Every time a customer makes a payment using a credit or debit card, there’s a crucial process happening behind the scenes called authorization. This process ensures that the transaction is secure and valid before it’s completed. For issuers and acquirers, understanding how this authorization process works is vital for minimizing risk, ensuring transaction efficiency, and maintaining security. In this blog, we’ll explain how the authorization process unfolds, the role of each player, and the importance of efficient authorization for smooth payment processing.
What is the authorization process?
It is the process in which a payment request is validated considering all the transaction information, including the card information. It includes a response to the request and the delivery of the response to the merchant that initiated it. Here’s what the process checks:
Is the card valid? The system ensures the card is legitimate, active, and hasn’t expired.
Does the cardholder have enough funds or credit? For debit cards, it checks if there are enough funds in the account. For credit cards, it confirms that the transaction is within the available credit limit.
Is the transaction secure? The system scans for signs of fraud or suspicious activity, which is crucial for issuers and acquirers to manage risk.
The goal of this process is to protect everyone involved: the cardholder, the merchant, the issuing bank, and the payment networks (Visa, Mastercard, etc.).
How does the authorization process work?
Let’s break down the steps that occur when a transaction is authorized:
The authorization flow
The cardholder initiates the transaction: The customer enters their card information—whether swiping, inserting, or tapping the card in-store, or entering the information online.
The information is sent for approval:The information is sent for approval: The merchant (physical or online) forwards the card details to their bank, known as the acquirer. The acquirer then sends this information to the issuer (the cardholder’s bank) via a payment network like Visa or Mastercard.
The issuer verifies the details: The issuer checks the transaction and confirms:
The issuer responds: Within seconds, the issuer sends an approval or rejection response back through the payment network, and the acquirer passes the result to the merchant.
Security measures in the authorization process
For issuers and acquirers, security is paramount. Several security tools are used during the authorization process to protect both the cardholder and the merchant.
PCI DSS: A set of rules merchants must follow to ensure the safety of cardholder data.
EMV chips: The chip on the card generates a unique code for each transaction, making it much harder for fraudsters to clone the card.
3D Secure: For online transactions, additional authentication like frictionless risk based, a one-time password or confirmation via a banking app is used to add an extra layer of security.
Speed and reliability
Fast: The authorization process takes just seconds, so issuers and acquirers can confirm transaction validity in real-time without delays.
Always available: The system operates 24/7, ensuring that transactions are processed continuously, even during system maintenance or technical issues.
Accurate: The technology behind authorization is designed to detect fraud while minimizing errors, helping issuers and acquirers maintain operational efficiency.
Who’s involved in the authorization process?
The authorization process involves several key players who ensure the transaction happens smoothly:
The cardholder: Provides the card information to make the purchase.
The merchant: The store or business accepting the payment.
The acquirer: The merchant’s bank, which facilitates communication between the merchant and the issuer.
The issuer: The cardholder’s bank, which checks their account and approves or declines the transaction.
Why is the authorization process important for issuers and acquirers?
The authorization process is critical for issuers and acquirers for several reasons:
Security: It prevents fraudulent transactions by verifying the legitimacy of each payment.
Speed: Real-time approvals or rejections ensure that transactions are completed without delays.
Trust: It provides confidence to both the merchant and the cardholder that the payment is valid and secure, which is vital for customer retention and satisfaction.
Acquirers ensure their card processing systems can generate and receive authorizations messages for types of card processing supported it means fewer chargebacks, lower fraud rates, and better relationships with merchants. For issuers, it ensures that they minimize risk and maintain a secure environment for cardholders.
Why authorization matters for issuers and acquirers
The authorization process is the backbone of secure, efficient payment processing. For issuers and acquirers, understanding and optimizing this process is essential for managing risks, preventing fraud, and ensuring smooth transactions. With a secure, reliable authorization system, payment processing can be seamless for both merchants and customers, improving the overall experience.
At Intelica, we understand the complexities of the authorization process and how it impacts payment systems. Our solutions help issuers and acquirers streamline transaction flows, enhance security measures, and improve operational efficiency.
This blog is intended for informational and educational purposes only and reflects Intelica's perspective based on our work with issuers and acquirers in the card payments space. It should not be considered professional advice. If you're exploring how these insights may apply to your organization, our team is available to help you assess your specific context.
