Imagine you're at your favourite electronics store, eyeing the latest smartphone. Excitement bubbles up as you decide to make it yours. You confidently present your Credit Card, expecting a quick transaction at the cashier. However, the cashier explained that your purchase must first go through a Credit Card authorisation process. You nod, realising this is a routine step, yet you wonder: What exactly happens in those few seconds between swiping your card and hearing the approval beep?
Whether you're a seasoned shopper or new to the Credit Card, understanding these processes will enhance your confidence and insight into the digital payment landscape.
What is card authorisation?
Credit Card (CC) authorisation is the first line of defence in the security protocol for financial transactions. It's a process by which transactions are approved by the Credit Card issuer, ensuring that the cardholder has sufficient funds and that the account is valid.
CC authorisation serves as a temporary hold on the funds, not an actual charge, marking them as unavailable for other transactions until the purchase is captured or cancelled.
How does card authorisation work?
Let's walk through a real-world example to illuminate the process of Credit Card authentication, using a simple everyday activity: purchasing a coffee at your local cafe.
Step 1. Cardholder initiates transaction
As you present your credit card to pay the bill for your favorite latte at the neighborhood cafe, you're initiating the first step of the transaction process.
Step 2. The merchant sends an authorisation request
The cafe sends a request with your purchase details to their bank, which forwards it to your Credit Card issuer.
Step 3. The card issuer evaluates the transaction
Your Credit Card's bank checks if the card is valid and if there are enough funds and looks for any fraud indicators.
Step 4. Authorisation response
If approved, the issuing bank places a hold on the purchase amount in your account and sends back an approval to the cafe's terminal.
What is capturing?
Capturing happens after your purchase has been authorised. It's the action a merchant takes to process the payment. For instance, after you've ordered something online, and it's ready to be shipped, the merchant will capture the transaction, signalling that the funds authorised should now be transferred from your account to theirs.
What is settlement?
Settlement is the process that finalises the transfer of funds. After capturing, the money moves from your bank to the merchant's bank, completing the transaction. This may take a few days, during which the banks reconcile the payments.
Authorise vs capture: What's the difference?
Authorisation is the initial check to ensure your Credit Card can cover the purchase, placing a temporary hold on the funds. Capture is when the merchant confirms the transaction and requests the transfer of the held funds into their account.
Authorisation vs settlement
Authorisation and capture are about securing approval and initiating the fund transfer. Settlement is the final step where the funds are actually transferred to the merchant, concluding the financial transaction.
What is a card authorisation hold?
A card authorisation hold occurs when a merchant verifies that funds are available for purchase, temporarily locking this amount on your Credit Card. This hold ensures the funds can't be spent elsewhere until the transaction is either captured or cancelled.
Why does card authorisation fail?
Several factors can lead to the failure of Credit Card authorisation, including:
- Insufficient funds: If the account linked to the Credit Card doesn't have enough money to cover the transaction, the authorisation will fail. This is a straightforward reason, reflecting that the available credit or account balance is lower than the purchase amount.
- Expired cards: Credit Cards have an expiration date, and transactions attempted with a card past this date are automatically declined. It is a security measure to ensure that the card in use is current and valid.
- Communication errors: Sometimes, technical issues can interrupt the communication between the merchant, the acquiring bank, and the Credit Card issuer. If the authorisation request cannot be properly transmitted or received, the transaction cannot proceed.
- Security concerns: Credit Card issuers have systems to detect unusual or potentially fraudulent activity. If a transaction raises a red flag based on the card's typical usage patterns or comes from a high-risk location, it might be declined to protect against fraud.
Also Read: How to get a Credit Card without bank account? - 5 Easy steps
Axis Bank Credit Cards offer a portal to a world of enriching experiences that perfectly align with your lifestyle. From exclusive discounts and cashback offers on various categories to complimentary airport lounge access and welcoming benefits, these cards are tailored to elevate every aspect of your spending.
Disclaimer: This article is for information purpose only. The views expressed in this article are personal and do not necessarily constitute the views of Axis Bank Ltd. and its employees. Axis Bank Ltd. and/or the author shall not be responsible for any direct / indirect loss or liability incurred by the reader for taking any financial decisions based on the contents and information. Please consult your financial advisor before making any financial decision.
