Credit Card Authorization Online
Purchasing items online is easy thanks to the millions of websites and mobile applications offering goods and services. Customers from all over the world can choose products in other countries and with a few clicks, the chosen item is paid, then shipped. And shopping experience is made more secure today because of credit card authorization. It's fast and very effective in reducing customer disputes. Lets dive more into this eCommerce process used for many retail, online and high risk credit card processing payments.
What is a credit card authorization?
Credit card authorization for online payments is the process of checking if an account has a sufficient balance and receiving permission from the card issuer to proceed with a transaction. The request goes through a credit card processor to verify if the cardholder can be approved to make the purchase.
How does a credit card pre authorization work?
The process of pre authorization for a credit card is also one way to reduce the occurrence of disputes or chargebacks when buying products or services online. First, the merchant connects with the credit card processor for the request. The credit card processor, also known as the Acquirer, relays the request to the Issuer of the card. The issuing bank then evaluates the account of the cardholder. Pertinent information will be thoroughly reviewed. Mainly, the process of authorization is to check whether the funds are enough to pay for the transaction amount. Card issuers will also run a series of account security checks to prevent any potential fraud. If the funds on the account are sufficient and nothing appears suspicious, then the issuing bank will hold the amount owed to the merchant after the authorization. It will then relay the information to the acquiring bank, then back to the merchant. Once the merchant gets the go signal that the card is authorized, it then charges the customer’s account for the price of the transaction. Authorization acknowledges the available funds, while the process called “capturing” manages the actual fund transaction in online payments. The capturing phase is done after card authorization and verification of funds. An authorization code will then be sent to the card processor. The acquirer will then relay the message with a code to the requesting merchant. If the code is for approval, the authorization process is complete. If there was an error, the transaction will not push through, and the customer will receive a corresponding error message.
Failed credit card authorizations
Authorizations fail for several reasons. It may be due to a technical glitch, or caused by financial grounds. The credit card holder will automatically be informed of the outcome through an error code. Note that error codes differ per credit card processor. If the code was caused by a technical problem, the business should immediately mend the issue. However, in some cases, if the credit card processor experienced some technical issue during the request, the merchant should wait until it is resolved. Reviewing the information thoroughly before supplying it to the card processor may help. Make sure that it bears complete value and is entered correctly. Finally, if the error was due to financial reasons, the customer can use another credit card or immediately get in touch with their issuing bank.
Card Authorization Frequently Asked Questions
What is a temporary authorization on a credit card?
A temporary authorization checks if there is enough available balance in your credit card to cover the charge for the purchased items or services. When placing orders with an online merchant, a credit card statement may show two pending charges. A charge for the temporary authorization of the fund, and an amount to clear the sale. Note that the charge for the temporary authorization does not reflect the total amount. After the settlement of the transaction, the final amount will be reflected. Your card statement will show the pre-authorization credit card charge that is used as a temporary hold.
How long does a credit card authorization last?
A credit card authorization may last for one to thirty days or until the business charges your account for the purchased items or services. After a payment has been cleared, the authorization is permanently removed from your credit card account. Merchants must be aware of the time limit because if the transaction is not cleared within the given period, the card will need to be rescanned causing inconvenience in both parties. Also, credit card corporations such as Visa and MasterCard impose “misuse fees” for unsettled authorizations that are not resolved within the specified time range. A possible scenario is when a processed transaction is placed on hold because the order is not yet shipped. For customers, this is good as their card is not yet charged until the ordered item/s is on their way. For the merchants, they will be charged with a misuse fee if the pre-authorization charge remains unsettled.
What are the advantages of using authorization holds?
- Businesses apply authorization hold as it helps them lower costs and save money. Also, it prevents the need to issue a reimbursement if an order is canceled before the settlement of the transaction. The funds are just discharged from the hold.
- Using authorization hold keeps customers satisfied as it creates trust that their card won't be charged until the item/s they ordered is dispatched. It also minimizes cart abandonment.
- It is the perfect protection against chargebacks as it gives merchants a time to confirm charges and check for possible fraud.
How Long does a Credit Card Authorization last?
Yes, especially for business starters as hold times could be confusing. Merchants, banks, and card schemes impose different time limits on the duration of an authorization hold. Depending on the circumstance and earlier stated, the time of hold can just be minutes or several days. Merchants and card issuers have their own distinct rules for different types of transaction and debit card’s hold time is different from that of a credit card. In addition, other industries, such as hotel accommodations are allowed to place longer periods of authorization holds. They calculate a customer’s final bill while placing the authorization hold for the duration of their stay. Customers may also experience confusion after seeing their funds are inaccessible because of the hold. Most likely, they blame the merchants but in reality, businesses only get hold of the invoice amount.
Processing online payments shouldn’t be such a hassle. Leave it to the experts. Talk to the team at Allied Payments now and let us know how we can help grow your business with our payment gateway and other payment solutions.