the payments system in trinidad and tobago - Central Bank of ...

14THE PAYMENTS SYSTEMIN TRINIDAD AND TOBAGOClearance and Settlement of Credit Card TransactionsCredit card payments processing takes place in two phases:(i) authorisation and (ii) clearance and settlement.At the authorisation stage, approval is granted for the card to be usedin payment for goods and services when the cardholder presents itto a merchant. When the merchant swipes the card in the specifiedterminal, the transaction information is transmitted electronicallyto the issuer which almost instantly returns the authorisation. Thecardholder is required to sign a copy of the payment receipt to confirmthe transaction (with some exception, for example, purchases madeover the internet).The transfer of value to the merchant takes place through theclearance and settlement process when the merchant sendshis credit card sales information to his banker. The information issent to the hub of the international credit card company which haspre-approved authorisation from all participating banks to clear andsettle balances. At the hub, the accounts of banks are debited andcredited accordingly and advices sent to the merchant’s bank thatsettlement is made whereupon the merchant is paid. An advice isalso sent to the cardholder’s bank to reduce the available credit. Thecardholder has a deadline by which to settle payment after which hepays interest on the outstanding balance.The following diagram illustrates the clearance and settlementprocess for credit cards.