Authorization

Authorization is the process by which a merchant requests and receives real-time approval from a cardholder's Issuer (Issuing Bank) to proceed with a payment transaction. When a customer pays by card, the merchant's system submits an authorization request, containing the card details, transaction amount, currency, and merchant information, through the Payment Gateway and Acquirer to the card network, which routes it to the issuing bank. The issuer evaluates the request and returns an approval or decline response within seconds.

During authorization, the issuer checks several conditions: whether the account is open and in good standing, whether sufficient credit or funds are available, whether the transaction passes the issuer's fraud and risk rules, and whether the card itself is valid (not expired, not reported lost or stolen). If all conditions are met, the issuer approves the authorization and places a hold on the corresponding funds in the cardholder's account. If any condition fails, the issuer declines and returns a response code indicating the reason.

Authorization is distinct from Capture and Settlement, a critical distinction that many merchants conflate. Authorization confirms that funds are available and reserves them; it does not move money. Funds are actually moved when the transaction is captured and settled. This separation matters operationally: authorization holds typically expire after a defined period (commonly 7 days for standard transactions, longer for some industries like hotels and car rentals), meaning a transaction that is authorized but not captured within the hold window may require reauthorization.

Authorization Rate / Auth Rate, the percentage of submitted authorization requests that receive an approval response, is one of the most important performance metrics in payments, and optimizing it through Dynamic Routing, Network Tokenization, and authentication data quality is a core function of Payment Orchestration.