What is credit card authorization
Credit card authorization or credit card hold is an approval from the card issuer, typically through a processor, that the client has adequate funds to cover the transaction cost. In other words, it is the process of getting an authorization from the issuer.
This is often the first step when buying services or goods. Firstly, a merchant will sign a credit card authorization form to grant the permission to charge the card. Next, they will send the request to the acquirer such as Paypal, then this acquirer will submit a request to the card issuer. After reviewing the client’s account, the issuer will decide if there is enough fund to cover the sale expense. For many businesses, this is an effective and simple way to avoid chargebacks.
What can we do with credit card authorization?
There are many reasons for merchants to use credit card authorization to build a better business:
– Save money and reduce costs
Most major card issuers do not charge fees until the transaction is already authorized and money is transferred. Also, this process also helps prevent the need for issuing refunds. When orders are canceled before the transaction is completed, the fund will be released from hold.
– Keeping your customers happy
The possibilities of delays or unsuccessful ships are quite common in businesses. With this tool, you can minimize this risk while still providing delayed billing to keep your clients satisfied.
– Curtail chargebacks
The most important benefit of credit card authorization is the protection against chargebacks. This will save your business a lot of money from possible frauds.
How to use credit card authorization
Step 1: Fill out your credit card authorization form and send to the issuer.
Step 2: Swipe your card at a gas pump or store.
Step 3: The acquirer (gas pump or store) will send a request to the card issuer.
Step 4: The card issuer will automatically put a hold on the required amount and check the available credit.
Step 5: Once the transaction is completed, it will be submitted for settling.
Step 6: The temporary hold will be released.
Step 7: The final expense of the purchase will be transferred to the merchant.
Things to note
- Keep in mind that credit card authorization form is not legally acquired. However, it is the best practice for most merchants.
- Though the regular use of credit card authorization can be effective, it is not enough. Merchants need other risk-management strategies to avoid frauds.