What is a credit card authorization hold?
The credit card pre-authorization hold is a very effective tool that protects merchants from serious financial loss in situations that happen to almost all of us.
If you are still unfamiliar with the credit card authorization hold meaning, imagine a simple situation. You own a hotel, and a young man checks into one of your hotel rooms. In the morning, you find out that this visitor has been making phone calls to another country all night, providing you with some very serious charges. When you ask to pay these expenses, it turns out that your visitor has no money left on his card. Now that will be your problem.
However, you can avoid these problems by using the card authorization blocking process.
The essence of credit card authorization hold
When the authorization process occurs, the cardholder’s information will be sent to the payment processor, which in turn will contact the bank that issued the card. All the processor will need to know is that the cardholder has enough funds to make a payment, that the card belongs to them and that the card is active.
If merchants rush in and move from authorization directly to completing the transaction, it could have bad consequences. After all, at one of the final stages, the cardholder may simply cash out, after which there won’t be enough money left on his or her card to pay.
The use of authorization hold significantly reduces such risks for the merchant. The amount needed to pay for the product or service is quickly reserved after the transaction is completed and the buyer will not be able to spend the money or cash it out. At the same time, the money not immediately transferred to the seller’s account, it happens only after the transaction is completed. After that, the hold removed and the actual amount of payment for the goods is deducted from the buyer’s card. The money can now be successfully transferred to the seller’s account.
Why is blocking card authorization beneficial for merchants?
This feature allows merchants to avoid the risk of not getting enough money from their customers. For example, if the gas station pumped significantly more gasoline than the amount remaining on the card from the client.
Situations where the final purchase price is higher than anticipated occur not only at gas stations, but also in real estate and other businesses.
Until the transaction is complete, the seller has the opportunity to identify possible fraud and take the necessary action, which is also a positive side of blocking credit card authorization. It is important to identify the fraudulent transaction before the customer has a chance to request a refund.
Besides, no card authorization block can be challenged. When the merchant discovers a high-risk transaction, he or she will be able to put a hold on the card authorization and allow the real cardholder to take appropriate action before he or she loses his or her money.
If a withholding occurs and the cardholder informs the merchant that his or her card has been stolen, the merchant has only to remove the withholding and cancel the order. No refunds need to be made.
How long can card authorization be blocked?
Here much will depend on the category of the seller and the nature of the transaction. It should be remembered that if the transaction is not completed within the allowed time, the transaction will need to start over, not forgetting to pay the card misuse fee.
Most often, the maximum length of the blocking period is limited to one week, and for recurring transactions no more than 24 hours. Businesses that represent the hospitality, equipment rental, and vehicle rental industries are often allowed a lockout period of up to thirty-one days.
It is important to ensure that all company employees complete transactions within the permitted time frame. The main purpose of withholding card authorization is to avoid the risk of chargebacks and avoid unnecessary disputes. That’s why it’s so important that all procedures are clearly followed and they don’t cause misunderstandings on the part of customers.
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