When you make payment for any type of purchase through a credit card network such as a Visa, MasterCard or American Express, they are generally termed as credit card authorization. Swiping a card seems a really easy process but the ground reality is different.
In different situations merchant needs a different authorization request type. You might have a question in mind that what is credit card authorization? Well in simple words credit card authorization is an approval that the customer has sufficient funds on their card to pay for the transaction. This is the approval from the issuing bank or issuer, commonly through a credit card processor.
In this article let’s discuss PRE-AUTHORIZATION, PURCHASES AND CAPTURES.
PRE-AUTHORIZATION:
Pre-authorization also called pre-auth or just authorization. Pre-authorization does not complete the sale and funds are not yet captured. It is initiated by the customer. The process starts with the purchase; request is sent to the payment gateway and then to acquiring bank which informs the issuing bank about the authorization then the funds get blocked/ frozen/ reserved on the customer’s account for between 7 to 10 days but yet has to be charged to the customer. In this span of time, merchant can verify whether they want to the transaction or not. Pre-authorization method is mainly used for hotels, gas stations and card rentals. Merchant can submit capture request to complete the sale whenever he is ready to “capture” the pre-approved funds. Within seven days, if a pre-authorization is not captured then the funds remain frozen and released back to the cardholder. It should be noted that after 7 days the freeze will expire and funds would be no longer available.
CAPTURE:
After pre-authorization, capture is the second step which is also known as force. In simple words the process of acquiring the account information required for processing a payment is called capture. Original approval code generated by the pre-authorization should be compulsorily included for making a capture successful. Here, merchant using the original Approval code from the pre-auth is telling the card-network that customer should now be billed. The duration of 30 days are given to complete the capture after the original pre-authorization. But here is a loop hole in it which is important to understand, funds are only frozen for 7 days. The point to remember is that captures can be equal or lesser amount to the pre-authorization amount but not more than the original pre-authorization.
For instance, when actual cost is less than the original pre-authorization, the uncaptured amount will be released back to the card.
Whereas, in case of higher actual cost than the original pre-authorization:
Some XYZ company obtains a pre-authorization for an order cost $100. However, the actual charge comes up to $280. In this case, the capture might be declined as only the pre-authorization amount of $100 was guaranteed. Under this situation you might try for the original amount of $100 and the charge the remaining amount in the second transaction to collect the due.
PURCHASE:
It begins with our happy customer who has decided to buy something from you. And that is the most common and straightforward transaction type. Now to receive the payment from your customer you need to process a credit card sale and have to send that charge request to the payment gateway (like iPayTotal) then the charge request, credit card information along with the amount of sale is passed on to the Acquiring bank. Acquiring bank forwards the information to issuing bank and they make sure that the consumer has those funds. If everything is fine an approval code is returned to you (the merchant or seller). Now you can proceed further and send the product or service to the customer. This procedure takes place within a few seconds meaning that the transaction was processed and approved by the issuing bank or card network. In short all you have to do is simply enter the desired amount and the customer’s card is charged. Unlike pre-authorization there is no need of capture and also you don’t have to wait for 7 days to receive payment.
A COMMON EXAMPLE OF HOTELS
When you checked in into a hotel and swipe your card, hotel automatically pre-auth a certain amount say $200 for possible incidental charges. Mean while you enjoy the services, the hotel keeps an eye on your card that it has enough funds. Later hotel withdraws the charge after you check out. Let’s say final amount you have to pay is $180 then the hotel will capture the transaction for the final amount and releases the remaining $20 back on your card. Your credit card statement will only show the final amount deducted.
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