Card authorization is basically a mechanism created by bank accounts, to verify that during an online transaction, the card user details are truthful or not. Moreover, card authorization deals with verifying weather the card is valid or not and authorizes specific amount of funds available.
When a transaction is processed on behalf of a customer, an initial card authorization is sent to the issuing bank to check if the customer’s card is valid and whether he/she has the required funds to complete the transaction. If the customer details are correct and there are sufficient funds in their account, then the specified amount of the online transaction is then held and deducted from the customer’s credit limit.
How card authorization is verified?
There are a few restrictions involved, too, when it comes to card authorization. They only ensure that a customer has sufficient amount of money in their accounts to allow a specific transaction to process and that card isn’t reported to be stolen, lost or expired at the time of the transaction approval being demanded. What it does not guarantee is the likelihood of fraud being occurred and the guarantee that the payment amount has been transferred in to the merchant’s account.
Card authorization can be granted to the customers in three different ways, namely:
- Through a point of sale terminal (POS- Terminal)
- By a telephone call
- Through availing the option of eCommerce, i.e. internet banking (quite common nowadays)
Whenever a transaction is made through a credit or a debit card, card authorization is required from the issuing bank, through any of the three methods mentioned above. Once the transaction process begins, it can have three different endings, either the card will get approved, denied or referral.
Approval basically is when a card is verified from the issuing bank to have correct customer details as well as sufficient funds. This process involves reduction of transaction amount of money from the customer’s account and prepares for it to be transferred to the merchant’s account.
Decline is also a quite common response when it comes to transactions being done by a credit or a debit card. The machine declines the card without giving any specific reason for it, however, there a couple or set reasons due to which cards are declined, namely, if the card is reported as being stolen or lost, or if the card has already expired, or when there aren’t sufficient amount of funds present in the customer’s account or if they have exceeded their credit limit. Decline can also occur if the merchant’s credit/debit card machine is down or operating erroneously.
Before granting authorization, the issuing bank involved requires specific additional information from either the customer or the retailer to verify whether the transaction is legitimate or not, this whole process is known as Referral. This usually happens when abnormal situations are set up, for example if the card is being used by the customer in a foreign nation without informing the bank, before-hand, about its usage internationally, or when the customer’s credit card limit has been reached.