Understanding Card Authorisation for Businesses

Card authorisation is a crucial process for businesses that accept card payments. It's a way to verify that a customer has the necessary funds to make a purchase.

In the UK, for example, card authorisation is typically done through the Visa or Mastercard network. This process involves checking the customer's account balance and ensuring there are sufficient funds for the transaction.

Most businesses have a specific card authorisation threshold, which is the minimum amount required for a transaction to be processed. This threshold can vary depending on the business and its specific needs.

If a transaction is above the threshold, the business will need to obtain a card authorisation code, which is a unique code provided by the card issuer. This code confirms that the customer has the necessary funds for the transaction.

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Credit card authorization is a crucial step in making a purchase, whether online or in-person. It's a quick process that takes mere seconds.

The authorization process involves several parties working together to verify the funds and approve the payment. These key players include the payment processor, acquiring bank, card scheme, and issuing bank.

The merchant sends a request to their acquirer, who then submits a request to the credit card issuer. The issuer reviews the customer's account and decides if enough funds exist to cover the cost of the sale. The issuer also checks for any fraud indicators and the validity of the card and cardholder.

Here's a breakdown of the key factors the issuing bank considers when approving or declining a payment:

The merchant sends a request to their acquirer, also called a credit card processor, when you make a purchase.

The acquirer then submits a request to the credit card issuer, who reviews the customer's account to see if enough funds exist to cover the cost of the sale.

The issuer decides if enough funds exist, and if they do, an authorization hold is made which reduces the customer's credit line for the amount of the sale.

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An authorization code is sent to the acquirer, who responds to the merchant with a code for approval or error code.

The actual money transaction is handled by a process called "Capturing", which is usually accomplished automatically after the authorization.

The merchant sends an authorisation request to the customer's bank when a credit card is used for a transaction.

The bank forwards the request to the customer's Credit Card issuer, who checks if the card is valid and if there are enough funds and looks for any fraud indicators.

If approved, the issuing bank places a hold on the purchase amount in the customer's account and sends back an approval to the merchant's terminal.

Authorization is the acknowledgement of available funds, and it places a hold on those funds.

The customer's account is reviewed, and if there are enough funds, an authorization hold is made, which reduces the customer's credit line for the amount of the sale.

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Credit card authorization is a complex process that involves multiple parties working together to verify the funds and approve the payment. It may seem like a simple transaction, but there's a lot going on behind the scenes.

The process typically takes mere seconds, but it involves several key players, including the payment processor, acquiring bank, card scheme, and issuing bank. These parties work together to verify the card and transaction details.

The issuing bank is responsible for evaluating the transaction and checking if the card is valid, if there are enough funds, and looking for any fraud indicators. They consider several factors, including whether the customer has sufficient funds or credit to cover the transaction amount, the validity of the card and cardholder, and potential signs of fraud.

The issuing bank then decides whether to approve or decline the transaction, sending its response back via the payment processor to the acquiring bank. If approved, the issuing bank places a hold on the purchase amount in the customer's account.

Here are the key players involved in the card authorization process:

These parties work together to verify the funds and approve the payment, making the transaction process possible.

Credit card authorization is a crucial step in completing a transaction. It's the initial check to ensure your credit card can cover the purchase, placing a temporary hold on the funds.

The authorization process typically starts with the merchant sending a request to their acquirer, who then submits a request to the credit card issuer. The issuer reviews the customer's account and decides if enough funds exist to cover the cost of the sale.

If the issuer approves the transaction, an authorization hold is made, reducing the customer's credit line for the amount of the sale. An authorization code is sent to the acquirer, who responds to the merchant with a code for approval or an error code.

In online payments, the actual money transaction is handled by a process called "Capturing." Authorization is the acknowledgement of available funds, and it places a hold on those funds.

Authorization can fail for technical or financial reasons. Buyers are notified of failures automatically by most online processors, and the cause of an authorization failure is identified by its error code. Error codes will differ based on acquirer.

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The most important point is that a failed authorization means a sale cannot be completed. The seller should not ship the product or complete the transaction without an authorization code.

If the error code indicates a technical problem, it's usually the seller's job to fix the issue. In rare cases, the acquirer will be having technical issues, and the seller will have to wait until these are fixed.

In most cases, there is a problem with the information being supplied to the processor, such as an incorrectly typed or missing value. The seller should fix the problem as soon as possible.

Error codes indicating financial reasons usually mean there is a problem with the buyer's account.

The duration of holds on credit and debit cards varies depending on the card brand, merchant category code, issuer's requirements, and the type of card used.

Here's a breakdown of typical hold durations:

If you haven't settled the transaction before the hold on a credit card or debit card expires, you'll probably need to cancel it.

In a real-world example, purchasing a coffee at a cafe involves the following steps:

1. Cardholder initiates transaction

2. The merchant sends an authorization request

3. The card issuer evaluates the transaction

4. Authorization response

The card issuer checks if the card is valid and if there are enough funds and looks for any fraud indicators. If approved, the issuing bank places a hold on the purchase amount in your account and sends back an approval to the cafe's terminal.

