Credit Card Authorization

When a customer uses a credit card to pay for goods or services, the point-of-sale terminal transmits an authorization request message to the merchant's credit card processor.

Authorization is the act of ensuring that the cardholder has adequate funds available to cover the amount of the purchase. The authorization procedure includes other safeguards. For example, during the authorization attempt, lost or stolen cards may be identified. The authorization request may be declined if the card is expired. Address Verification Service may be used to match the cardholder address with records on file in the issuer's database. A positive authorization results in an approval code being generated. In the most typical scenario, the point-of-sale terminal dials out and transmits an authorization request message. The terminal receives a response message from the credit card network indicating whether the authorization was approved or declined.

An issuer, an authorizing processor, or a stand-in processor must approve or decline the authorization request. For approved authorizations, a hold is placed against the cardholder's credit limit for the dollar amount approved. The merchant should settle the transaction before the hold is released.