Credit Card Authorization: How does it work?
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01 JULY, 2023

In today's digital age, credit card transactions have become a norm, making credit card authorisation a crucial part of the payment process. So it is important for you to learn the significance of credit authorization, including the credit card charge authorization form, for secure payment, ensuring smooth transactions.

Join us as we delve into the world of credit card authorisation, exploring its working, potential pitfalls, and best practices for seamless payments.

What is Credit Card Authorisation?

Credit card authorisation is a crucial step in the payment transaction process, where the card issuer validates the cardholder's details and verifies whether the transaction can be approved or declined. This process ensures the funds are available for the purchase and that the cardholder's account is in good standing.

Kotak Mahindra Bank understands the significance of credit card authorisation, providing a robust infrastructure to ensure secure and efficient customer transactions. By leveraging advanced technologies, the Bank streamlines the authorisation process, giving cardholders the confidence to transact easily and safely.

How Does the Card Authorisation Process Work?

The credit card authorisation process involves a seamless interaction between the cardholder, merchant, and card issuer (in this case, your bank). Let's explore each step of this process:

1. Cardholder Initiates Transaction

The cardholder begins the transaction by swiping, inserting, or providing their credit card details online. The merchant sends this information and the transaction amount to the payment gateway.

2. Merchant Sends Authorisation Request

The payment gateway forwards the transaction details to the bank for the outstanding authorisation amount. The bank receives the request and initiates the authorisation process.

3. Card Issuer Evaluates the Transaction

The bank assesses the cardholder's account details, including available credit, account status, and past transaction history. The bank uses advanced algorithms to determine whether the card is authorised or not and the transaction can be approved.

4. Authorisation Response

After evaluating the transaction, the bank sends an authorisation response to the merchant via the payment gateway. The merchant receives the answer, and the transaction proceeds accordingly.

What is a Card Authorisation Hold?

A card authorisation hold, or pre-authorisation, is a temporary hold on the cardholder's available credit for a specific transaction amount. This hold ensures the cardholder is within their credit limit before completing the transaction.

The bank implements authorisation holds to safeguard the cardholder's credit and prevent overcharges. The hold is released when the transaction is completed or after a specified time, generally within a few business days.

Why Does Card Authorisation Fail?

Despite the meticulous processes in place, card authorisation may sometimes fail. Here are some common reasons:

1. Insufficient Funds

The authorisation request is only accepted if the cardholder's available credit equals the transaction amount. This is why Kotak Mahindra Bank provides its customers with real-time credit alerts and notifications, allowing them to stay informed about their credit usage.

2. Expired Cards

An expired credit card is not authorised for transactions. Kotak Mahindra Bank proactively issues customers new credit cards before they expire, ensuring a seamless payment experience.

3. Communication Errors

Technical glitches or communication failures between the merchant's payment gateway and the bank can sometimes lead to authorisation failures.

4. Security Concerns

In suspected fraud or unusual activity cases, the bank may decline authorisation to protect the cardholder's account. For example - to avoid authorisation failures, Kotak Mahindra Bank recommends its customers to keep their contact information updated, maintain sufficient credit limits, and be vigilant for any unusual activity on their credit cards.

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Best Practices for Improved Authorisation Rates

To ensure seamless and successful authorisation rates, here are some of the best practices:

1. Customer Education

Banks must educate their customers about the importance of timely payments and maintaining a healthy credit profile. Customers can make informed financial decisions through regular communication and financial literacy programs.

2. Robust Fraud Detection

The bank employs advanced fraud detection mechanisms to identify and prevent fraudulent transactions. This helps identify sudden changes in cardholders’ spending patterns. This protects both merchants and cardholders from unauthorised use of credit cards.

3. Real-Time Alerts

Customers receive real-time transaction alerts to stay informed about their credit card usage and in case when their card transaction is not authorised. It ensures customers know their credit limits and avoid exceeding them.

4. Secure Payment Gateways

The bank partners with secure and reliable payment gateways to process authorisation requests without any hurdles. Kotak Mahindra Bank's commitment to providing a seamless credit card authorisation experience has earned it the trust of millions of customers nationwide.

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Credit card authorisation is the cornerstone of secure and smooth payment processing. Kotak Mahindra Bank's dedication to providing a robust authorisation infrastructure ensures a hassle-free experience for merchants and cardholders. By adhering to best practices and staying informed, customers can confidently navigate credit card authorisations and make well-informed financial decisions.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.