The online credit card processing flow is triggered by an online shopper initiating a purchase attempt on a merchant’s website.
Authorization transaction
- Merchant – submits an Authorization request transaction for approval.
- Payment processor – passes the request through the associations to the issuing bank and awaits response to be presented to merchant.
- Issuing Bank:
- approves or declines the authorization request.
- puts a hold on cardholder funds – the “Authorization hold”.
- Merchant – receives the approved or declined authorization transaction via the associations and payment processor and decides on next steps (usually according to further fraud checks and stock availability).
Capture transaction
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Merchant – submits a Capture transaction. Capture transactions are usually batched after being stored on merchant’s computer or POS machine and sent for processing once a day in order to minimize costs.
- Payment Processor – process batch and send capture transactions to issuing banks via the credit card associations.
- Issuing Bank
- sends money to Acquiring Bank via the credit card associations.
- bills card holder for shopping online.
- Acquiring Bank – funds the Merchant Account with net proceeds of the transaction.
- Payment Processor – provides detailed reporting on each capture transaction, including all fees deducted by all parties involved.
Gidi Argov, Founder and CEO
www.CreditCardProcessing-r-us.com
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That’s it – Authorize and Capture are the only two transactions participating in the credit card processing flow?
Alexa, you got me! Authorize and Capture (and their alternate names) are indeed the main two transactions composing the credit card processing flow. Further down the road, other transactions join to enable different scenarios rising out of the initial flow.
Regarding names – Authorization is often referred to as: “card authorization”, “retail authorization”, “preauthorization”, “preauth”, or “auth”. Capture is often referred to as: “settlement” or “settle” transaction. A “Sale” transaction is used when the two (Authorize and Capture transactions) are performed in a single-step. If you got all the different names straight, you might be ready for other real transactions, such as: Re-Auth, Void, Credit, Chargeback & Re-submit (or Re-present).
Surely enough names and transactions for plenty others posts…
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What is a pre-auth transaction and when is it better sending a preauth instead of an authorization transaction?
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John, “pre-auth” and “authorization” are one and the same. Both represent a merchant attempt to get a confirmation from an issuing bank with regards to a certain transaction.
The pre-auth terminology is more common with merchants submitting the authorization and capture in a “single-step” mode. If you’re used to sending authorization and capture together as one, sending the authorization only, is a pre-step, or a pre-transaction, and therefore the “pre-auth” terminology…
That terminology, even when supported by the payment processor and submitted via payment processor API as “pre-auth” or “preauth”, is always sent through the associations for an issuing bank authorization as an “Authorize” transaction.
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What does authorization hold mean?
Hi Craig, good question! Authorization hold effects cardholders and frequently misinterpreted.
Authorization hold means that the amount authorized is set-aside and no longer available for future purchases.
Issuing banks are managing cardholders’ credit limit (credit card) or cash balance (debit card). Once an issuing bank authorizes a transaction it vouches for transaction’s payment. In order to verify the bank does not authorize transactions over a customer’s credit or cash limit, the issuing bank counts all the authorizations and deducts all waiting authorizations from cardholder’s available credit or cash limit.
If you still have cash in your account, yet your card is declined, it may very well be related to authorization holds.
Is authorization hold higher than original transaction?
Is it the authorizing bank increasing the amount on hold as part of its risk management?
Frank, authorization hold can indeed cross the amount a shopper intends to purchase, yet in no case is it initiated by cardholder’s bank.
The authorization hold amount equals the authorization transaction amount submitted by the merchant. If authorization hold passes a shopper’s intended purchase transaction, such access amount was originally requested by the merchant.
Car rental & hotel booking are the most common examples for high authorization holds. In such cases, due to unknowns and possible damages, an authorization request might be submitted for maximum agreed upon damage or similar. It is actually the merchant, attempting to manage his inherent risks, rather the issuing bank…
I tried shopping a stupid item online and now my card is blocked! Can they put 7 holds with regards to same item???????
Patrick, it’s possible, especially if you submitted your card, attempting to purchase that item online, 7 times in a row…
Each time you submit an online purchase, the merchant sends an authorization request to your issuing bank, which if authorizes the transaction, puts an authorization hold on your account.
If forever reason you repeated the process, repeated authorization requests were sent to your issuing bank, each ended with an authorization hold. All those authorization holds now “park” at your account and assuming they reach your cash balance or credit limit, disable you from further use of same card.
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I suffered from numerous authorization holds myself.
If issuing bank only puts an authorization hold once authorizing the transaction, why wasn’t my initial transaction, or the ones that followed, finalized on site?
All my attempts to purchase through that site failed!
Philip, in today’s world, authorizations are usually not enough, for a merchant to capture a transaction…
That said authorizations come in different flavors. An authorization returns with an AVS (Address Verification System) code. The AVS can show a full match (Street address and 9-digit postal code match), endless levels of partial match (such as: Street address does not match, but 5-digit postal code matches, Street address matches, but 5-digit and 9-digit postal code do not match, Street address matches, but postal code not verified, Postal code matches, but street address not verified, etc.) continuing with different unavailable/non-supported AVS responses (System unavailable, Bank does not support AVS, etc.) up to a full Mismatch (Street address and postal code do not match).
Therefore, the fact that an issuing bank authorized a transaction and initiated an authorization hold on your account, does not necessarily mean that the merchant will always capture same transaction.
OK, so I didn’t know all that and got numerous authorization holds on my account – NOW WHAT?
What needs to happen for those to clear out?
Patrick, you can wait and let the authorization hold die for natural causes… or be proactive.
Authorization hold may take up to 30 days to clear, depending on card and issuing bank. Debit cards would usually clear within 5 days, while credit cards authorization holds would take longer to clear out.
If you need the money, try one of the following approaches:
1. Contact the seller and request an “Authorization Reversal”.
Some merchants can easily accommodate, while others just don’t have the button you’re after…! All merchants can call the acquiring bank and ask for (manual) reversal, yet if you hit a wall, try plan B -
2. File a chargeback with your issuing bank.
Though chargeback is used to reverse a Capture transaction, and in your case, no transaction was captured… Still, in most cases, this will expedite the release of your funds.
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Contacting the seller *should* work pretty easily.
If you need the funds now, then don’t just sit there and let the hold expire.. I had a video store membership hold on my credit card for 6 months several years ago, they simply forgot to take it off, and it came back to bite me.
As a merchant I’d love to capture ALL the transactions coming my way, yet learning the hard way, I now know better… and would love to know more!
Is one wireless terminal better than the other in blocking fraudulent transactions?
Different wireless terminals, including iPhone credit card applications, do handle transactions differently, at least as long as it relates to PCI compliance.
Some enable non-secured storage of credit card information, while others encrypt all credit cards data on card swipe.
These differences though, would not help you block a fraudulent transaction.