Card Authorisation

A card authorisation, also known as authorisation, is the mechanism used to corroborate that when doing an online transaction the card user details are truthful. Additionally, it verifies the card validity and the sufficiency of funds. The approval to process a transaction is granted by the issuing bank, which generates a code whose validity is constrained by the specific date and time of the day in which it was obtained.

However, card authorisations present some restrictions. To begin with, card authorisations cannot prevent fraud and consequently, they are unable to prevent chargebacks at a later stage. Simply put, they only ensure that a cardholder has the enough money in its account to cover a specific transaction and that its card has not been reported as stolen or lost at the time the approval is being granted. Consequently, a card authorisation does not guarantee that the payment transaction is actually effective or that the money has already been transferred to the merchant’s account.

In other words, a card authorisation is an awaiting payment transaction since no real charge is reflected on your statement at that point of the payment process.

There are three ways in which card authorisations can be granted:

  • Physically, through a point of sale terminal (POS-Terminal)
  • By telephone
  • Through an online transaction (e-commerce)

The response to card authorisations can be classified in the following manner:

  • Approval: It means the response is affirmative. It entails a reduction of the customer’s capital since it automatically makes a reservation for the amount of money which corresponds to the purchase and prepares it for future settlement.
  • Decline: It is a negative answer for which no reasons are provided. It simply means that the payment cannot be processed. Some reasons for this to occur are: the card has been reported as lost or stolen, the card user has exceeded his credit limit, etc.
  • Referral: Prior to granting authorisation, the issuing bank requires additional information either from the customer or from the retailer to legitimate the transaction. This can occur when an unusual situation arises, e.g. the card is being used in a foreign country without having given the bank any notice, the credit card limit has been reached, etc.