March 28, 2019
Kindra K., Marketing Coordinator
When you’re running a small business, it’s important that you offer your customers fast and efficient payment processing. Not only does this help your level of professionalism, but it also ensures you’re paid in a timely manner for your products and services. One note to keep in mind as you process payments is the need to keep sensitive credit card data safe. Especially if you plan to receive recurring payments from a customer on an ongoing basis, you should use a credit card authorization form to reduce the risk of fraud.
Keep reading for a general overview of credit card authorization information or navigate directly to the section relevant to your questions.
A credit card authorization form gives permission to a merchant to use a credit card for a specified amount of time. In most cases, a credit card authorization form is used to allow companies to continue to charge an individual on an ongoing schedule which can be biweekly, quarterly, or at any set schedule. They come in handy when a business needs to charge a customer recurring costs for ongoing services.
A credit card authorization form helps businesses protect against fraud and chargebacks.
A chargeback is one of the most important payment processing terms you need to know. It protects customers from transactions that they weren’t responsible for or were wrongly charged. A chargeback happens when a customer fights a charge from a business and asks the card issuer to rescind the charge. This is different than a voided charge, which is a transaction that was never fully settled.
For businesses, chargebacks can be a major issue because it ties up funds that would otherwise go to your business until the credit card company decides whether to leave the charge or reverse it. From the business end, chargebacks require quite a lot of paperwork and time in order to fight the dispute.
A credit card authorization form is a way to protect against chargeback claims because it provides you with a signed document from the cardholder that gives you express permission to charge their card. With that kind of documented proof, it’s much easier to dispute the chargeback with the credit card company.
A credit card authorization form allows a customer to buy something even if he or she doesn’t have their credit card with them at a particular moment. The form includes all the cardholder’s necessary information and allows the seller to store that customer’s credit card authorization. With a credit card authorization form, customers benefit from speedier transactions.
A credit card pre-authorization puts a hold on a cardholder’s account which temporarily decreases a customer’s credit limit (on a credit card) or available funds (debit card) while the transaction processes.
A card is swiped
Issuing bank automatically puts a hold on funds or credit
Sale complete, transaction processed
The temporary hold is taken off
Final cost settled
A pre-authorization helps reduce the risk of fraud overall because it puts a temporary hold on the card. The length of the hold depends on the merchant classification code but it usually lasts between four and seven days. Within that time, the account owner can’t spend the funds which are tied up in the hold.
The credit card authorization process goes through several stages before the transaction is fully settled.
Cardholder makes a purchase: The transaction starts when a customer orders something or makes a purchase at a store, over an e-commerce site, or gives out payment information remotely.
Payment information is submitted: The payment data is sent to the bank.
The “acquiring” bank sends an authorization request to either Visa, MasterCard, alternative banking organization. The processing bank then transmits the payment data to the respective Credit Card Association, requesting transaction authorization.
The Credit Card Association sends the authorization request to the card issuer.
The card issuer accepts or declines the transaction: Once the card issuer makes an authorization decision, the response is sent back to the merchant via the same channels.
Approved: Issuer approves the transaction, 95% of transactions
Declined/Card Not Accepted: Card issuer doesn’t approve the transaction.
Call, Call Center, or Referrals: Follow instructions from the authorization center.
Pick Up: Issuer wants you to keep the card.
No Match: This usually means the card is counterfeit.
The average credit card authorization form includes:
Name on card
The merchant’s business information
Cardholder’s billing address
Language authorizing the merchant to charge the customer’s card on file
Name and signature of the cardholder
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