Card purchase authorization definition
Card purchase authorization is a security process during which a card-issuing bank approves or declines a transaction initiated by the cardholder. This ensures the card is valid, has not been reported as lost or stolen, and has enough money or credit available for the transaction.
With the rise of credit card usage in the mid-20th century, we needed an efficient, secure, and rapid authorization mechanism. Initially, verifications were done manually through a phone call. But as technology advanced and electronic point-of-sale systems and online gateways emerged, it allowed to automate and streamline the authorization process.
See also: anti-fraud system
How card purchase authorization works
When a cardholder attempts to make a payment, the seller's payment system sends a request to the card issuer — usually the bank. The bank then checks parameters like card validity, available balance, and potential fraud indicators. Based on these checks, the bank sends an authorization code back to the merchant, either approving or declining the transaction.
Advantages of card purchase authorization
- Protects cardholders from unauthorized transactions.
- Ensures instant approvals or declines of transactions.
- Helps to identify and block suspicious transactions.
Disadvantages of card purchase authorization
- Legitimate transactions can sometimes be declined due to overly stringent security checks.
- A technical glitch can disrupt the authorization process.
- Continuous monitoring of transactions might raise concerns about the privacy of personal data.
