Authorization
The real-time check with the card-issuing bank that confirms a cardholder has sufficient funds or credit to cover a pending transaction.
Authorization is the first step in every card transaction. Your terminal or gateway sends the transaction details to your acquiring processor, which routes the request to the card network (Visa, Mastercard), which forwards it to the card-issuing bank.
The issuing bank checks the account status and available balance or credit, then returns an approval code or decline message, typically within 1–3 seconds. An approval code reserves the funds but does not move them. Funds are not actually transferred until settlement.
Authorization holds can be important for certain business types. Hotels, car rentals, and gas stations often place pre-authorization holds that are adjusted at final settlement. The hold amount and settlement amount can differ.
Failed authorizations generate an authorization fee even without a completed transaction. High decline rates, often caused by outdated card data, fraud filters, or processing setup issues, are a cost that adds up at volume.
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