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Credit card authorization can fail for a variety of reasons, and understanding these common issues can help you troubleshoot and resolve the problem.

One of the main reasons for authorization failures is insufficient funds or credit. If a customer doesn't have enough money in their account, or if they've exceeded their credit limit for the month, the issuing bank cannot authorize the payment.

Invalid or expired cards are another common issue. The issuing bank cannot authorize payments made with expired or invalid cards.

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Cardholder verification errors can also cause authorization failures. If the issuing bank can't verify that the correct person indeed possesses the card, it won't be able to authorize the payment. This can happen when the cardholder fails to enter the correct PIN or CVV code, their billing address doesn't match the one associated with their cardholder account, or they cannot accurately complete the 3D Secure process.

Here are some common reasons for authorization failures:

Credit card authorization failures can be frustrating for both merchants and customers. A common reason for authorization failures is insufficient funds or credit, where the customer's account balance is lower than the purchase amount.

Technical glitches can also cause authorization failures, such as communication errors between the merchant, acquiring bank, and credit card issuer.

Invalid or expired cards can also lead to authorization failures, as the credit card issuer cannot verify the card's validity.

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Suspected fraudulent activity is another reason for authorization failures, where the credit card issuer detects unusual or potentially fraudulent activity.

Cardholder verification errors, such as incorrect PIN or CVV code, can also cause authorization failures.

Location restrictions can also lead to authorization failures, where the customer's geographic location is a concern for the credit card issuer.

Here are some common reasons for authorization failures:

It's worth noting that some authorization failures can be prevented or resolved by verifying the card information, checking the card status, and considering security reasons for the decline.

Discrepancies between the authorization amount and transaction amount can cause confusion. This is especially true when industries place authorization holds before the final transaction amount is known.

Some industries, like restaurants, may submit authorizations for 20% above the transaction amount to cover tips. However, if the customer tips low, they might worry that the waiter will receive more than they're due.

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A hotel guest might forget about room service and be concerned when the amount charged to their card is more than the amount that was authorized. This can lead to misunderstandings and frustration.

In some cases, customers might calculate the currency conversion before making a purchase, but the exchange rate can change after the transaction is authorized. This can lead them to assume the merchant charged them too much.

It's essential to inform customers about these fluctuations to avoid confusion. Even with clear explanations, there's always a chance that customers will misunderstand the process.

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Authorization is the initial check to ensure your Credit Card can cover the purchase, placing a temporary hold on the funds.

This process ensures there are no holds on the account and it has enough funds to make the purchase. Card authorization doesn't actually move the customer's money during this process.

The customer's money doesn't move during authorization, but rather it's a temporary hold on the funds. Authorization is a crucial step in the payment process, but it's not the final step.

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Capture is when the merchant confirms the transaction and requests the transfer of the held funds into their account. Capture often happens straight after authorization, but it can also happen several hours or even days later.

Most card authorizations expire after five to 10 days, so capture will always happen before then. This means that even if capture is delayed, it will still happen within a short timeframe.

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Credit card authorization forms are used in specific scenarios, such as recurring payments and subscriptions, high-value transactions, pre-authorisation, and offline manual transactions. These forms are typically used when electronic payments aren't possible.

In these scenarios, card authorization forms are used to collect payment information and cardholder consent. They can be paper or digital forms, usually with fields to complete such as full name, billing address, contact information, card details, transaction amount and description, transaction date, cardholder signature, and reference number.

The information collected on these forms helps merchants to temporarily reserve funds on the customer's card, as a guarantee and to allow for potential additional charges or incidentals.

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Forms are an essential part of the credit card authorization process. They're used to collect the necessary payment information and cardholder consent.

In most cases, forms are either paper or digital, and they typically include specific fields to complete. These fields can vary depending on the scenario, but they usually include the cardholder's full name, billing address, and contact information.

A cardholder's full name, as it appears on the card, is a crucial piece of information. This helps ensure that the payment is processed correctly and that the cardholder is who they claim to be.

Forms may also include fields for card details, transaction amount and description, transaction date, and cardholder signature. These fields are essential for processing the payment and confirming the cardholder's consent.

Here are the typical fields found on a credit card authorization form:

A cardholder's signature is a critical element of the authorization process. It confirms that they've reviewed and agreed to the terms of the transaction.

Credit card authorization forms are used in various scenarios, including recurring payments and subscriptions, high-value transactions, pre-authorisation, and offline manual transactions.

Recurring payments and subscriptions often require customers to complete a card authorization form to consent to regular payments, such as monthly gym memberships or streaming service subscriptions.

High-value transactions, like buying a car or luxury goods, may involve a card authorization form as an additional layer of documentation to resolve any payment issues.

Hotels and car rental companies often require card authorization forms for pre-authorisation, allowing them to temporarily reserve funds on the customer's card for potential additional charges or incidentals.

In certain situations where electronic payments aren't possible, merchants may use paper card authorization forms for manual transactions, such as at outdoor events or over the phone.

Here are some common scenarios where card authorization forms are used:

Incorporating holds into the authorization process can be a bit complex, but it's essential to understand how it works.

