These terms cover the flow of money and daily management of your transactions.

Authorization

Authorization (or “auth”) is the first step in a card transaction. It’s a real-time request sent from the merchant’s terminal, through the payment processor and card networks, to the customer’s issuing bank to confirm that the card is valid and has sufficient funds or credit to cover the purchase. The issuing bank responds with an approval or a decline.

Frequently Asked questions (FAQs)

  • What’s the difference between authorization and settlement?
    Authorization is just the approval for the transaction; no money has moved yet. It’s like a reservation for the funds. Settlement is the later process where the funds are actually transferred from the customer’s account to the merchant’s account.
  • What is an “authorization hold”?
    This is a common practice, especially in hospitality or for car rentals, where a temporary hold is placed on a certain amount of funds on a customer’s card to ensure they can cover the final bill. The final amount is captured later.
  • What happens if a transaction is declined?
    If the issuing bank declines the authorization request (e.g., for insufficient funds, an incorrect card number, or suspected fraud), the sale cannot proceed. The customer will need to provide an alternative form of payment.

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