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Credit Card Authorization: What is it? How does it work?

The best way to know what you’re getting in terms of a credit card processing company for your small business, is to weigh the options before you. Each credit card processor offers different costs and services, but the best ones provide:

  • Transparent and affordable pricing
  • Few or no fees
  • Flexible terms
  • The capacity to grow with your company

What Is Credit Card Authorization?

A credit card authorization is a confirmation from the card issuer that the consumer has enough money to cover the transaction's cost, typically obtained through a credit card processor. Additionally, it could describe the process of getting that authorization from the issuer.

Credit Card Verification vs. Authorization

There's a significant difference between these two stages. The verification process checks the validity, CVV, and expiry date of the credit card, while authorization ensures there are enough funds and the account is in good standing.

Steps of the Credit Card Authorization Process


1. Cardholder provides details: As we know during the transaction process, the credit cardholder enters his details, which are generally encrypted and sent to the Merchant payment gateway channel.

2. Payment gateway forwards information: Details are sent to the payment processor from the payment gateway.

3. Payment processor contacts the issuing bank: Once the details are fetched successfully, the card details are verified with the issuing bank to check the balance and validity

Authorization Response

  • Approval: Approval is the final process where the processors send an auth code to the merchant. This code is an essential part of the entire credit card authorization process.
  • Denial: By chance, if the transaction gets denied, a message is sent back with a valid reason about insufficient funds or incorrect information.

What is Capturing in Credit Transactions?

Capture refers to the process where an authorized payment is officially transferred to the merchant's account from the cardholder’s account, thus completing the transaction. Post-authorization, the merchant must capture the transaction to receive the funds. This step is critical in the transition from authorization to settlement.

The Settlement Process Explained

Settlement occurs after capturing, where the funds are transferred from the bank issuing the credit card to the merchant’s bank account. This final step confirms the transaction's completion, post which the buyer and seller recognize the exchange as complete.

How Does Authorization for Payment or Credit Cards Operate?

How Does Authorization for Payment or Credit Cards Operate?

Now that we have covered the fundamentals of credit card authorization let's look at how it works.

Step 1: The customer uses their credit card to checkout

Payment authorization begins when a customer inserts, swipes, or taps a credit card into your payment terminal to purchase the register. It might also start when a customer places an order on your website, and enters their credit card information into a form. Sometimes when a customer delivers their number to one of your sales representatives over the phone, credit card authorizations happen.

Step 2: The bank is contacted with a permission request

Your client's credit card details are submitted through an authorization switch when this information is obtained. The company or system that hosts your POS equipment, sales support, or online ordering is responsible for setting up and managing this permission switch.

The authorization switch determines which financial institution handles the credit or debit card by examining the transaction data. The issuing bank or acquirer is then sent an authorization request for the transaction for confirmation.

Step 3: The request is either granted or denied

Your payment terminal receives an authorization notice once the bank confirms that your client's credit is in good standing and has not exceeded the credit limit. The ability to put an authorization hold on the cardholder's account for the permitted sale amount is now available to merchants.

What is A Credit Card Authorization Form?

What is A Credit Card Authorization Form?

An authorization form for credit cards gives a company permission to use a customer's credit card for the duration of the form's designated length of time. The ability to charge a cardholder repeatedly on a monthly, quarterly, or annual basis is now available to you.

This is a typical procedure when someone signs up for a service that automatically renews every so often, like paying rent or joining a gym. The business must complete the form in writing before the cardholder signs it.

What is included in a credit card authorization form?

  • Information about the cardholder's credit card
  • Card type Card number Card name
  • Date of expiration
  • Information about the vendor's business
  • Billing address for the cardholder
  • Language allowing the business to use the customer's saved credit card
  • The cardholder's name and signature
  • Date

When To Use Credit Card Authorization Forms?

You would have had the chance to review the pre-authorized credit card payment agreement when setting up payments before approving it in full. Since these documents can be lengthy, users frequently rapidly scan them or click "agree."

Pre-authorized payment agreements are frequently used for monthly charges for services like digital news subscriptions, streaming services, and your telephone.

Typically, a pre-authorized payment agreement is necessary for hotel check-ins (sometimes known as a hold). The hotel would require you to place a credit card on file even if you paid for your accommodation in advance to cover any incidentals, such as additional charges for your room or damage.

CBD Merchant Services

Few merchant processors accept CBD businesses and those that do, frequently and abruptly modify their capacity to offer merchant services to the CBD sector.

Based on their cost, transparency, and customer service, we suggest only a small subset of CBD credit card processors. Due to the greater risk involved in their industry, most sellers of these goods should be ready for higher-than-average credit card processing charges.

Businesses that provide services to this sector may likewise experience rolling reserves, or sporadic funding holds.Nevertheless, it might be worthwhile given the security and convenience of accepting credit cards at your CBD business.

Please keep in mind that the CBD merchant processing world is undergoing rapid change, and the banks have been known to abruptly remove CBD-related companies from their portfolios.

A company must have a high-risk merchant account if it wants to take card payments and has certain features that increase the risk of fraud or chargebacks; certain processors won't cooperate with certain businesses, such as the sale of tobacco products or firearms.

Many processors are leery of companies that have subscription pricing, sell globally, or don't have a lot of cash. You can apply for a high-risk merchant account if you own a high-risk business and wish to accept card payments and high-risk payment processing.

Should You Use Credit Card Authorization Forms in Your Business?

Should You Use Credit Card Authorization Forms in Your Business?

Using credit card forms is undoubtedly advantageous for many different types of organizations. Online shops, subscription-based services, and travel agencies are a few examples of individuals who should employ credit card authorization forms on purpose.

The choice to employ these forms ultimately boils down to whether you want to give your customers card-not-present payment choices, and are willing to accept some of the risks Customers nowadays demand new ways to pay for goods and services in the evolving payment landscape. So, consider the value credit card authorization forms you can provide your company.

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