Pre-Authorization
A temporary hold placed on a cardholder's available credit or funds to verify the card is valid and has sufficient balance, without immediately capturing the full payment amount.
Pre-authorization reserves a specified amount on a customer's card without immediately charging it, confirming that funds are available for a future transaction. The authorization hold remains in place for a period determined by the card network (typically 3-31 days depending on merchant category), during which the merchant can capture the final amount. If no capture occurs before the hold expires, the authorization automatically releases and the funds become available to the cardholder again.
This payment method is commonly used in industries where the final transaction amount is unknown at the time of initial authorization. Hotels pre-authorize cards at check-in to cover room charges and incidentals, capturing the final amount at checkout. Car rental companies hold amounts to cover the rental fee and potential damages. Restaurants pre-authorize the meal amount and capture the final total including tip after the customer signs. Gas stations place small authorization holds before pumping, then capture the actual fuel cost.
The pre-authorization amount can differ from the final captured amount, though capture amounts exceeding the original authorization by more than 15-20% may be declined and require a new authorization. Merchants must capture pre-authorizations before they expire or process a new authorization for the final amount. Failure to properly manage pre-authorizations can result in customer dissatisfaction when holds remain after transaction completion, as the release timing depends on the issuing bank's policies.
Related Content
Optimize Your Payment Processing
Let Verisave analyze your merchant statement to identify hidden fees and misconfigurations related to pre-authorization.
Get a Free AuditRelated Terms
3D Secure
An authentication protocol for online card transactions that adds an additional verification layer between the cardholder and issuing bank, shifting fraud liability from merchants to card issuers when properly implemented.
ACH Payment
Automated Clearing House payment is an electronic bank-to-bank payment method that transfers funds directly between bank accounts through the ACH network, typically used for direct deposits, bill payments, and recurring transactions.
Acquirer
A financial institution that processes credit card payments on behalf of merchants, maintains merchant accounts, and facilitates the settlement of funds from card-issuing banks to merchant bank accounts.
Address Verification Service (AVS)
A fraud prevention tool that compares the numeric portions of a billing address provided during a transaction against the address registered with the card-issuing bank, returning match result codes to help merchants assess transaction risk.
Aggregator
A payment service provider that enables multiple merchants to process card transactions under a single master merchant account rather than each merchant having their own dedicated merchant account, common with services like Square, Stripe, and PayPal.