Merchant Initiated Transaction (MIT)

A merchant initiated transaction (MIT) is a card payment that the merchant starts by itself, without the cardholder actively taking part at that moment, using card details stored under an earlier agreement. Monthly subscription fees, loan instalments, a hotel charging for the minibar after check-out and a utility bill paid automatically are typical MITs. The cardholder agreed to the arrangement once, and the merchant then charges as the agreement allows.

MITs are one of the two kinds of card-on-file transaction defined in the networks' stored credential rules. The other is the customer initiated transaction (CIT), in which the cardholder is present and starts the payment. The key difference is who presses the button: in an MIT the cardholder is absent, so the cardholder cannot be authenticated, and the merchant must rely on the consent and authentication captured at the start of the arrangement.

Think of a newspaper delivery you signed up for at the door. You agreed once, gave your card details and said "charge me every month". After that, the newsagent takes the payment each month without asking you again. You do not need to be at home, or even awake.

A merchant initiated transaction is that monthly charge. Because you are not there to type a code or approve anything on your phone, the bank has to trust that you really agreed at the start. So the shop sends the bank a reference back to that first payment, a bit like quoting the number on the original signed form. That reference tells the bank, "this is part of something the customer already approved".

The networks group MITs into two families. The type is sent in the authorization message, so the issuer knows what kind of arrangement lies behind the charge and can judge it against the cardholder's history with that merchant.

• Standing instructions. These rest on an agreement for future charges. They include recurring payments at fixed intervals, instalment payments for a single purchase spread over a set schedule, and unscheduled card-on-file charges for variable amounts at irregular times, such as topping up a toll account when its balance runs low.
• Industry practice transactions. These follow on from a purchase the cardholder made earlier. They include incremental authorizations that raise the amount held (common in hotels and car rental), resubmissions after a decline, reauthorizations when a split or delayed shipment outlives the original approval, delayed charges for items found after check-out, and no-show charges permitted by a booking's terms.

1. Set-up. The cardholder agrees to the terms in a CIT, often with authentication such as 3-D Secure. The issuer's approval returns a network transaction identifier.
2. Storage. The merchant stores the card, ideally as a card network token, together with that identifier and a record of the agreement.
3. Charge. When a payment falls due, the merchant sends an authorization flagged as an MIT, with the MIT type and the original identifier, through its acquirer to the issuing bank.
4. Response. The issuer approves or declines. If it is a soft decline, the merchant may retry within the networks' limits; if it is a hard decline, it must stop and contact the customer.

In the European Economic Area and the UK, the strong customer authentication rules under PSD2 and the UK's equivalent rules apply to payments initiated by the payer. Regulators have treated genuine MITs as outside that scope, because the cardholder is not present to authenticate, provided the mandate was set up with authentication. This makes correct flagging important. A merchant that labels an ordinary online purchase as an MIT to skip authentication breaks network rules and exposes itself to declines and fraud liability. Issuers can still decline an MIT and ask for the cardholder to authenticate, in which case the merchant has to bring the customer back for a CIT.

The largest source of disputes on MITs is the cardholder not remembering or not understanding the agreement, which shows up as friendly fraud or "cancelled recurring" chargebacks. Good practice, much of it now required by the networks for subscriptions and free trials, includes:

• Clear terms. The amount or how it is calculated, the timing and the cancellation method are shown and agreed at set-up.
• Notice before charges. Customers are reminded before a trial converts or a price changes.
• Recognisable billing. A clear merchant descriptor helps cardholders identify the charge on a statement.
• Disciplined retries. Failed charges are retried according to the decline type and the network's caps on payment retries, not repeatedly.

• Visa
• Mastercard