Payment Authorization Table of Contents

What is Payment Authorization?

Payment authorization is the process of verifying that a payment card or other payment method is valid. It also confirms that the account being authorized has sufficient funds to cover the transaction in question. This is typically done by submitting the payment information to the card issuer or payment network for verification.

If the payment is approved, the issuer or card network will provide an authorization code that can be used to complete the transaction. If the payment is not approved, the network will send back an error or decline code. Payment authorization is an important step in the overall process of accepting debit or credit cards for payment.

How Does Payment Authorization Work?

There are three basic steps in the payment authorization process. These steps involved the cardholder, the merchant, the payment processor, the card issuer and/or the card network. Here’s an overview of how it works:

  1. The customer initiates a transaction by providing payment information, such as credit card number, expiration date, and security code. Sometimes, they are also asked to provide a zip code for AVS purposes.
  2. The merchant or point-of-sale (POS) system sends a request to the issuer of the payment method to authorize the transaction. This information is sent securely through the payment processing portal.
  3. The issuer checks the customer’s account to see if there are sufficient funds or credit to cover the transaction.
    • If the funds are available, the issuer sends an authorization code back to the merchant or POS so the transaction can be completed.
    • If the funds are not available, the issuer will decline the transaction and send a “fail” code back to the POS. In this case, the customer will need to use another form of payment if they still wish to complete the transaction.

An authorization for a purchase is simply confirmation from the card issuer that the transaction can be completed. It is not the actual transaction and does not indicate that the funds have been transferred. The transfer of funds happens later in the purchase process.

How Long Does a Payment Authorization Last?

The length of time that a payment authorization lasts can vary depending on the transaction type, the card being used, and the merchant’s policies. In general, an authorization is valid for a certain period of time, typically between a few minutes and several days.

For example, authorization for a purchase at a retail store is usually only valid for a few moments, until the transaction is complete. Conversely, authorization at a hotel or rental car company may last for several days. Once the authorization expires, the merchant must request a new one in order to process the payment.

It’s worth noting that not all types of transactions require authorization. A good example of this is a subscription service. When someone signs up for a subscription, there is typically an authorization on the day of the initial signup. However, the merchant can continue billing that card each month without the need for additional authorizations.

How Long Does It Take for a Credit Card Payment to Clear?

Authorization and clearing are two different processes. The authorization is described in detail above and can take anywhere from a few minutes to several days, depending on the type of payment and the merchant’s policies. However, the clearing process occurs when the money is actually transferred out of the customer’s account and into the merchant’s account.

For credit card transactions, the clearing process can take anywhere from 1-3 business days. This period begins when the payment is completed. If we refer back to our example about hotels, let’s assume the following:

A card for a hotel reservation is authorized on Thursday when the guest checks in. The authorization lasts 4 days because the guest is not checking out until Sunday. Once the guest checks out, the payment is processed and the clearing timeline begins. The clearing process will now take 1-3 days, depending on variables such as the hotel policies and card that was used.

Fast payment methods are also available and many merchants prefer them for a variety of reasons. An ACH payment, which is processed through the Automated Clearing House, used to take 2-5 days. Many ACH processors now have the option to use a feature called Instant Payment, which can be done in real time.

What Does “Payment Authorization Failed” Mean?

“Payment Authorization Failed” means that the payment method could not be authorized by the card issuer or payment network. It is an error code that lets the merchant know the card cannot be used for a transaction. This can happen for a variety of reasons, including the following:

  • Insufficient funds
  • The card has been reported lost or stolen
  • The card is expired
  • The card has been flagged for suspicious activity
  • The card information is incorrect (card number, zip code, etc.)
  • The card has been declined by the issuer for a number of reasons
  • The merchant’s account is not configured properly to accept card payments
  • The processing system or network is down

If a payment authorization fails, the transaction will not be completed and the customer will need to use a different payment method or resolve the issue with their card before trying again. As a merchant, it’s important to train your staff not to assume that the card was declined for insufficient funds. This can be an embarrassing situation for a customer and the most important thing to do is help them through it without making them feel awkward.

In the event that an authorization fails due to technical issues, communication is key. If you have a brick-and-mortar store, it’s important to let the customer know that their card is not the problem. This will put them at ease while you troubleshoot the issue.

Similarly, if your system goes down and cardholders cannot complete purchases online, communication is important here, as well. Be sure to have a chat bot, email system, or even phone protocol to alert customers that your processing system has malfunctioned, and you are working to restore it. This will not always save the purchase, but it does give customers more confidence in you as a merchant.

What Does “Payment Authorization Expiration” Mean?

Payment authorization expiration refers to the date after which a previously authorized payment can no longer be processed or completed. This date is set by the issuer of the payment method (e.g. credit card issuer). It is typically a few days or a week after the initial authorization, depending on the purchase type, the issuer, and the merchant. After the expiration date, a new authorization will be required if a merchant or customer wants to complete the transaction.

What is a Pre-Authorization Payment

A pre-authorization is a process where a certain amount is held on a customer’s payment method (e.g. credit card) for a certain period of time. This timeframe is typically a few days and allows the processor time to ensure the customer has sufficient funds or credit available to complete the transaction. In some cases, the pre-authorization is held as insurance for larger ticket items.

To confirm a pre-authorization, you will need to check with the issuer of the payment method to see if the funds have been held and if the cardholder’s account is in good standing. This can typically be done online or by contacting the issuer directly. Most payment processors provide this information to their merchant clients for ease of use.

Final Thoughts

Understanding the authorization and clearing process will help you better communicate with your team and your customers. Ensuring your team can explain issues to your customers is a critical element of customer service that is overlooked by many merchants. The world has become increasingly digital, and customers can purchase goods and services anywhere. Providing excellent information in a clear and concise way can help your customers feel comfortable doing business with you and make them more likely to overlook small issues when they arise.