A Breakdown Of Credit Card Pre-Authorization

Published by BMT Micro on


Credit card pre-authorization is something that many customers and merchants have heard of, but do not really understand. Pre-authorizations are done to help prevent fraud, reduce processing costs, and increase customer satisfaction. Pre-authorization is not something that all companies take advantage of, although it can be beneficial to both the merchant and customer.

Pre-Authorization: Pre-authorization is similar to a regular charge on a credit card, except that the charge is held for several days before getting withdrawn from the customer’s account. Typically, this hold period lasts a maximum of 5 days. While the money is in the pre-authorization period, it is not available for the customer to touch. Although the customer’s money is frozen to them during pre-authorization, it is not actually debited to their card. Merchants have the designated period to capture the funds, or they will expire the pre-authorization period and the merchant will need to contact the cardholder to re-run the payment.

One of the biggest advantages of preauthorization is that it does allow customers to demand a chargeback. That means if someone has stolen a customer’s card, they have a time frame for both the bank and the customer to catch the charge before the fraudster gets caught before the charge goes through. Another advantage is that it helps avoid MDR (merchant discount rate) fees. A Merchant Discount Rate fee allows money to be passed from one business to another. These fees are not processed until the charge is fully authorized.

Refunds can also be costly, and pre-authorizing a purchase can help reduce that cost. Not all credit card processors charge a fee for refunds, but it is not uncommon. Since it is still a transfer of money, some processors feel as though this is necessary. If the card in simply pre-authorised, then the card does not need to be refunded since the money is still in the cardholders account.

For merchants, setting up pre-authorization is fairly simple. Integrate your website to the payment gateway you are using, and specify that you would like to use pre-authorization. Some payment processors do not support this, so if you think pre-authorization is a good fit for your company, make sure to use a company such as BMT Micro that does support it. Once the card is pre-authorized, it should show up in the customer’s bank account as a pending charge.

Pre-authorization is typically a good option for both merchants and customers. It gives both parties time to make sure that everything in the order is correct, and the funds and product are both readily available. While some card holders get nervous seeing a pre-authorization charge, rest assured that the money is still in your account until everything is processed and clear. If you have any questions about purchase you have made through BMT Micro, please feel free to contact our customer service at cservice@bmtmicro.com.

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