A hold is a temporary freeze on the cardholder's account, usually put in place after an authorization request is approved. This means the funds are reserved, but not yet transferred to the merchant's account.

To put a hold on a cardholder's account, you need to send an authorization request to their bank, which will then approve the transaction and put a hold on the account.

The hold will stay in place until you settle the transaction or cancel it altogether. This is a crucial step in the authorization process, and it's essential to understand how it works.

Here's a step-by-step overview of the hold process:

By understanding how holds work, you can ensure a smoother authorization process and avoid any issues that may arise during settlement.

Preventing and resolving authorization issues can be a challenge, but it's essential to handle them correctly to avoid frustrating your customers and damaging your business reputation.

A failed authorization doesn't always mean there's a problem with the buyer's account. In many cases, it's due to a technical issue or incorrect information being supplied to the processor. Sellers should fix the problem as soon as possible to avoid delays.

If a customer's payment is declined, it's not always because they have insufficient funds. Merchants can help troubleshoot the issue by verifying the card information and checking the card status. The customer may have entered incorrect details, or the card may be expired or replaced.

Consider security reasons for the decline. A security hold may be placed on the card due to the type of purchase or the customer's geographical location. The customer can call their bank to release the hold.

Here are the steps to help troubleshoot and resolve the issue:

By following these steps, merchants can help customers resolve authorization issues and complete the transaction. Remember, a failed authorization doesn't mean a sale can't be completed – it's just a temporary setback that requires a little extra effort to resolve.

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Authorization holds can prevent revenue loss by ensuring there is still money or credit available when the transaction is settled.

Hotel guests might order room service or extend their stay, resulting in additional charges that need to be covered. This is just one example of how authorization holds can help.

Car rental companies, bike shares, and grocery stores with online ordering are other industries that can benefit from authorization holds. They often don't know the exact amount they'll need to cover until the transaction is settled.

Here are some examples of industries that can use authorization holds to reduce revenue loss:

Maintaining high credit card authorization rates is crucial for merchants.

Excellent authorization rates are good for business, resulting in a higher payment acceptance rate, which equates to more sales.

Higher authorization rates facilitate a smoother checkout experience, reducing cart abandonment and encouraging customers to return.

Authorization is the first step in purchasing goods or services, and a good payment processor is essential for achieving high authorization rates.

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An authorization hold reduces the customer's credit line for the amount of the sale, and an authorization code is sent to the acquirer for approval or error code.

In online payments, the actual money transaction is handled by capturing, which is usually accomplished automatically after authorization.

A payment processor that understands the unique needs of your business, industry, and payments strategy is key to boosting your credit card authorization rates.

Authorization holds can potentially damage your reputation if used incorrectly. You're essentially freezing someone's funds, preventing them from making other purchases.

A recent study by Visa found that authorization reversals can be a problem. They analyzed thousands of reversals and found that this can lead to frustration for customers.

If a customer's authorization request fails, they'll typically be notified instantly by their payment processor. This notification comes in the form of a denial code, which provides more information about why the request failed.

A denial code beginning with 3 denotes a hard decline, suggesting a deeper issue that must be resolved before the transaction can be re-attempted. This could be due to suspected fraud or a card that's been reported as lost or stolen.

The cause of an authorization failure is usually identified by its error code. Error codes will differ based on the acquirer, but they can indicate technical or financial problems.

Card brands expect you to maintain the integrity of their systems, and if you don't, you could be fined.

Penalties for Visa transactions come in the form of a 'misuse of authorization system' fee, which you'll be fined for every approved or partially-approved authorization that hasn't been reversed or settled.

You'll have to pay these avoidable fees if you're not complying with all card brand regulations.

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Card durability is a crucial aspect of credit card authorization fees. The duration of holds on credit and debit cards varies depending on the card brand and type of transaction.

Most card-present transactions have a hold duration of just one day, allowing for quick settlement and release of funds. This is because card-present transactions are typically processed on the same day as the authorization.

Three days is a common hold duration for U.S. commuter transportation, such as buses and railways. This allows for a slightly longer period for settlement and release of funds.

Seven days is the standard hold duration for most card-not-present transactions, which include online purchases and phone orders. This gives merchants a bit more time to process and settle transactions.

Some merchants, like those in the lodging, vehicle rentals, and cruise lines industries, may have a longer hold duration of up to 31 days. This is because these types of transactions often involve more complex processing and settlement procedures.

Here's a quick reference guide to common hold durations:

If mistakes could cost more in fees, it's essential to understand the difference between authorisation and capture. Authorisation is the initial check to ensure your Credit Card can cover the purchase, placing a temporary hold on the funds.

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You could pay more in fees if you make a mistake. Regardless of how difficult it can be to understand and comply with processing regulations, card brands expect you to do your part to maintain the integrity of their systems.

A 'misuse of authorization system' fee is a penalty for not reversing or settling approved or partially-approved authorisations. This fee is applied for every single one.

Complying with all card brand regulations is crucial to avoid these avoidable fees. In order for authorisation holds to help you earn more than you spend, you need to get it right.

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