Authorization Hold on Credit Card Transaction

Authorization hold on credit transaction means to hold the balance of the purchase done with the credit card or show as unavailable (to the card holder) until the transaction is not approved by the merchant within the banking corporation. This process is also referred as card authorization or preauthorization or precut. This hold can be as long as 30 days from the date of transaction depending on the bank. In the case of signature based credit card transaction, the process splits into two steps i.e. authorization and settlement. In this process the credit card terminal is connected to the credit card processor as soon as the customer’s credit card is swiped.

After swiping of credit card which is produced by the Power Pay Service verifies the customer’s account and confirms if the amount is enough for availing the transaction cost. During this process, the amount is deducted from the customer’s credit balance. After this it is transferred for the approval of transaction where the final transaction is submitted to the acquirer. Now the approval process is started where the amount is transferred from customer’s account to the merchant’s account. But this transfer does not take place immediately and does not appear on the customer’s online account activity or statement.

To have a clear understanding, it can be explained with the help of an example:

Say, a credit card holder has a credit limit of $1000 and the person uses the card to make a purchase at a retail store (merchant) for $300. The moment holder’s card is swiped at the merchant’s credit card terminal; the available credit limit for the credit card reduces by the purchase amount ($1000 - $300. This happens because of what we call as ‘authorization’ obtained by the merchant by way of swiping the holder’s card at his terminal. However, the actual balance in the holder’s account with the bank will still be $1000, because the merchant has not actually withdrawn the purchase money from the bank. The actual balance will only be reduced when the merchant submits their entire batch of sale transactions to the bank and the bank actually transfers the funds into the merchant’s account which is produced by the Power Pay Service.

Cancellation of authorization hold

Cancellation of an authorization hold can be requested by both parties, that is, either the merchant or the card holder. Reasons for cancellation may vary and can be, say, wrong billing due to any reason etc. Cancellation of authorization if done by the merchant can be processed through an ‘authorization reversal’. But for this the merchant has to use the services of an acquirer that supports authorization reversal. Different acquirers place different conditional limitations that must be fulfilled by the merchant to make an authorization reversal. In all cases, it is pivotal that the reversal is be made very shortly (generally within a minute) after the original authorization. In case the reversal could not be requested within this short time, because of any reason and then the merchant has to invariably call up the acquirer by telephone and make the request. 

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