Transaction Authorization Process
Authorization is the process of obtaining permission from the card issuing bank to accept the card for payment. Authorization involves assessing the card’s transaction risk and, if approved, reserving the specified amount of credit on the cardholder’s account. If a merchant does not comply with Visa or MasterCard rules regarding authorizations, payment to the merchant may be withheld or the transaction may be charged back at a later time. The authorization takes place in real time, as the transaction occurs. The exact processing activities during authorization may be different from one processor to another and vary among merchant types but the process goes through the following stages:
- Cardholder places an order with a merchant. The authorization, and transaction, process begins when the cardholder places an order at a physical store, on an e-commerce website, or in another environment, and provides his or her card account details: name, address, card account number, card’s expiration date, card verification code (the 3- or 4-digit number on the back or front of credit and debit cards), payment amount (if not estimated by the merchant and automatically provided).
- Payment data transmission to the acquiring bank. The payment information provided by the cardholder is transmitted to the acquiring bank (also known as acquirer, merchant bank or processing bank).
- The acquiring bank sends the authorization request to Visa or MasterCard. The processing bank sends the received payment information on to the respective Credit Card Association, requesting transaction authorization.
- The Credit Card Association sends the authorization request to the card issuer.
- The card issuer approves or declines the transaction. Once the card issuer makes its authorization decision the response is sent back to the merchant through the same channels. The possible responses in card-present transactions are listed in the table below:
Response Explanation
Approved Issuer approves the transaction. This is the most common response-about 95% of all card-present authorization requests are approved. Declined or Card Not Accepted Issuer does not approve the transaction. The transaction should not be completed. Return the card and instruct the cardholder to call the issuer for more information on the status of the account. Call, Call Center, or Referrals Issuer needs more information before approving the sale. Most of these transactions are approved, but you should call your authorization center and follow whatever instructions you are given. In most cases, an authorization agent will ask to speak directly with the cardholder or will instruct you to check the cardholder’s identification. Pick Up Issuer wants to recover the card. Do not complete the transaction. Inform the customer that you have been instructed to keep the card, and ask for an alternative form of payment. If you feel uncomfortable, simply return the card to the cardholder. No Match The embossed account number on the front of the card does not match the account number encoded on the magnetic stripe. Swipe the card again and re-key the last four digits at the prompt. If a “No Match” response appears again, it means the card is counterfeit. If it can be done safely, keep the card in your possession, and make a Code 10 call.
A positive authorization response indicates that there are funds available in the account and the card has not been reported as lost or stolen. It is not, however, a proof that the card is not fraudulently used.
Real time vs. batch authorization processing. In a card-not-present environment, merchants who do not process card transactions in real time typically download their transactions from their server within 24 hours of the order request. They then group all orders together (forming a batch) and submit them for authorization. If an order is declined, the cardholder must be notified by phone or email.
Learn how to lower your card acceptance cost
Learn how to accept credit and debit cards at the lowest processing costs. The Payment Card Acceptance kit contains a video and an e-book:
- Video – Card Acceptance Best Practices for Lowest Processing Costs (18 min).
- E-Book – Payment Card Acceptance Guide (19 pages).
