Payment Authorisation Hold (Credit Card Authorization Hold)
Payment authorization hold (also known as a credit card authorization hold ) is the hold of funds on the client’s account until the transaction is manually approved by a merchant. The payment authorization hold is a tool merchants use to prevents chargebacks and fraud.
How does the credit card authorization work?
Let’s see how the credit card authorization works:
- The client enters the merchant’s website and adds a product to a shopping cart.
- The client enters the payment page, enters his credit card details, and presses the BUY button.
- The funds (the purchase amount) are not withdrawn. They are frozen for x days.*
- The merchant has x days to get in touch with the clients. It is to ensure that he/she agrees for all the purchase conditions.
- If everything goes right, the amount is charged within x days.
- If something goes wrong, a merchant simply declines the transaction.
*We say x days as a merchant himself chooses the hold period. It can be for three days, five days, or even a week.
The key benefit of credit card authorization hold is that even if a merchant declines the transaction, payment processing networks, and banks don’t see it as a chargeback. That protects the merchant’s processing history and overall business reputation.
Keep in mind the following: the client loses his access to the frozen funds. Simply put, he can’t use this money to pay for other purchases.