, the payment processor, and the merchants and cardholders involved.