Credit Card Processing Floor Limit
Floor limit is the amount above which credit card transactions must be authorized before being processed. The floor limit can vary from business to business and is specified in the merchant processing agreement. All card transactions conducted in a non-face-to-face environment have a zero floor limit, which means that all of them must be authorized, regardless of the amount. Non-face-to-face transactions include e-commerce and MO / TO (mail order and telephone order) payments and refunds, but exclude transactions at cardholder-activated terminals (CATs), like the ones at gas or train stations, which are considered face-to-face, even though the merchant is not physically present to accept the card.
For example, if a store’s floor limit is $25.00, every purchase of $24.99 or less would not have to be authorized, while transactions of $25.00 or more would require authorization. Authorization is the process by which a card issuer approves or declines a transaction. In a face-to-face environment, the authorization occurs automatically when the cardholder swipes her card through the merchant’s point-of-sale (POS) terminal. In a non-face-to-face setting, the authorization occurs when the card account’s information is submitted online or over the phone. In both instances, once the card information is provided, it is routed to the card issuer through Visa’s or MasterCard’s network and then the card issuer’s response is routed back through the same channel, approving or declining the transaction.
Floor limits carried a much greater importance in the past when the merchant had to call for an authorization on any payment amount that was over a predetermined level. Back then payment card processing involved taking a physical imprint of the card and the authorization process required a personal review, making the process both time consuming and expensive. Today merchants can benefit from electronic authorization systems that payment processors provide at a very low cost. Once a payment is authorized, the merchant has an additional, and powerful, assurance against fraud. Still, even today, the floor limit concept comes into play occasionally.
For example, if unable to connect to the payment processor’s authorization system, a merchant will not be able to obtain an electronic authorization and will have no recourse against fraudulent activity or a customer dispute that will potentially lead to a chargeback. Yet, if the transaction amount is less than the floor limit, no authorization is required by the payment processor. If, however, the amount is over the floor limit, the merchant must authorize the transaction and can do this by making a telephone call to the payment processor and obtaining a “voice authorization.” In this case the merchant will be well advised to also take the card’s imprint and place it on the sales receipt. Voice authorizations should be used only as a last resort, as they bypass the processing bank’s systems and cannot be used as supporting evidence in chargeback re-presentments. You should avoid key-entering voice-authorized transactions.
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