Merchant-Initiated Transaction

Card scheme rules divide transactions into two categories based on who initiates the charge: Customer-Initiated Transactions (CITs) where the cardholder is present and participates in the checkout, and Merchant-Initiated Transactions (MITs) where the merchant triggers the charge using a stored credential agreed to by the cardholder in a previous CIT. The CIT/MIT framework governs how authorisation messages must be constructed and what authentication requirements apply.

An MIT is only permitted after the cardholder has given explicit consent during an initial CIT, typically at subscription signup, account creation, or trial initiation. This initial CIT establishes the stored credential and the cardholder's agreement to future MIT charges. The scheme rules require the merchant to include specific data fields in the authorisation message for each MIT: the transaction type indicator (recurring, instalment, or unscheduled), a reference to the original CIT transaction, and confirmation that no SCA challenge is being presented.

There are three MIT subcategories with distinct rules. Recurring MITs are fixed-amount charges on a fixed schedule (monthly subscription). Instalment MITs are a fixed total split into a predetermined number of charges. Unscheduled MITs are variable-amount charges triggered by a specific event rather than a calendar schedule, examples include usage-based billing, account top-ups when balance falls below a threshold, and no-show or cancellation fees charged after the fact.

SCA under PSD2 does not apply to MITs, SCA is a cardholder authentication requirement and the cardholder is not present during an MIT. However the initial CIT that sets up the stored credential must be SCA-compliant in regulated markets. If the initial authentication is not SCA-compliant, subsequent MITs on those credentials may be declined by the issuer.

Correctly flagged MITs with valid stored credentials and original transaction references achieve higher authorisation rates than unformatted recurring charges. The initial CIT that sets up the stored credential must include SCA authentication; failure to authenticate the original CIT creates a weak credential that issuers may decline on subsequent MITs. MIT declines for insufficient funds or expired credentials should trigger specific retry logic per scheme rules; unscheduled retries outside permitted windows can result in scheme violations. MIT authorisation messages must include the correct transaction type indicator and original transaction reference; missing or incorrect fields lead to interchange downgrade and higher decline rates. No-show fees, cancellation charges, and usage top-ups are unscheduled MITs requiring specific authorisation message construction distinct from recurring or instalment MITs.