In the fast-paced world of commerce, credit card transactions have become an indispensable part of our daily lives. The convenience and simplicity of swiping a credit card or clicking “Buy Now” online mask the detailed processes that occur behind the scenes.
At the heart of credit card transactions is the process of “authorize” and “capture.” In this article, we will cover the inner workings of these essential components of payment processing. We will explore how authorization sets the stage for a financial transaction and how capture finalizes the transaction.
Authorization & Capture Credit Card Transaction
After a credit card transaction occurs, an authorization is initiated at a point-of-sale (POS). It is during this step that the merchant account seeks approval from the customer’s bank (issuing bank), confirming two aspects: the availability of funds and the account’s good standing. If the criteria are met, the transaction amount is temporarily held, or as we call it, “pending.”
Once the authorization is complete, it’s time for a “capture.” In this phase, the transaction is finalized, and the funds are transferred from the customer’s account to the merchant. The status of the transaction shifts from “pending” to “complete,”
In essence, authorization and capture are two distinct yet interdependent parts of a transaction. There are cases where the time gap between authorization and capture is stretched, offering a glimpse into the versatility of this system. A merchant can decide to just do an authorization to verify the credit card and then do the capture at a later date.
Examples of Using Credit Card Authorizations
The world of authorize and capture isn’t confined to a single script. It adapts to various business scenarios, showcasing its flexibility and utility. Here are a couple of real-world examples that exemplify its applications:
Imagine a scenario where an online merchant offers a product for pre-order but doesn’t have it in stock at the time of purchase. In this case, the pre-authorization occurs at the eCommerce point of sale.
Once the product becomes available for shipping, the capture request is issued, and the customer’s credit card is charged. This elegant maneuver allows businesses to secure orders in advance, enhancing customer convenience.
Frequent travelers are likely familiar with this scenario. When you check into a hotel, an authorization-only request is employed to verify your credit card. Typically, the authorized amount is higher than the expected final total to account for potential incidentals or damages. This sum remains on hold until your departure, when you settle any additional charges. In this case, pre-authorization and capture take place days apart, depending on the length of your stay. It’s a subtle but vital part of the hospitality industry’s financial choreography.
In all authorization and capture scenarios, clear communication with the customer is paramount. Whether it’s explaining the pending charge, overage authorization in hotels, or the specifics of pre-orders, transparent communication helps mitigate potential issues and inquiries, promoting a harmonious customer experience.
How Long Can a Merchant Wait Between a Credit Card Authorization and Capture
The time frame for a merchant to capture a payment after authorization can vary depending on the payment processing agreements and regulations. In general, the authorization hold on a customer’s payment method typically lasts for a limited time, which is usually set by the payment processor and can vary.
Common time frames for capturing a payment after authorization include:
- Same-day capture: Many merchants capture funds on the same day as the authorization to ensure the payment is processed promptly.
- Within a few days: Some merchants may have a policy of capturing funds within a specific number of days after authorization, such as within 1, 2, or 3 days.
- Variable capture time: In some cases, the capture time may be determined by the merchant’s internal policies, which can vary widely.
- The maximum amount of time funds can be held is typically 30 days. After this period, the authorization request expires and a new one is needed.
Failing to capture a payment within the specified time frame may result in the authorization hold expiring, and the funds may no longer be available for capture. In such cases, the customer’s payment method may need to be reauthorized, and the transaction may need to be initiated again.
Authorization Reversals are essential in the world of payment processing. They allow merchants to release previously obtained authorizations on customers’ payment methods, ensuring that held funds become available again to the cardholders. This process is crucial for maintaining customer satisfaction, accuracy, and transparency in financial transactions.
Authorization reversals should be initiated when a transaction is canceled, when errors or duplicate authorizations occur, when transactions fail, or when there are significant delays in delivering goods or services. Executed through the payment gateway, the key to successful authorization reversals lies in their prompt execution and effective communication with customers to prevent potential delays and frustrations.