How Credit Card Authorization Works?
Credit card authorization is a crucial process in online transactions, enabling merchants to ensure that a customer's card has sufficient funds and is valid for purchases.
This process involves several key players, including the cardholder, merchant, acquiring bank, issuing bank, payment network, and payment gateway providers. In this technical overview, we will explore the intricacies of the online credit card authorization process and how each component works in unison to enable seamless transactions.
To ensure data security, the merchant's system encrypts the cardholder's information using Secure Socket Layer (SSL) or Transport Layer Security (TLS) protocols. The encrypted data is then transmitted to the acquiring bank, which acts as the intermediary between the merchant and the payment networks.
The issuing bank examines the transaction details and checks the cardholder's account for available credit, card status (e.g., active or expired), and any possible security concerns (e.g., potential fraud). Based on this analysis, the issuing bank generates an authorization response code.
Finally, the authorized transaction is queued for settlement, which transfers funds between the acquiring and issuing banks. Settlement typically occurs within 1-3 business days when the transaction amount is debited from the cardholder's account and credited to the merchant's account.
By securely transmitting cardholder information and verifying the transaction's legitimacy, the process ensures a safe and efficient exchange of funds between cardholders and merchants.