If you’re new to using a credit card, you might have noticed that some merchants “authorise” your card before finalising a purchase. This is a common practice known as credit card authorisation—and here’s why it matters.
1. What is Credit Card Authorisation?
- It’s a temporary hold placed on your card for a specific amount to confirm that you have sufficient credit to cover a purchase.
- This step helps the merchant verify that your card is valid and that the transaction can proceed smoothly.
2. How Does the Authorisation Process Work?
- Merchant Request: The merchant submits an authorisation request to the card issuer.
- Issuer Verification: Your bank checks for sufficient funds, your credit limit, and any potential fraud alerts.
- Authorisation Code: If approved, the issuer sends an authorisation code to the merchant.
- Transaction Completion: Once the merchant is confident, the transaction can be completed.
3. Why is Authorisation Important?
- Verification of Funds: Ensures that you have enough available credit, reducing the chances of declined transactions.
- Guaranteed Payment for Merchants: The hold assures merchants they will be paid, which is especially important for industries like hotels or car rentals where services are provided before payment.
- Temporary Holds for Additional Charges: In sectors like car rentals or hotels, it allows a temporary hold to cover extra charges (like damages or room service), which is released upon final settlement.
- Improved Customer Experience: The authorisation process alerts customers if they don’t have enough funds, helping them avoid overdrafts or unexpected charges.
- Fraud Prevention: Authorisation reduces the risk of fraudulent transactions by confirming card details and verifying identity.
Summary: Credit card authorisation is essential for a smooth, secure, and valid transaction process, benefiting both customers and merchants alike. This added step helps ensure that funds are available, payment is guaranteed, and any potential fraud risks are minimized.