How Does Credit Authorisation Work in Credit Card Transactions?

Posted on Thursday, November 21st, 2024 | By IndusInd Bank

If you use a credit card, you would be familiar with the concept of ‘credit card authorisation’. It is essential that you have a successful credit card authorisation when you make a payment through your credit card. Whether you are shopping online, booking a flight, or dining at a restaurant, your credit card must go through a critical process called credit card authorisation. This ensures that your transaction is valid and that you have enough credit to complete the purchase. 

Are you wondering how this process works? Here’s a deep dive into the same. 

What is Credit Card Authorisation?

• Credit card authorisation is the process through which a card issuer approves or declines a credit card transaction. 

• When a credit cardholder makes a purchase, the merchant sends a request to the card issuer. This is to confirm whether the card is valid and has sufficient available credit. 

• This step is important in ensuring the safety of both the merchant and the cardholder. It helps prevent unauthorised transactions. Without this authorisation, the credit card transaction cannot proceed, which might lead to an incomplete purchase. 

Understanding How Credit Card Authorisation Works

The credit card payment authorisation process involves several steps that take place in a few seconds:

1. Initiating the Transaction

The customer provides their credit card details at the point of sale, either online or in-store.

2. Merchant Sends Transaction Request to the Payment Gateway

The merchant’s system sends the transaction request to a payment gateway. The latter forwards it to the credit card network.

3. Transaction is Routed to the Card Issuer

The credit card network sends the authorisation request to the card-issuing bank for verification.

4. Verification of the Cardholder’s Information

The bank checks the card details (number, expiration date, CVV) to ensure they match the records.

5. Checking Available Credit

The bank confirms whether the cardholder has enough credit available to cover the purchase.

6. Authorisation or Decline 

The bank either approves or declines the transaction based on the checks and available credit.

7. Transaction Completion

If approved, the credit card transaction is completed. As per the purchase, the reserved amount is deducted after settlement.

Why is Credit Card Authorisation Important?

Credit card authorisation is crucial for multiple reasons. 

• First, it protects merchants from potential fraud by verifying the card’s legitimacy. This ensures that merchants do not sell goods or services to scammers. 

• Second, it protects cardholders by preventing unauthorised use of their cards. It ensures that only the cardholder, or someone with their consent, can use the card for purchases. 

• Lastly, it helps ensure that transactions are processed only when sufficient credit is available. This smoothens the entire credit card functioning system. 

How to Avoid Failed Credit Card Authorisation?

Failed credit card authorisations can be frustrating, but there are ways to avoid them. 

1. Ensure Sufficient Credit  

Always check your available credit before making a large purchase. If you are nearing your credit limit, consider paying off a portion of your outstanding balance. This helps free up credit.

2. Keep Card Details Updated

Ensure that your credit card details, such as the expiration date and billing address, are always up to date. Outdated card information can be a common reason for declining transactions.

3. Monitor Transaction Limits 

Some credit card issuers have daily spending limits or per-transaction limits. You must be aware of these limits, especially when making high-value purchases.

4. Watch for Suspicious Activity

Banks may decline a credit card transaction if they detect unusual activity on your card. You can avoid this by informing your bank if you plan to make any upcoming large or international purchases. This allows the bank to pre-authorise your transactions and avoid confusion.

5. Ensure Secure Transactions

For online purchases, always use a secure website with proper encryption. Do not enter your card details on suspicious websites. 

The above steps can ensure your credit card payment authorisation goes through without issues and you can avoid the inconvenience of a declined transaction.

Also Read: Understanding Credit Card CVV- Importance and Functionality

Conclusion

Credit card authorisation is a crucial component of any credit card transaction. With its help, you can ensure that your transactions are safe, valid, and smoothly processed. 

If you are looking to enjoy the benefits of seamless transactions, it might be the right time to apply for a Credit Card with IndusInd Bank. We offer a Credit Card experience that is secure, fast, and convenient. Along with these features, enjoy exciting rewards, lifestyle privileges, dining and entertainment offers, and more.

Apply Now for a Credit Card with IndusInd Bank now!

Disclaimer: The information provided in this article is generic and for informational purposes only. It is not a substitute for specific advice in your circumstances. Hence, you are advised to consult your financial advisor before making any financial decision. IndusInd Bank Limited (IBL) does not influence the views of the author in any way. IBL and the author shall not be responsible for any direct/indirect loss or liability incurred by the reader for making any financial decisions based on the contents and information.