Credit Card Authorisation: How does it Work?
Credit card authorisation, or CC Auth, is the process of verifying that a credit card is valid and that the customer has the funds available to cover the purchase. This can be done either by swiping the card through a card reader or by manually entering the card number into a terminal.
What is credit card authorisation?
Credit card authorisation is the process of validating that a credit card account is able to legitimately fund a transaction. Whenever you make a purchase on your credit card, or basically whenever a credit card is swiped, the information on the card is read by an electronic machine and transmitted to the credit card company. The credit card company then checks that the information is correct and that the account is in good standing. If everything looks good, they will approve the transaction, and you will be able to continue with your purchase.
Credit card authorisation usually takes a few seconds and will almost instantly happen from the customer’s perspective.
Credit card authorisation originated back in the 1950s when credit cards were first introduced. At that time, the process was a lot more manual and required customers to fill out paper authorisation forms which would then be sent off to the credit card company for approval. Nowadays, with advances in technology, the process is a lot quicker and easier. As mentioned before, it can be done either by swiping the card through a card reader or by manually entering the card number into a terminal.
The same process is used for authorising debit cards, and the funds are transferred immediately from the customer’s account to the merchant’s account.
What are the stages of credit card authorisation?
Let’s take a detailed look into the actual process that takes place when you swipe your credit card.
The lowdown of the stages look like this, but we’ll go into more detail further down the line:
- Sending request to the acquirer
- Submitting request to the acquirer
- Submitting request to the issuer
- Checking the funds in the credit card
- Finalising the credit card authorisation
- Taking notification from payment processor
1. Sending Request to the Acquirer
First, the customer’s credit card is swiped through a card reader or the card number is manually entered into a terminal. This sends a request to the acquiring bank – which is the bank that has issued the merchant account – with all of the relevant details about the transaction, including the amount.
‘The acquirer’ refers to the financial institution that provides businesses with the ability to accept credit card payments, such as the bank.
2. Submitting Request to the Issuer
The next step is for the acquirer to send a request to the issuer – which is the bank that has issued the customer’s credit card – with all of the relevant details about the transaction.
The issuer will then check whether or not the customer has enough funds available to cover the purchase. If they do, then the transaction will be approved, and the funds will be transferred to the merchant’s account. In this case, the issuer is the bank that has issued the customer’s credit card.
3. Checking the Funds in the Credit Card
As part of the process, the issuer will check to see if the customer has enough funds in their credit card to cover the cost of the purchase. If they do, then the transaction will be approved, and the funds will be transferred to the merchant’s account.
4. Finalising the Credit Card Authorisation
Once the issuer has approved the transaction, the acquirer will send a notification to the merchant confirming that the funds have been transferred. The merchant can then finalise the purchase and provide the customer with their goods or services.
5. Taking Notification from Payment Processor
The final stage is for the payment processor – which is the company that handles all of the credit card transactions for the merchant – to take a notification from the acquirer confirming that the funds have been transferred.
They will then send a notification to the merchant and provide them with an authorisation code. The merchant can then use this code to confirm that the transaction was successful.
What is a Credit Card Authorisation Hold?
A credit card authorisation hold is a temporary hold placed on your credit card when purchasing. This hold ensures that you have enough funds available to cover the cost of the purchase. The funds are not actually transferred until the end of the billing cycle, but the authorisation hold ensures that they will be available when the time comes.
A CC Auth Hold usually lasts for a few days, typically no longer than a week, and then it is released. However, if you do not have enough funds available when the hold is released, your purchase will decline.
There are some other factors that could cause a CC Auth hold to take place and consequences of having one on placed on you. For example, if you’re making a larger purchase than normal, such as making a hotel reservation, renting a car, or making a payment for a large appliance, it could trigger a CC Auth Hold on your credit card.
Credit card authorisation holds are important to think about because they can impact your credit card balance and your ability to make other purchases. If you’re not sure whether or not a CC Auth Hold will be placed on your credit card, it’s always best to check with your bank or the merchant before making a purchase.
What are related terms to Credit Card Authorisation?
To ensure you’re clear about what all the terms mean regarding credit card authorisation, here are some definitions you may need to know.
- Merchant: A business that accepts credit card payments
- Acquirer: The financial institution that provides businesses with the ability to accept credit card payments
- Issuer: The bank or other financial institution that has issued the customer’s credit card
- Payment Processor: The company that handles all of the credit card transactions for the merchant
- Authorization Code: A code that the payment processor provides to the merchant, which confirms that the transaction was successful.
Are debit card authorisation and credit card authorisation same?
No, debit card authorisation and credit card authorization are not the same. When it comes to debit card vs credit card, there are some key differences. Debit card authorisation is a process whereby the bank approves the transaction and transfers the funds from the customer’s account to the merchant’s account immediately. Credit card authorization, on the other hand, is a process whereby the issuer approves the transaction and places a hold on the funds in the customer’s account. The funds are not actually transferred until the end of the billing cycle.
Are Authorized Credit Card user and Credit Card Authorisation different from each other?
Yes, authorized credit card users and credit card authorisation are different from each other. Authorized credit card users are the people who are allowed to use the credit card.
Credit card authorisation, on the other hand, is a process whereby the issuer approves the transaction and places a hold on the funds in the customer’s account. The funds are not actually transferred until the end of the billing cycle.