Credit & Debit Card Authorization & Capture


The credit card payment systems that process payments through Visa, Mastercard, Discover, etc., require all merchants to process sales in two steps. First, the sale is, “authorized.” In this process, the customer’s payment information is sent to the credit card processor who queries the balance of the account being used, to insure that funds are available. If successful, the authorization is returned to the merchant as, “successful,” and a hold is placed on the account by the customer's bank in the amount of the proposed sale. At this point, funds are deducted from the available balance of the customer’s account and the proposed sale will typically show as, “pending.” The customer’s bank is now committed to honoring the charge, provided it is completed by the merchant before the hold expires. They place the hold to insure that the customer does not spend the money elsewhere, prior to this charge being completed, because the bank would then be, “on the hook,” for that money. Note that the funds have not actually been sent to the merchant at this point – they are only held against the account by the customer’s bank, pending completion or, “capture,” of the sale.


The second step is the, “capture,” of the sale, where the merchant confirms that the sale has been completed and the money is actually moved. The customer’s online banking would then show that the transaction has moved from, “pending,” to completed card activity. Depending on the merchant, the capture of the sale may happen immediately, may be delayed until the end of day, or, as is the case with most online sales, the capture may be delayed until the merchandise is ready to ship.

The Problem

There are several situations where this system can cause problems for customers. The first, and most troublesome, is when a customer enters an incorrect security code – that little three-digit number on the back of the card. As long as the money is available, the credit card processor will approve the authorization, and a hold will be placed. But, if the merchant requires a correct security code, the sale will not be approved. If the customer tries to enter the purchase multiple times with incorrect codes, they can end up with multiple holds against their account. This can be a real issue when purchasing large items, especially when using a debit card, where the funds are held against the customer’s checking balance.

The second problematic situation is when an order is canceled. The authorization, and resulting hold, occurs at the time of order. But, the hold is handled by the bank, not the merchant. And, the bank has no way of knowing that the order has been canceled. Because they have promised to honor the charge, they typically do not allow customers to request a release of the hold. And, merchants have no way of doing so through the credit card system. In short, the customer is stuck, until the hold expires. The hold expiration date is set by the customer’s bank, and can range anywhere from three to ten days. If the sale is not captured during that time, the bank releases the hold.

Use Caution

It seems that every few years, we run across a situation where a customer is inconvenience by one of the above scenarios. We will always do everything in our power to help our customers and insure satisfaction with their purchases.  And we recognize that unexpected holds to a checking account can result in overdrafts, unpaid checks, and other serious consequences.   Unfortunately, if we want to accept credit and debit card payments, this is how the credit card system works.  Please recognize that this is not our system - it is the same for all merchants.  And, releasing authorization holds is not in our power. </p>

<p>So, please use caution any time you attempt a payment and receive a decline. If the decline is caused by an invalid security code (or on some sites by an incorrect billing address), you may see a hold on your bank account for each declined attempt. And, please be aware, when canceling an order, that merchants have absolutely no way of canceling a bank's hold - they can only cancel their processing of the order and prevent the actual capture/completion of the charge. </p>