What is Pre-Authorisation?
Learn How It Helps You And Your Customers
Pre-authorisation (pre-auth) is a banking term describing a practice where money is not taken from the payee’s account at the moment the transaction is made. The amount charged is instead made unavailable on that customers’ account – this is also known as authorisation hold.
Pre-authorisation is normally valid for 1- 5 days on debit cards, while credit card pre-auth periods can be longer and vary between issuers.
This pre-auth period is usually used by retailers to make additional security checks on the card and the cardholder, to make sure that the transaction is not fraudulent. It also allows them time to make sure that the item being sold is in stock and ready to be shipped.
Once the person collecting the payment is happy with the transaction, they ask their acquiring bank to finalise the payment and the funds are finally transferred into their merchant account.
If for some reason funds are not captured before the pre-auth expires, they then become available once again to the cardholder.
Pre-authorisation helps both consumers and retailers.
For traders, it decreases the number of refunds and chargebacks, which can have serious consequences. Receipt of too many chargebacks on retailers’ merchant account could end with a fine being issued by the acquiring bank or even termination of the merchant agreement.
For consumers, the main advantage is the confidence that if the transaction can not be completed for some reason, they will not have to worry about asking for their money back.
Retailers can further protect themselves by setting their anti-fraud tool (we offer one to all of our merchants) to automatically pre-authorise any suspicious transactions. They can then go through those sales manually in order to make additional checks before capturing the funds.
Pre-authorisation gives business owners much more control over payments made on their e-commerce websites and provides a much better shopping experience to consumers.