Merchant Glossary: Authorization
This is the term given to the process of validating funds available on a credit card or debit card. It is done at the time the transaction is entered or swiped through a point-of-sale terminal. When a merchant enters a credit card transaction, a response comes back from the issuing bank to the acquirer and back to the merchant, all in a second or so. This is the authorization. An authorization may be either approved or declined by the issuing bank. If the authorization is approved, that means funds are available to be withdrawn from the customers account and put into the merchant’s bank account. When an authorization is approved, a six or seven digit authorization code is given with the transaction, along with the AVS response. If no authorization is given, this is a decline and means there is either not enough funds in the customers bank account (if a debit card) or they perhaps have reached their limit on their credit card (if a credit card). There are other reasons for declines but these are the most common reasons.