Many merchants have heard the term “credit card authorization”, but all people understand the mechanics of it. To perform effective credit card processing, one should have a full understanding of how authorizations work. People who are considering taking on merchant accounts can use this information to choose the right provider. Additionally, merchants can educate themselves on the credit purchasing processes so that they can better protect themselves against fraud and credit card abuse. The following is an explanation of credit card authorization and the way it can affect the outcome of a sales transaction.
When a merchant swipes a customer’s credit card or the customer provides credit card numbers to the merchant, electronic information travels to the credit card’s issuing bank. A computer system verifies that the customer’s credit card account is valid and that he or she has the available funds in the account. The system immediately places a temporary hold on the funds within the buyer’s account. The hold is equal to the amount of the transaction. For example, a person who swipes for $10 worth of fuel at a gas station will immediately have $10 less in his or her available credit. Authorization holds typically last from one to five days. However, some holds can last up to 30 days.
The merchant must perform an action to settle the charge before the funds transfer from the customer’s account to the merchant’s account. The merchant must perform a finalizing action that confirms the sale and completes the process. After the merchant finalizes the transaction, the funds still may not transfer to his or her account for up to three days. Transaction speed depends on the merchant account company’s practices, the credit card bank, the merchant’s bank, and the speed at which the merchant finalizes the transaction.
When performing credit card processing, the merchant should be aware of several facts. First, most banks do not remove holds on funds. Therefore, a merchant may have the ability to void a transaction, but it will not have the ability to release the hold. This situation can leave many customers disgruntled if the merchant does not explain it. Additionally, customers change their minds. A merchant may want to wait for the transaction to clear before he or she ships a product. It is not necessary for the merchant to use that protective measure with every client, but perhaps it could perform this extra step for first time credit card users.