The Payment Pass: Authorization
You finish your meal and hand your card to the waiter, they swipe it to check with your bank — like asking “Does this person have enough money for their $50 dinner?”
Your bank conducted a quick review of your account and implemented a temporary hold of $50. It’s similar to the bank drawing a circle around that money and saying, “This is reserved.” If you have enough funds, they tell the restaurant “Yes, this person is good for the money.” At this point, you’re free to leave the restaurant. If not, it can be an awkward situation.
What happens next is behind the scenes, usually at the end of the business day. The restaurant bundles up all their approved dinner bills and sends them to the bank saying “Okay, now please transfer all that money we checked on earlier.” The bank then moves the actual money from all those temporary holds into the restaurant’s account. This typically takes 1–3 business days.
These two steps have specific banking terms:
1. Authorization: The initial check and approval when your card is swiped
2. Settlement: The actual transfer of money from your account to the merchant’s account
Authorization?
When you make a payment, it goes through a quick check called payment authorization. Think of it as the issuer giving the thumbs up or thumbs down. They basically want to make sure a few things are in order:
1. Is this card real, and is it connected to a valid account?
2. Is there enough money in the account to cover the purchase?
3. Are there any holds or restrictions on the card that would prevent the payment?
After checking all of that, the issuer lets the payment network know if the transaction is approved or declined. This whole process is super important because it helps stop fraud and ensures that only legitimate payments go through.
It’s like a security checkpoint for your money!
How Authorization Works?
Step 1: Starting Your Purchase
When you tap, swipe, or type in your card details, you’re setting the whole payment process in motion.
Step 2: The Store Takes Action
The store’s PoS immediately grabs your card info and sends a “can this person pay?” message to their acquirer/payment processor.
Step 3: Your Request Travels
The acquirer passes your information through the network to reach your bank.
Step 4: Your Bank Checks Things Out
Your bank quickly does two important things:
- Makes sure your card is legitimate
- Checks if you have enough money or credit
Step 5: Yes, or No?
Your bank makes a decision:
- Yes, this purchase is approved (sends an approval code)
- No, this won’t work (sends back a decline message)
Step 6: The Answer Gets Back to You
The decision zooms back through the same path:
Your bank → Card network → Acquirer/Payment processor → Store (Merchant) → You
The amazing thing?
This whole thing happens just in seconds — from the moment you present your card until you hear that satisfying “approved” beep!
Authorization Hold
Remember that “temporary hold” we mentioned earlier?
Let’s break down what that actually means for your money!
When you buy something with your card, your bank doesn’t immediately send the money to the store. Instead, it puts a “hold” on that amount in your account. Think of it as your bank saying, “We’re setting this money aside for you, so don’t spend it on something else!”
How It Works in Real Life?
Let’s say you have ₹5,000 in your account and you buy a new phone for ₹4,000. Your bank will place a ₹4,000 hold. Even though the ₹4,000 hasn’t actually left your account yet, your available balance will effectively show as ₹1,000. This is because the bank has earmarked that ₹4,000 for the phone purchase. This prevents you from spending another ₹2,000 before the phone purchase goes through, which would put you overdrawn.
Why This Matters?
Without these holds, you might accidentally spend money that’s already spoken for, leading to:
- Overdraft fees
- Embarrassing declined transactions
- Potential credit issues
How Long Does It Last?
These holds typically stick around for a few days but can last up to about a month. Once the payment fully processes, the hold automatically converts to an actual charge.
Why Authorization Matters?
For You,
When your payment goes through smoothly, you get what you want and go about your day. But when your card gets declined? Frustration city. Many people just walk away from their purchase entirely rather than deal with the hassle.
For Your Bank (Issuer),
Your bank uses authorization for two really important things:
- Keeping you safe from fraud
- Managing their own risk, especially with newer security measures like 3D Secure that shift responsibility to them
For the Store (Merchant),
Stores absolutely depend on successful authorizations because:
1. They can only count money as “earned” once your payment is approved
2. Even though it’s your bank making the decision, you’ll probably blame the store if your card gets declined
3. One bad checkout experience might mean you never shop there again
That quick “approved” message matters way more than most people realize — it keeps the entire shopping ecosystem running smoothly for everyone.
When and Why Does an Authorization Fail?
Let’s talk about why your card might get rejected at checkout. It usually comes down to one of these three areas:
1. Security Issues
- Lost or Stolen Cards: If you’ve reported your card missing, your bank blocks all purchases
- Frozen Accounts: Your account might be locked in suspicious activity
- Expired Cards: Using a card past its expiration date is an automatic no-go
- Suspicious Activity: Your bank might think “That doesn’t look like your usual spending” and decline for your protection
2. Money Problems
- Not Enough Funds: The classic “more month than money” situation
- Maxed Out Credit: You’ve hit your credit limit and can’t borrow more
- Overdraft Issues: Even with overdraft protection, there are limits — or maybe you haven’t paid previous overdraft fees
3. Technical Hiccups
- Typos: Entering your card number, expiration date, or security code incorrectly
- System Glitches: Sometimes the store’s payment system or your bank’s computers are having a bad day
- Online Shopping Risks: Online purchases get declined more often because they’re riskier, and there are more chances for technical problems
Whew, that was definitely a lot to absorb about how card payments work!
But guess what?
We’ve only covered half the story!
We’ve walked through the authorization process (that quick “yes” or “no” when you try to pay), but there’s still another crucial step called settlement.
Stick around for our next post where we’ll explain exactly how your money actually moves from your account to the store’s (merchant) account!
P.S: What topic do you think we should explore next? Let us know in the comments.
