Payment Authorization

Payment authorization is the process where a merchant sends a transaction request to the issuing bank (the cardholder’s bank), and the bank decides whether to approve or decline the transaction based on the availability of funds or credit in the cardholder’s account. The merchant receives an authorization response code from the card association, typically consisting of two digits (e.g., 00) or a letter and number (e.g., N1). 

There are over 50 different codes, varying for each card association, payment processor, or gateway. Despite the variety of codes, the issuer will advise merchants to either approve or decline the pending transaction based on the received code. This crucial step ensures a smooth and secure payment process for both the customer and the merchant.

After receiving the authorization response code, the merchant must take appropriate action to complete the transaction. If the code indicates approval (such as “00”), the merchant can proceed with the sale, and the funds will be reserved in the cardholder’s account for settlement. However, if the code suggests a decline (like “N1”), the merchant should inform the customer about the unsuccessful transaction and offer alternative payment options. 

Promptly handling declined transactions helps maintain customer satisfaction and prevents unnecessary delays in the purchase process. Additionally, it aids in reducing the potential for chargebacks, as declined transactions due to insufficient funds or other issues can lead to disputes if not resolved efficiently. A smooth and reliable payment authorization process contributes to a positive customer experience and establishes trust between the merchant and the cardholder.