How Does Credit Card Authorization Work?

Credit card authorization is a process that allows you to authorize the use of your credit cards for purchases or cash advances.

It’s an important step in the payment processing cycle, and it can be used when you want to make sure that the person using your card has permission to do so.

In this article, we’ll take a look at how credit card authorization works, what information you need to provide, and why it’s significant to have it set up correctly.

What Is Credit Card Authorization?

Before we get into the nitty-gritty details about how credit card authorization works and how it fits into the payment processing cycle, let’s first talk about what it actually means.

When someone uses your credit card to purchase something, they are authorizing the transaction on their behalf. They are giving you permission to charge them for the goods or services being purchased.

If you don’t agree with the charges, you can always dispute the transaction later.

However, if the person who authorized the transaction doesn’t pay back the money, then you might not be able to recover the funds from them.

In order to prevent unauthorized transactions, you must authorize each individual transaction before it happens.

This way, you know exactly which people are allowed to spend your money. Without authorization, you could end up paying for things that aren’t yours.

For example, if you give your friend permission to buy groceries with your credit card, but he decides to go out and buy beer instead, you will be responsible for covering those costs.

Why Do I Need To Authorize My Cards?

If you’re like most people, you probably feel pretty comfortable handing over your debit card or checking account number to complete a transaction.

You trust that the merchant knows that you are the rightful owner of the money being spent, and you don’t worry too much about whether the person making the purchase is going to pay you back.

However, there are times when you may wish to verify that the person spending your money is the one who owns it.

For example, if the person buying groceries with your credit card isn’t planning to return the items, you may want to check that the correct amount was charged to your account.

Or maybe you just want to make sure that you aren’t getting scammed by someone trying to steal your identity.

Things To Note

The first thing you should understand about credit card authorization is that it’s a two-step process.

First, you need to decide whether you want to authorize the transaction. Then, after you’ve made that decision, you need to tell the merchant that you’ve given him/her permission to perform the transaction.

Let’s take a closer look at both steps.

Step 1: Decide Whether To Authorize Your Transaction

The first part of the authorization process involves deciding whether you want the merchant to carry out the transaction. There are three main reasons why you would choose to authorize a specific transaction:

 

1. 1. You want to ensure that the person using your credit card is the right person.

1. 1. You want to limit the risk of fraud.

1. 1. You want to protect yourself against fraudulent activity.

For example, suppose that you have an online business where customers can sign up for monthly subscriptions.

In this case, you would want to make sure that only legitimate customers are signing up for these plans. Otherwise, you could lose significant amounts of money due to unpaid bills.

If you do decide to authorize the transaction, you will also need to decide whether or how long you want to allow the merchant to keep the money in his/her possession.

Some merchants offer discounts to customers who use their cards frequently. Others require that all purchases be paid off within a certain time frame.

Step 2: Tell The Merchant That You Have Given Permission To Perform The Transaction

Once you’ve decided whether you want a particular transaction to happen, you need to let the merchant know that you’ve authorized the transaction. Here are some ways to accomplish this task:

 

1. 1. By clicking on “Yes” next to the merchant’s name on the payment page.

1. 1. By typing in your password into the box provided.

1. 1. By selecting the radio button labeled “Authorize.”

1. 1. By pressing the “Submit” button.

1. 1. By entering your PIN into the box provided. (This method is typically used when you’re paying with a debit card.)

When you click on the “No” option, the merchant won’t be able to charge any more money to your account.

However, he/she might still be able to access information from your account. This includes things such as your billing address and phone number.

When Should I Use Credit Card Pre-Authorization?

There is another type of authorization called a pre-authorization. Pre-authorizations are similar to authorizations, except they don’t involve a third party.

Instead, they involve the customer and the merchant agreeing to pay each other before the transaction takes place.

This means that the merchant doesn’t actually get the money until the customer pays him/her back.

Pre-authorizations are useful if you’re worried that someone else may try to steal your identity.

For instance, let’s say that you’re going to buy something expensive on Amazon.com.

If you suspect that someone stole your credit card information, you could ask Amazon to perform a pre-authorization so that you can cancel the order before it goes through.

Pre-authorizations are also useful when you’re planning to purchase items from multiple stores.

For example, if you plan to go shopping at two different websites, you could first pre-authorize one website.

Then, once you’ve completed the transaction, you could pre-authorize the second site. This way, you’ll avoid having to re-enter your credit card information every time you shop.

What Is A Chargeback?

A chargeback occurs when a consumer believes that there was fraud committed against her by a merchant or financial institution.

Typically, consumers initiate a chargeback after discovering fraudulent charges on their accounts. In most cases, the merchant or bank involved will refund the amount of the fraudulent charge.

Chargebacks can be initiated either online or over the telephone. Online chargebacks are usually handled via an email link.

After submitting the form, the consumer receives a response indicating whether the charge has been approved.

If the charge isn’t approved, the consumer must provide additional documentation to support the claim.

If the charge is approved, the consumer gets his/her money back. The merchant then sends the refund directly to the consumer’s bank account.

In some instances, the consumer initiates a chargeback in person. He/she would bring this letter to the merchant’s location.

Once the merchant verifies the authenticity of the letter, he/she refunds the consumer’s money.

Conclusion

To conclude, credit card authorization works by verifying that a particular transaction is valid.

It does this by comparing the information provided with the information stored in the credit card company’s database.

Authorization is typically done using a third party service. This service allows merchants to request authorization for transactions without having to contact the customer.

As a business owner it pays to be well informed on these merchant processing topics. Keep leveling up!