December 9, 2022

Transaction Types Explained for Merchants

Your average credit card transaction is simple for your business to handle. First, however, you must understand the variety of credit card transactions you will have to deal with. Properly taking all of these can give your business many benefits. For example, to provide better service, ensure customer payment, and avoid dealing with costly chargebacks. 

Importance of Different Transaction Types

The overwhelming majority of credit card transactions will be simple purchases. However, other less common transaction types will come up if your business accepts credit cards. 

Consumers do not need to worry about the specifics of these different transaction types. Still, merchants must understand how these work. If you do not handle these different types of transactions well, you will face chargebacks that will cost your business

Types of Transactions


Purchase transactions are the most common and straightforward of all types of credit card purchases. The customer purchases an item or service and provides the merchant with their credit card information to transfer funds to the merchant. 


Pre-authorization transactions occur when the merchant runs the card but does not complete the charge immediately. This is relatively common. You do this whenever you pay for gas without specifying an amount. Or when a hotel takes your card at the beginning of your stay. 

With pre-authorization, you can guarantee that your business will be paid. The held funds can also be used to cover damages for rentals. These also can come in the form of security deposits. You also can apply pre-authorization to your online store. You need to ensure customers understand that their funds are being held. 

Chargebacks are less likely with pre-authorization as the customer cannot begin the chargeback process while you hold their funds. You also can avoid refunds, as you can cancel the hold if there are any issues with the purchase. Customers also do not have to wait for a lengthy refund if they cancel the purchase. When you cancel the hold, the funds become immediately available to customers


Capture transactions are the second half of a pre-authorization transaction. The merchant captures an amount that is, at most, the amount initially placed on hold. 

This can happen soon after the transaction is initially authorized or can occur days after the fact. Hotels are a typical example of this. At checkout, guests will close out their bills, and the hotel will capture the funds that were authorized on the guests' cards. Before you capture funds, you must be transparent with customers about the exact fees that are due with a pre-authorized transaction


Refunds occur after a completed transaction, and the funds are in your account. Then you will conduct a refund to return the funds to the customers. Refunds are common and take quite some time to process fully. It typically takes 5 to 14 days for a refund to process fully. This is not ideal for the merchant or the customer. 

Many payment processors charge merchants refund fees and customers have to wait for up to two weeks for their funds. Try to avoid refunds by ensuring customer satisfaction. You, as the merchant, the customer, or the issuing bank, can begin a refund. Still, most of the time, customers initiate the process as they are unsatisfied with their purchase. As the purchase has already been completed, the customer will contact you directly for a refund rather than their bank


A void transaction occurs when the purchase is canceled. This is before it clears and before the funds have reached your account. This allows you to reverse the initial transaction without having to use the more time-consuming refund process. 

Similar to refunds, you or the customer can initiate a void transaction. This is a valuable tool for any errors that occur in the checkout process. For example, if the customer notices they are charged for something they did not purchase, they can halt the transaction before they are charged. 

Voiding a purchase can also allow you to combat fraudulent purchases. You can notify cardholders that a purchase was made with their card. If they say it is fraud, you can instantly void it. This avoids the costly and time-consuming chargeback process for both you and the cardholder


Verification transactions are beneficial when you cannot physically verify the card. It involves a $0 charge to ensure that the card information that the customer gave is correct. This allows your company to tokenize and securely capture the card information for future use. 

Ensuring account information is correct is especially valuable for online purchases. Fraud is widespread with these purchases, and your business could easily face increased numbers and costly chargebacks. By using verification transactions, you can ensure that card information is correct, and tokenization allows you to keep your customer's card information securely. 

Importance of Payment Processor Customer Service

A critical tool in understanding and navigating these various transactions is your payment processor's quality of customer service. They are the experts in the payment space. Therefore, they should be willing to answer your questions or concerns regarding any of these transaction types. 

Unfortunately, many processors only offer personalized customer service at certain hours of the day. This is especially a problem for smaller merchants who may lack the staff or resources to resolve any transaction issues. Large processors tend to focus their customer service efforts on their larger customers rather than helping out smaller customers.

Navigating Different Transactions with Treati

With Treati, you will find a payment processor that wants to provide excellent customer service and support to all businesses. Whether you are a small vendor or a large nationwide company, Treati is willing to help you with any issues with transactions. We view customer service as central to what we do. Everyone wins when we provide quality assistance to you with your payment processing.
We also meet the highest security standards to protect your company from fraud and chargebacks. Chargebacks are costly to your business, and we want to ensure you avoid these costs. To accomplish this, we have partnered with ChargeSentry and CardConnect's Chargeback Team to ensure that you win every chargeback you deal with while you do business with Treati.